Department Audit under GST

Dear Experts,

Requesting your expert views on the following:

After issuance of audit observations under Rule 101(4), can the department proceed to issue a Show Cause Notice (SCN) under Section 73/74 without issuing the final audit report in Form ADT-02? If that is done, doesn't it lead to procedural lapse? Can this be contested by way of appeal with first appellate authority?
Once ADT-02 is issued, is it permissible to accept the discrepancies and make full payment through Form DRC-03?
If partial payment is made via DRC-03, can the remaining observations still be contested?
In case of full payment under DRC-03 for the discrepancies noted in ADT-02, is the department still allowed to issue an SCN under Section 73/74 for the same issues?

Regards,

S Ram

No, the department should not issue a Show Cause Notice under Section 73/74 without first finalizing and issuing the audit report in Form ADT-02. Rule 101(4) mandates the issuance of the audit report (ADT-02) after considering the audit observations and the taxpayer's reply. Skipping this step may constitute a procedural lapse, undermining the principles of natural justice. Yes, such procedural irregularities can be contested before the first appellate authority under Section 107 of the CGST Act.

Yes, after the issuance of ADT-02, if the taxpayer agrees with the findings and intends to make payment voluntarily, they may use Form DRC-03 to make full payment, along with applicable interest and penalty, if any. This can help in avoiding the issuance of a formal SCN under Section 73/74, subject to acceptance by the department.

Yes, if partial payment is made using Form DRC-03 for certain accepted discrepancies, the taxpayer can contest the remaining disputed issues. The department may still issue an SCN for the balance amount under Section 73 or 74, and the taxpayer retains the right to contest it during adjudication and appeal.

No, once full payment of tax, interest, and penalty (if applicable) is made voluntarily before the issuance of SCN, the department cannot issue an SCN for the same issues as per Section 73(5)/74(5). If payment is made post-SCN but before adjudication, then the SCN is deemed to be concluded. However, this is contingent upon proper acceptance and documentation of the payment made via DRC-03.