The Gujarat High Court has held that tax authorities must inform taxpayers within a reasonable time if documents submitted for a GST audit are incomplete, while ruling that the three month statutory period for completing an audit is reckoned from the later of the date on which the required records are made available or the date on which the audit is actually instituted at the taxpayer’s place of business.
A bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati made the observations while dismissing HuberGroup India Private Limited’s challenge to the validity of a GST audit report issued on August 2, 2024.
The company had argued that the audit covering financial years 2017 18 to 2019 20 was time barred because it had furnished the documents sought by the authorities in 2022. The Revenue, however, maintained that some documents remained outstanding and that the audit commenced at the company’s premises only on June 19, 2024.
The court held that the audit report was issued within the prescribed three month period because the statute defines commencement by reference to the later of the two events.
GST audit timeline under Section 65
HuberGroup, which manufactures and supplies pigments, printing ink and other goods, received its first audit notice in Form GST ADT 01 on June 27, 2022, covering financial years 2017 18 to 2019 20.
The company said its representative appeared before the authorities on July 12, 2022, and furnished financial statements, audit reports, income tax records, GST returns, an HSN wise summary and other documents.
After the authorities sought the records again, the company said it resubmitted them by email on August 9, 2022.
A further audit notice dated November 2, 2022, sought documents for the same financial years. The company maintained that the required material had already been furnished.
In February 2023, it also furnished purchase related information and submitted voluminous sales and purchase data on a pen drive.
Another audit notice followed on February 9, 2024, covering financial years 2017 18 to 2022 23. The company again informed the authorities that records relating to the earlier years had already been furnished and subsequently supplied further material.
The audit was ultimately conducted at the company’s place of business on June 19, 2024. The final audit report in Form GST ADT 02 was issued on August 2, 2024.
Eight show cause notices dated August 2 and 3, 2024, were subsequently issued under Section 74 of the Central Goods and Services Tax Act, 2017, proposing recovery of alleged tax dues along with applicable interest and penalties.
Court applies later of document submission and audit commencement
The company challenged the show cause notices and sought a declaration that the audit for financial years 2017 18 to 2019 20 was contrary to Section 65(4) of the CGST Act.
Its principal argument was that the requisite documents had been furnished by August 9, 2022. It therefore contended that the three month period for completing the audit should have been calculated from that date, subject to the statutory provisions governing extension.
The company also argued that repeated notices in Form GST ADT 01 could not extend or restart the statutory audit period, particularly when the department had not specifically identified which documents were allegedly missing.
The Revenue opposed the petition, maintaining that the company had not furnished all documents necessary for completing the audit. It argued that the audit commenced at the company’s place of business on June 19, 2024, and that the report dated August 2, 2024, was therefore within the statutory period.
The court examined Section 65(4) of the CGST Act, which requires an audit to be completed within three months from its commencement. The Commissioner can extend the period by a further six months, subject to reasons being recorded in writing.
The Explanation to Section 65(4) provides that the commencement of an audit is determined by the date on which the records and documents called for are made available by the registered person or the actual institution of the audit at the place of business, whichever is later.
The court therefore rejected the company’s contention that the date of its claimed document submission in August 2022, by itself, determined the commencement of the audit.
The bench noted that whether all the documents sought by the department had actually been furnished remained a matter of dispute. It held that the statutory mechanism expressly requires the later of the two events to be considered.
Since the audit was actually instituted at the company’s premises on June 19, 2024, the court concluded that the audit report issued on August 2, 2024, was within the prescribed three month period.
Tax authorities must identify outstanding records
While rejecting the limitation challenge, the High Court made a significant observation on the manner in which tax authorities should handle document requests during a GST audit.
The court noted that the department had issued three notices in Form GST ADT 01 without informing the company which documents remained outstanding.
The bench said:
“However, we are of the opinion that, where a registered person furnishes documents pursuant to a notice issued under Section 65 of the CGST Act but some documents remain outstanding, the tax authorities are required to inform the registered person of the missing or outstanding documents within a reasonable time, so that the audit can be completed at the earliest.”
The court emphasised that where documents submitted by a taxpayer are considered incomplete, the department should identify the missing or outstanding records within a reasonable time rather than leave the taxpayer uncertain about what remains to be furnished.
The bench observed that the failure to communicate the outstanding documents contributed to the delay in the audit process. However, it did not hold that this procedural lapse, by itself, invalidated the audit.
The court also declined to accept the company’s contention that the earlier document submissions necessarily triggered the three month period because the factual question of whether all required records had been furnished remained disputed.
Section 74 notices not set aside at this stage
The company had also challenged the subsequent invocation of Section 74 of the CGST Act.
It argued that allegations of wilful misstatement or suppression of facts could not be mechanically made when the relevant records had already been disclosed to the audit authorities.
The Revenue defended the proceedings on the basis of the allegations raised against the company and maintained that the audit had brought the relevant issues to light.
The High Court did not finally determine the allegations underlying the Section 74 proceedings. It declined to set aside the eight show cause notices at this stage.
The court left the company free to respond to the notices and pursue the statutory remedies available under the CGST Act, including the appellate mechanism under Section 107.
The writ petition was accordingly dismissed. The court upheld the audit report from the standpoint of the statutory timeline while making clear that tax authorities should promptly identify missing or outstanding documents during the audit process.
