In this present case the petitioner was served with a notice for conducting audit after cancellation of registration. It filed writ petition to challenge the audit notice issued after cancellation of GST registration & subsequent assessment order and submitted that Section 65 of CGST Act, 2017, applies only to registered persons. It was also contended that since the foundation of the proceedings was contrary to the mandate of the CGST Act, any assessment order passed in pursuance thereof, deserves to be quashed.
The petitioner argued that since they had cancelled their GST registration, they were no longer liable to undergo an audit under Section 65 of the CGST Act, which applies only to registered persons. The petitioners also placed reliance on Tvl. Raja Stores v. The Assistant Commissioner (ST).[1] However, the respondents contended that the cancellation of registration does not absolve the petitioner from their tax liabilities accrued during the registration period.
The Hon'ble High Court examined Section 65(1) of the CGST Act, which empowers authorities to audit any registered person for a specified period. It also considered Section 29(3), which clarifies that cancellation of registration does not discharge liabilities incurred before cancellation to deny the applicability of the Tvl Raja Stores case relied upon by the petitioners. The respondents asserted that the audit was valid as it pertained to the period when the petitioner was registered. The judgment highlighted that despite cancellation, liabilities for the period of registration persist under the CGST Act. It was noted that the audit process was duly followed, including issuing a show cause notice and considering the petitioner’s objections. It cited precedents and legislative intent to affirm that audit rights extend to periods when the entity was registered, regardless of subsequent registration cancellation.
W&B Comments: This instant case provides much needed clarity on whether an audit can be initiated against an entity whose registration has now been cancelled. The Hon'ble Rajasthan High Court has expressly clarified the interpretation of Section 29 of the CGST Act and has concluded that regardless of the present status of the registration of the taxpayer, it does not absolve or eliminate the requirements to remit the existing tax dues. And since the audit is pertaining to a period when the petitioner did indeed hold a valid registration, conducting an audit for that period is well within the rights of the department.
[1] MANU/TN/6752/2023