Madras HC: GST Audit Limited to Registered Firms and Cannot Occur After Business Closure U/S 65

GST Audit under Section 65 of the Central Goods and Service Tax (CGST) Act, 2017 cannot be conducted after business closure, and can be performed only on registered entities, Madras High Court in a ruling witnessed.

The applicant, Tvl.Raja Stores is a partnership firm doing business in the name and style of Raja Stores, which is the registered assessee under the Goods and Services Tax Act, of 2017. Monthly returns are being paid by the petitioner without fail. The applicant has an intention to close his business and provides the petition to the authorities. After considering the authorities the same has permitted the applicant to close his business with effect from 31.03.2023.

The petitioner failed to pay the taxes they had collected. Consequently, the respondent issued a show cause notice to conduct an audit. The petitioner initially requested a delay but eventually filed a Writ Petition challenging the show cause notice in the High Court.

The petitioner’s argument was based on Section 65 of the CGST Act, which allows the respondent to audit registered businesses. Since the petitioner’s registration had been cancelled at the time, they argued that the respondent had no jurisdiction to audit them.

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A Single Bench, presided over by Justice S Srimathy, noted that the section specifically mentions “any registered person,” implying that it applies to existing registered businesses, exempting unregistered ones. However, the respondent claimed that the audit pertained to the years 2017-2018 and 2021-2022, during which the petitioner was registered, justifying their authority to conduct the audit.

The Bench pointed out that when a section provides for periodic audits, the respondent cannot suddenly decide to conduct an audit after failing to do so for years. Nevertheless, this does not prevent the respondent from initiating assessment proceedings under Sections 73 and 74 for the concerned period. Consequently, the disputed order was nullified. The Bench concluded that the respondent could still initiate assessment proceedings under Sections 73 and 74 of the Act.