The Bombay High Court has held that Section 65 of the SGST Act would be applicable for conducting the audit of a financial year when a person was registered, although, on the date of ordering the audit, such a person ceases to be registered voluntarily.
The bench of Justice M. S. Sonak and Justice Jitendra Jain has observed that provisions of Section 65 of the SGST Act, read with Rule 101, give sufficient and adequate opportunity to a noticee to explain his case before any audit report is prepared. If an assessee has complied with all the provisions of the Act or Rules and has not defaulted in payment of tax or has not made short-payment of tax or has not wrongly availed input tax credit or refund, then, there should not be any hesitation on the part of the noticee to make his submissions and come clear rather than to obstruct the audit proceeding.
Table of Contents
Background
The petitioner/assessee was engaged in the rental and leasing services of commercial properties and other ancillary activities relating to the same.
The petitioner has challenged the notice issued under Section 65 of the MaharashtraGoods and Services Tax Act, 2017 (SGST Act) in Form No. GST ADT-01 read with Rule 101 of the Goods andServices Tax Rules, 2017 by which the respondents seek to conduct an audit for the financial year 2020-21. The petitioner challenged the preliminary audit findings dated 11 October 2024.
Arguments
The assessee contended that since the petitioner’s registration has been cancelled vide order dated 2 May 2023 and in the said order, it is stated explicitly that no amount is payable by the petitioner, provisions of Section 65 of the SGST Act which deals with audit would not be applicable. It is his submission that the provisions of Section 65 of the SGST Act would apply only to a registered person and not to a person whose registration has been cancelled. He further submits that since there is no tax due determined before or after the date of cancellation, provisions of Section 29(3) of the SGST Act would also not be applicable.
The department contended that the audit is proposed to be conducted for the period when the petitioner was a registered person and, therefore, the authority has exercised its jurisdiction correctly inaccordance with the provisions of Section 65 of the SGST Act.
The department argued that even if the registration is cancelled, such a person is liable for tax or other dues determined before or after the date of cancellation as perSection 29(3) of the SGST Act.
Relevant Provisions
Section 2 (94) of the SGST Act defines “registered person” to mean a person who is registered under Section 25 but does not include a person having a Unique Identity Number.
The definition excludes a person having a Unique Identity Number. If the legislature intended to exclude a registered person whose registration has been cancelled from the ambit of Section 2(94), then same would have been expressly provided for.
The fact that only a person having a Unique Identity Number is excluded from the definition of the registered person would clearly show that for thepurpose of the SGST Act, ‘registered person’ would include a person who at any point in time was granted registration certificate though subsequently registration may have been cancelled.
Section 2(13) defines “audit” to mean the examination of records, returns and other documents maintained or furnished by a registered person under this Act or Rules or under any other laws for the time being in force, for the purpose of verifying the correctness of turnover declared, tax paid, refund claimed and input tax credit availed and to assess his compliance with the provisions of this Act or the Rules made thereunder.
Most of the phrases use the past tense, implying that an audit is concerned chiefly with the documents maintained or furnished, turnover declared, input tax credit already availed, etc.. Therefore, it gives an indication of verification of records filed by a registered person in past though subsequently he has de-registered himself.
Section 65(2) of the SGST Act provides for conducting an audit at the place of business of the registered person.However, this sub-section of conducting an audit at the place of business is discretionary since the phrase ‘may’ isused to qualify the audit venue. In the case of a person who has subsequently de-registered himself, an audit can beconducted at the place of the tax authorities.
The objective of Section 65 of the SGST Act and more particularly Section 65(7) of the SGST Act for conducting the audit by tax authorities is to come to a prima facie conclusion, after giving sufficient opportunity to the noticee,about whether tax has not been paid or has been short-paid or erroneously refunded or input tax credit has been wrongly availed or utilised.
If the same is detected, the proper officer may initiate action under Section 73 orSection 74 of the SGST Act. Section 65 is in aid for initiating proceedings under Section 73 or Section 74 for recovery of tax short-paid, not paid, erroneously refunded, or input tax credit wrongly availed or utilised.
Conclusion
The court dismissed the writ petition, challenging the notice.
Case Details
Case Title: LJ- Victoria Properties Private Limited Versus UOI
Case No.: WRIT PETITION (L) NO.34267 OF 2024
Date: 19 November 2024
Counsel For Petitioner: Mahesh Raichandani
Counsel For Respondent: Himanshu Takke
