Delhi HC: GST Audit Can’t Be Completed Without a Reply, Violates CGST Rule 101(4)

The Delhi High Court ruled in an important decision to finalise an audit report without duly considering the reply of the taxpayer breaches the mandate of Rule 101(4) of the Central Goods and Services Tax (CGST) Rules, 2017. Towards the rule, the court delivers clarity.

The applicant, Dhruv Medicos Pvt Ltd., is in the business of medicine distribution, was subjected to an on-site audit from 20th to 25th March 2025. Following this, on 28th March 2025, an Audit Memo was issued, but was received by the applicant on 5th April 2025.

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After that, the company asked for the basis and calculations underlying the memo, which was shared dated 14th May 2025. The GST authorities, even after this, have finalised the audit findings as early as 29th April 2025, before the taxpayer files its response dated 19th June 2025.

Mr. Preetam Singh, the counsel of Dhruv Medicos, claimed that before the response of the taxpayer, the premature finalisation of the audit report was in direct violation of Rule 101(4).

The rule remarks that the “proper officer shall finalise the findings of the audit after due consideration of the reply furnished,” citing the mandatory nature of such acknowledgement if a response is provided.

The Court, including Justice Prathiba M. Singh and Justice Shail Jain, acknowledged this procedural lapse.

As per the bench, “A perusal of the expressed provision shall specify that it uses the language ‘may inform the registered person’ and ‘the said person may submit his response. The question would be whether the data and the furnishing of the reply are obligatory or not.

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The language of the provision makes it abundantly clear that, insofar as the findings of the Audit are concerned, if there is a reply, the same would have to be considered before finalising the findings, as the language used in the said provision is ‘shall’.

In reply to the challenged Show Cause Notice, the Court stayed additional proceedings due to the significance of Rule 101(4) in terms of interpretation and its potential impact on due process.

It said that on March 25, 2025, the applicant had deposited ₹40,10,153 under protest and directed the department to keep the money in a fixed deposit, the specifics of which need to be furnished in an affidavit.