M/S. V.R. Muthu And Bros. vs. The Assistant Commissioner (St) - Ii

Facts

The petitioner, M/s.V.R.Muthu and Brothers, filed two writ petitions challenging proceedings initiated by the Assistant Commissioner (ST)-II, Virudhunagar. The first petition (W.P.(MD).No.23688 of 2023) sought to quash an Audit Report in Form GST ADT-2 dated 21.09.2023. The second petition (W.P.(MD).No.23689 of 2023) sought to quash a consequential notice in Form GST DRC-01A dated 22.09.2023. The petitioner contended that following an audit on 11.05.2023, audit observations dated 25.08.2023 were uploaded on 14.09.2023, granting only five days for a reply, which included two holidays. The petitioner's request for an extension was allegedly ignored, leading to the issuance of the audit report and notice. The tax amount in dispute was Rs.3,67,48,517/-.

Held

The Court held that the respondent authority had violated the principles of natural justice by not granting adequate time to the petitioner to submit their objections to the audit report. The Court noted that the audit observations were uploaded on 14.09.2023, with a limited response period of five days, which included holidays. The petitioner's request for an extension was not considered, and the respondent proceeded to issue the audit report and notice. The Court found this to be a clear violation of natural justice. Consequently, the Court quashed the impugned audit report dated 21.09.2023. The petitioner was directed to submit their objections to the audit observations dated 25.08.2023 (uploaded on 14.09.2023) within two weeks from the date of receiving a copy of the order. The respondent was strictly directed to provide an opportunity to the petitioner before passing any further order. The consequential notice in Form GST DRC-01A was also quashed as a consequence of the first petition being allowed. The ratio decidendi is that adherence to principles of natural justice, including providing reasonable time for response, is mandatory even in audit proceedings.

Key Issues

1. Whether the respondent authority violated the principles of natural justice by not granting adequate time to the petitioner to submit objections to the audit observations and report? (Question of law and fact, concerning principles of natural justice and procedural fairness under GST law). Petitioner's arguments: The petitioner argued that the respondent failed to provide sufficient time for them to submit objections to the audit observations. The audit observations were uploaded on 14.09.2023, with a deadline of 19.09.2023, which included two holidays. This short timeframe, coupled with the rejection of their request for an extension, rendered the entire audit exercise a mere formality and violated the principles of natural justice. They contended that the respondent proceeded to issue the audit report and notice without properly considering their right to respond. Revenue's arguments: The judgment does not record any specific arguments made by the respondent.