Sr Trading vs. Superitendent Of CGST And Cx Group - 29, Circle - 6, Kolkata Audit - 1, Commissionerate, Kolkata.

Facts

The petitioner, SR Trading, challenged an audit observation dated July 4, 2023, issued by the Superintendent of CGST & CX, Kolkata. The petitioner argued that they were not granted the mandatory 15 days to respond to the show-cause notice. Furthermore, they contended that the audit observation was issued as a final observation without first providing a draft observation for them to challenge. The petitioner also argued that no demand could be raised based on such an observation. The respondent CGST authority admitted a procedural infraction regarding the 15-day response period. They clarified that the impugned observation was a draft, not final, and the petitioner was entitled to file objections. The respondent also conceded that a demand could not be raised at this draft stage.

Held

The Court held that there was a procedural infraction in not granting the petitioner a clear 15 days to respond to the show-cause notice. Regarding the nature of the observation, the Court accepted the submission of the CGST authority that the impugned audit observation was a draft observation and not a final one, and the petitioner was entitled to file exceptions or objections to it. Consequently, the Court found that raising a demand based on this draft observation was not tenable at this stage. The Court did not go into the merits of the legality of the draft assessment itself. The operative direction was to grant liberty to the petitioner to file their exception/objection to the draft audit observation within four weeks. The CGST authority was directed to consider and dispose of the objections within 30 days of receipt by a reasoned and speaking order. No coercive action was to be taken against the petitioner until a final decision was made on the objections. The issue of the legality of the draft assessment itself was expressly left undecided.

Key Issues

1. Whether there was a procedural infraction by not granting the petitioner a clear 15 days to respond to the show-cause notice, as required by law? 2. Whether the impugned audit observation was a final observation, and if so, whether it was validly issued without first providing a draft audit observation to the petitioner for objection? 3. Whether a demand for tax can be raised based on the impugned audit observation? Petitioner's arguments: The petitioner argued that the 15-day response period was not adequately provided. They also contended that the audit observation was final and should have been preceded by a draft observation. Finally, they asserted that no demand could be raised on the basis of the impugned observation. Revenue's arguments: The CGST authority admitted the procedural infraction regarding the 15-day response period. They argued that the impugned observation was a draft, not final, and the petitioner could file exceptions. They also conceded that raising a demand based on a draft observation was not tenable at this stage.