Audit Proceedings Stayed for Non-Issuance of Notice under Section 65(3) of CGST Act

Case Details:
Case Title: M/s Saboo Tor Pvt. Ltd. vs. State of Himachal Pradesh and Others
Court: Himachal Pradesh High Court
Petition No.: CWP No. 13383 of 2024
Category of Dispute: Audit Proceedings – Violation of Statutory Procedure
Date of Judgement: 22nd November 2024
Relevant Sections: Section 65(3), Section 74, Section 142(1)(a), Rule 100(2), Rule 142(1)(a) of CGST Act and Rules

Facts of the Case (Para: Entire order)

• The petitioner challenged the audit and demand proceedings initiated against them for FY 2019–20 under Section 74 of the CGST Act.

• The main grievance was the absence of a prior notice under Section 65(3), which mandates a 15 working days’ notice before conducting an audit.

• The petitioner contended that proceedings initiated through DRC-01 under Rule 142(1)(a) and Rule 100(2) were invalid for audit cases.

• Reference was made to a similar case (CWP No. 1793 of 2024) where proceedings were stayed due to non-compliance with Rule 99 and audit initiation procedures.

Question(s) in Consideration (Para: Entire order)

• Whether issuance of a notice under Section 65(3) of CGST Act is a mandatory prerequisite before initiating audit proceedings and issuing DRC-01 under Section 74?

• Whether proceedings initiated without such statutory notice can be sustained in law?

Observations of the Court (Paras: Entire order)

• The Court noted that Form DRC-01 was issued with reference to Rule 100(2) and Rule 142(1)(a), which pertain to assessment, not audit.

• It highlighted that Section 65(3) clearly requires a notice of at least 15 working days before audit commencement.

• The State failed to demonstrate any notice issued under Section 65(3).

• In absence of such notice, the Court found a prima facie case in favour of the petitioner.

Judgement of the Court (Paras: Entire order)

• The Hon’ble High Court stayed all further proceedings arising from the DRC-01 dated 24.05.2024 and the order dated 12.09.2024 passed under Section 74 for FY 2019–20.

• The matter was tagged for final consideration with CWP No. 1793 of 2024.

Between Fine Lines:

• GST audit proceedings under Section 65 must begin only after issuing a 15-day advance notice.

• Use of DRC-01 under rules meant for assessment cannot replace mandatory audit initiation process.

• Failure to issue proper notice invalidates subsequent actions like demand or adjudication.

• Courts will protect taxpayer rights where statutory safeguards are bypassed.

• Audits and assessments are distinct procedures with distinct legal requirements.

Summary of Referred Cases:

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