Audit Report not valid when reply filed by Assessee is not taken into consideration

The Hon'ble Calcutta High Court in the case of PBL Transport Corporation (P) (Ltd.) v. Assistant Commissioner (ST) [Writ Petition No. 33477 of 2023 dated January 04, 2024] allowed the writ petition and held that the Audit Report is not valid when reply to Discrepancy Notice is not taken into consideration, leading to violation of principles of natural justice.

Facts

PBL Transport Corporation (P) (Ltd.) ("the Petitioner") has filed a writ petition challenging the Final Audit Report on the ground that there is a violation of principles of natural justice as the reply to the discrepancy notice was not taken into consideration before the issuance of Final Audit Report dated December 22, 2023 ("the Impugned Final Audit Report") by the Revenue Department ("the Respondent").

Issue

Whether Audit Report is valid when reply filed by Assessee is not taken into consideration?

Held

The Hon'ble Calcutta High Court in Writ Petition No. 33477 of 2023 held as under:

• Observed that, Rule 101(4) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules") provides that the proper officer may inform the registered person of discrepancy notice, as observed in the notice for which the said person may file reply. Thereafter, the proper officer shall finalize the findings of the audit after taking into consideration the reply furnished by the Assessee. 
• Noted that, the reply filed has to be taken into consideration and based on the reply, findings of the Final Audit Report are to be furnished. 
• Opined that, as the reply has not been taken into consideration, the Impugned Final Audit Report issued is in violation of principles of natural justice. 
• Held that, the Impugned Final Audit Report is set aside, Hence, the writ petition is allowed. 
• Directed that, the Audit Report be finalized by the Respondent only after taking into consideration the reply filed by the Petitioner.

Relevant Provision

Rule 101(4) of the CGST Rules:

"Rule 101: Audit

(4) The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished."