The Gujarat High Court has held that the three-month period for completing a GST audit must be calculated from the later of two events: the taxpayer making the required records available or the actual institution of the audit at its place of business.

The bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati upheld an audit report issued on August 2, 2024, after the audit commenced at the company’s premises on June 19, 2024. The company had argued that the audit was time-barred because it had supplied the relevant documents much earlier, following notices issued in 2022.

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The Bench rejected the limitation challenge. However, it also observed that tax authorities must inform taxpayers about missing or outstanding documents within a reasonable time to facilitate timely completion of audits. 

The petitioner/assessee, which manufactures and supplies pigments, printing ink and other goods, received its first notice in Form GST ADT-01 on June 27, 2022, for an audit covering financial years 2017-18 to 2019-20.

According to the company, 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. When the authorities sought the records again, the company 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 it had already supplied the required material. In February 2023, it also furnished purchase-related information and submitted voluminous sales and purchase data on a pen drive.

Another notice followed on February 9, 2024, covering financial years 2017-18 to 2022-23. The company again communicated that records for the earlier years had already been furnished and subsequently supplied further material.

The audit at the company’s place of business was ultimately conducted 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, followed under Section 74 of the Central Goods and Services Tax Act, 2017, proposing recovery of alleged tax dues, interest and penalties.

The company challenged the show-cause notices and sought a declaration that the audit undertaken in 2024 for financial years 2017-18 to 2019-20 violated Section 65(4) of the CGST Act.

Its principal argument was that the requisite documents had been furnished by August 9, 2022, and the audit should have been completed within three months, subject to the statutory provisions governing extension.

The company submitted that repeated notices in Form GST ADT-01 could not cure the authorities’ failure to complete the audit within the prescribed period. It also argued that the department had not specifically identified which documents were allegedly missing.

It separately questioned the invocation of Section 74, contending that allegations of deliberate misstatement or suppression could not be mechanically raised when the relevant records had already been disclosed to the audit authorities.

The department opposed the petition, arguing that the audit commenced at the company’s place of business on June 19, 2024, and concluded with the report issued on August 2, 2024.

It maintained that the company had not furnished all the necessary documents earlier and had delayed the proceedings. On that basis, the department submitted that the audit was completed within the three-month period prescribed by Section 65(4).

The department also defended the invocation of Section 74 on allegations of wilful misstatement and suppression. Those allegations were disputed by the company.

The central issue before the court was whether the audit report had been issued within the limitation period prescribed under Section 65.

The Bench explained that Section 65(4) requires an audit to be completed within three months from its commencement. The Commissioner may extend that period by up to a further six months, provided reasons are recorded in writing.

Crucially, the Explanation to Section 65(4) defines commencement by reference to the date on which the records and documents called for are made available, or the actual institution of the audit at the taxpayer’s place of business, “whichever is later.”

The court held that even if the company’s claim of timely document submission were accepted, that submission could not override the statutory requirement to adopt the later of the two events.

On the facts before it, the audit was actually instituted at the company’s premises on June 19, 2024. The report issued on August 2, 2024, therefore fell within three months.

The Bench also noted the factual dispute over whether all the documents sought by the department had been furnished. It declined to compel the authorities to treat the earlier document-submission date as the commencement date in those circumstances.

Although it rejected the company’s limitation argument, the court made a significant observation about the department’s handling of document requests.

The Bench said that where a taxpayer supplies documents pursuant to an audit notice but some records remain outstanding, the authorities must identify the missing documents within a reasonable time so that the audit can be completed at the earliest.

In this case, the department issued three notices in Form GST ADT-01 without informing the company which documents remained missing or outstanding. The court observed that this omission contributed to the delay.

Nevertheless, the Bench held that the audit could not be set aside merely because three notices had been issued, given the alternative basis for determining commencement expressly provided by the statute.

The court declined to set aside the show-cause notices on their merits at this stage. It stated that the company could respond to the notices and referred to the statutory appellate remedy under Section 107 of the CGST Act.

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