Whether a company that GST registration has been canceled can still be audited by authority for tax liabilities from a period before cancellation.

Issue- Whether a company that GST registration has been canceled can still be audited by authority for tax liabilities from a period before cancellation.

Background:

• The company's GST registration was cancelled in January 2020.
• In March 2023, the government initiated an audit of the company for the period before cancellation (2017-2020).
• Based on the audit, the government issued a show cause notice and subsequently a tax demand order for alleged irregularities.

Company's Argument:

• The company argued that since their registration was cancelled, they couldn't be subjected to an audit under Section 65 of the CGST Act, which applies only to registered persons.
• They relied on a Madras High Court judgment Tvl. Raja Stores vs. The Assistant Commissioner (ST) [2023 TAXONATION 1276 (MADRAS)] supporting this view.

Government's Argument:

• The government countered that Section 29(3) of the CGST Act allows tax authorities to pursue outstanding dues even after registration cancellation.
• They argued that the audit was valid as it covered the period when the company was registered.
• They pointed out that the company did not challenge the initial audit notice and only contested the demand order.
• The government questioned the company's motives, suggesting they fraudulently availed tax benefits and then cancelled their registration to avoid scrutiny.

Court's Decision:

• The High Court sided with the government.
• The court interpreted Section 65 broadly, including previously registered companies within its scope for audits concerning past periods.
• They noted that the company participated in the audit process by submitting a reply to the show cause notice.
• The court found no merit in the company's argument and dismissed the writ petition with costs.

Topic-Ashoka Fabricast Pvt. Ltd. Versus Union of India

Citation-2024 TAXONATION 1146 (RAJASTHAN)

Section 65. Audit by tax authorities.[Rule 101, Rule 101(2) & Rule 101(5)]

(1) The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

(2) The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.

(3) The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.

(4) The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit:

Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.

Explanation.–For the purposes of this sub-section, the expression “commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

(5) During the course of audit, the authorised officer may require the registered person,—

(i) to afford him the necessary facility to verify the books of account or other documents as he may require;

(ii) to furnish such information as he may require and render assistance for timely completion of the audit.

(6) On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

(7) Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.

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