2024 (2) TMI 130 - HC - GST

Fraud, wilful-misstatement or suppression of fact in audit report or not - intimation in Form GST DRC-01A was not issued to the petitioner - violation of principles of natural justice. Principal contention of the petitioner was that the audit report did not contain findings of fraud, wilful-misstatement or suppression of facts - HELD THAT - Section 65 of the CGST Act deals with audit by a tax authority and sub-section (7) thereof is particularly relevant for this case - The text of sub-section (7) indicates that the audit conducted under sub-section (1) thereof should result in the detection of tax not paid or short paid or erroneously refunded, or that Input Tax Credit (ITC) was wrongly availed or utilised. On examining the audit report, undoubtedly, it indicates that tax was not paid or short paid or that ITC was wrongly availed or utilised. Thus, the obligation imposed by statute with regard to the content of the audit report appears to be satisfied. Learned counsel for the petitioner contended that the audit report should also contain findings of fraud or wilful-misstatement or suppression of facts. There is nothing in the language of Section 65 to indicate that the audit report should contain such findings. On the contrary, subject to the audit report disclosing the aforesaid, subsection (7) of Section 65 prescribes that the proper officer may initiate action under Section 73 or 74. Thus, the relevant provision indicates that the proper officer has the option. The second ground canvassed by the petitioner was that intimation in Form GST DRC-01A was not issued. Although Rule 142(1) of the CGST Rules was amended, learned counsel submits that such amendment is prospective. The show cause notice in Form GST DRC-01A was issued on 14.12.2023, which is subsequent to the date of amendment. Therefore, even if the amendment is prospective, the amendment would apply with regard to the impugned show cause notice. The last objection of the petitioner to the show cause notice was on the basis that expenses were taken from the consolidated balance sheet. This contention does not justify interference with the show cause notice under Article 226 of the Constitution of India. Thus, no case is made out to interfere with the impugned show cause notice - petition dismissed.

Summary

Issues Involved:
The issues involved in this case are the challenge to a show cause notice dated 14.12.2023 under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) on the grounds that the audit report did not contain findings of fraud, wilful-misstatement, or suppression of facts, that an intimation in Form GST DRC-01A was not issued, and that the show cause notice considered expenses from the consolidated balance sheet rather than the relevant unit's stand-alone figures.

Audit Report Findings:
The petitioner, a public limited company engaged in the supply and servicing of light vehicles, challenged the show cause notice on the basis that the audit report did not include findings of fraud, wilful-misstatement, or suppression of facts as required for action under Section 74 of the CGST Act. The respondent argued that Section 65 of the CGST Act does not mandate such findings in the audit report for initiating action under Section 74. The court noted that the audit report did indicate tax not paid or short paid, or Input Tax Credit (ITC) wrongly availed, satisfying the statutory requirements. It was clarified that the audit report need not contain findings of fraud, and the proper officer has the discretion to initiate action under Section 74 based on the audit findings.

Intimation in Form GST DRC-01A:
The petitioner contended that an intimation in Form GST DRC-01A was not issued, citing the amendment of Rule 142(1) of the CGST Rules. The respondent argued that the amendment was prospective and not applicable to the present proceedings. However, the court found that the show cause notice was issued after the amendment, and therefore the amended rule applied. The absence of the intimation did not warrant interference under Article 226 of the Constitution of India.

Expenses Consideration:
Another objection raised by the petitioner was that the show cause notice considered expenses from the consolidated balance sheet instead of the relevant unit's stand-alone figures. The court held that this contention did not justify interference with the show cause notice. Ultimately, the court dismissed the writ petition, allowing the petitioner to respond to the show cause notice without any costs imposed.

Separate Judgement:
No separate judgment was delivered by the judge in this case.