This Tax Alert summarizes a recent ruling of the Madras High Court (HC)[1] . The issue involved was whether an audit under the Central Goods and Services Tax Act, 2017 (CGST Act) can be conducted after the registration has been cancelled.
The petitioner intended to close its business and submitted an application before the proper officer for cancellation of GST registration. The concerned authority issued the order for cancellation of registration with effect from 31 March 2023. The petitioner however failed to pay the collected tax. Subsequently, the Department issued notice for conducting audit.
The petitioner filed the writ petition challenging the notice.
It contended that under Section 65 of CGST Act, the Department is empowered to conduct audit only if the unit is a registered person. As on the date, the petitioner's registration is cancelled. Hence, the Department does not have any jurisdiction to conduct audit.
Department argued that the petitioner was registered during the period for which the audit was intended, and thus, they are empowered to conduct the same.
HC observed that as per section 65, the audit can be conducted w.r.t. registered persons “for such period”, “for such frequency” and “in such manner”. When a section provides for periodical audit, the Department having failed to conduct audit for all these years, suddenly cannot wake up and conduct an audit.
Accordingly, HC quashed the notice for conducting audit. HC however, clarified that this will not preclude the Department from initiating assessment proceedings under Sections 73 and 74.
Comments
- The ruling is likely to help taxpayers where the department seeks to initiate audit proceedings post cancellation of GST registration. One may have to bear in mind that in such scenario, department will still have a liberty to do the assessment within specified timelines.
- It is relevant to note that apart from closure of business, there could be various other situations which may result in cancellation of GST registration.
