The Delhi High Court has held that the Goods and Service Tax (GST) department cannot adjudicate show cause notice (SCN) based on audit reports.
The bench of Justice Vibhu Bakhru and Justice Sachin Datta has observed that the adjudicating authority shall not implicitly rely on the observations made in the audit memo or audit report. The adjudicating authority shall examine the petitioner’s response/reply to the show cause notice and independently take the decision in regard to the proposed demand.
Background
The petitioner has challenged the Show Cause Notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 and the Delhi Goods and Services Tax Act, 2017.
The notice was premised on an audit conducted under Section 65 of the CGST Act and the DGST Act, for the financial year 2017-18 and 2018-19. The notice for conducting the audit was issued on 22.04.2021 and the petitioner was called upon to produce all documents as mentioned in the notice.
The petitioner claims that it had provided all the documents as required by respondent, the Deputy Commissioner, CGST Audit-II, New Delhi during the period from 29.03.2022 to 20.04.2022. The petitioner claimed that it was once again called upon to provide documents, which it submitted by emails dated 06.05.2022 and 10.05.2022.
The petitioner claimed that despite providing all documents, the Assistant Commissioner, CGST Aduit-II, New Delhi issued a reminder letter dated 16.11.2023, which was received by the petitioner through email on 05.01.2024, alleging that the petitioner has not provided any documents as sought for.
The petitioner claimed that it immediately responded to the said reminder letter and also called upon the Commissioner, CGST Audit-II, New Delhi to drop further proceedings in connection with the audit as the last date for completion of the audit for the financial year 2017-18 had passed. However, the contention was not addressed.
Another notice department called upon the petitioner to provide further documents pertaining to the financial years 2017-18 to 2020-21. The petitioner once again responded to the notice by a letter and stated that it had provided the documents as sought for. The petitioner claims that its authorised representative also visited the office of the department.
The petitioner asserted that respondent had not issued any notice regarding the discrepancies as provided in the Rule 101(4) of the Central Goods and Services Tax Rules, 2017, yet had proceeded to issue an audit report directing the petitioner to pay certain dues including the interest and penalty. The petitioner stated that it had submitted its response to the audit memo by its emails dated 09.07.2024 to 13.07.2024. The petitioner also filed detailed reply to the audit memo on 19.07.2024.
The department issued a corrigendum and imposed additional tax liability in respect of the difference in the input tax credit (ITC) as availed by the petitioner and the purchase register. Thereafter, the adjudicating authority issued the impugned SCN.
The notice was premised on the audit report. The petitioner is essentially aggrieved in the manner in which the audit was conducted and contends that its responses have been completely disregarded.
Arguments
The petitioner contended that it would be satisfied if the order is passed directing the adjudicating authority to consider the responses to the show cause notices uninfluenced by the observations made in the audit memo or audit report.
Conclusion
The court disposed of the petition and stated that the petitioner will not be prejudiced by the audit report/audit memo in so far as the adjudication of the impugned SCN is concerned.
Case Title: Infiniti Retail Limited Versus Union Of India
Case No.: W.P.(C) 12459/2024 & CM APPL. 51863/2024
Date: 10.09.2024
Counsel For Petitioner: Prakash Shah
Counsel For Respondent: Puneet Yadav
