Facts of the Case

The petitioner, Tinton River Palms, a proprietorship registered under the CGST Act, impugned an audit report dated 31.12.2022 issued under Section 65(6) of the KGST/CGST Act, 2017, and sought re-adjudication of the underlying show cause notice dated 09.12.2022 issued under Section 65(5), after affording a reasonable opportunity to file a reply and a personal hearing. The petitioner's counsel submitted that books of accounts had been furnished with a final endorsement on 13.10.2022, but the Section 65(5) notice, though dated 09.12.2022, was actually received by the petitioner only on 23.12.2022 — and the audit report followed within seven days of that receipt.

Issues Involved

  1. Whether the audit report under Section 65(6) of the KGST/CGST Act was sustainable where the notice under Section 65(5), though extending an opportunity to respond, was received by the petitioner only seven days before the audit report was passed.

Petitioner's Arguments

  • The Section 65(5) notice, though dated 09.12.2022, was received only on 23.12.2022, and the audit report followed within seven days of that receipt, without reasonable opportunity to respond.
  • Books of accounts had already been furnished with a final endorsement issued on 13.10.2022, undermining any suggestion of non-cooperation.

Respondent's Arguments

  • The petitioner had been given an opportunity to respond to the observations vide the notice dated 09.12.2022, but failed to file a response, and therefore could not complain of lack of opportunity.

Court Order / Findings

  • The Revenue could not dispute that the Section 65(5) notice, though dated 09.12.2022, was served on the petitioner only on 23.12.2022, with the impugned audit report following within seven days of that service.
  • Given that the petitioner had furnished books of accounts with a final endorsement in October 2022, and that the notice was effectively served only shortly before the audit report, the Court held that the impugned audit report could not be said to follow a reasonable opportunity and required interference.
  • On the petitioner's undertaking to respond to the Section 65(5) notice within two weeks, the audit report dated 31.12.2022 was quashed in part, with the petitioner reserved liberty to file its response by 27.02.2023, from which date the thirty-day period under Section 65(6) would be recomputed.
  • The petition was allowed-in-part in these terms.

Important Clarification

For the purpose of assessing whether a reasonable opportunity was afforded before a Section 65(6) GST audit report is finalised, the relevant date is when the Section 65(5) notice was actually served on or received by the taxpayer, not merely the date printed on the notice — an audit report passed within days of actual service, even if weeks after the notice's date, can still be quashed for denial of reasonable opportunity.

Sections Involved

  • Section 65(5), CGST/KGST Act, 2017 – requires the proper officer to inform the registered person of audit findings/discrepancies and grant opportunity to respond.
  • Section 65(6), CGST/KGST Act, 2017 – prescribes a thirty-day period from the intimation within which the registered person may respond, before the audit report is finalised.

Decision – In Favour of

In favour of the Assessee — the audit report was quashed for denial of reasonable opportunity, with the response period recomputed from a fresh date, leaving the audit findings open for reconsideration.

Case Details

High Court of Karnataka at Bengaluru; Writ Petition No.1937 of 2023 (T-RES); Coram: Hon'ble Mr. Justice B M Shyam Prasad; Order dated 30.01.2023; CNR not indicated on the order copy.

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