9/14/23, 9:49 AM GST Audit cannot be conducted after winding up of business

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The Hon’ble Madras High Court in TVL. RAJA STORES, REPRESENTED BY ITS PARTNER MR.
GST - States PITCHAI NADAR VERSUS THE ASSISTANT COMMISSIONER (ST) - 2023 (8) TMI 1089 - MADRAS H: Calculation
HIGH COURT held that, that Section 65 (“Audit by tax authorities”) of the Central Goods and time of finaliza

Customs Services Tax Act, 2017 (“the CGST Act”) applies only to registered businesses and concluded that H: Project Impo
authorities cannot conduct audits for businesses that have closed and further clarified that there is no differential duty
Foreign Trade Policy
barring in initiating proceeding under Section 73 and 74 of the CGST Act.
H: Violation of
Special Economic Zone
Obligations an
Facts:
H: Levy of pen
Foreign Exchange Management
M/s. Tvl. Raja Stores (“the Petitioner”) is a partnership firm, a registered taxpayer under the CGST issuance of GD
Act the Petitioner was filing monthly returns. The Petitioner intended to close the business and
H: Rebate claim
Company Laws submitted a petition before the Revenue Department (“the Respondent”). The Respondent
export of servic
Securities and Exchange Board of considered the same vide the order dated March 03, 2023, and allowed the Petitioner to close his
India business with effect from March 31, 2023. However, the Petitioner failed to pay the collected tax. H: Refund of u
Credit - The De
Insolvency & Bankruptcy Code
Subsequently, the Respondent issued the Show Cause Notice dated May 19, 2023 (“the Impugned
H: Clandestine
LLP/ Trusts/ Societies SCN”) for conducting audit for the period from 2017-2018, to 2021-2022. reliance on sta

Aggrieved by the Impugned SCN the Petitioner filed a writ before the Madras High Court. H: Dishonour o
Indian Laws
Scope of term
The Petitioner contended that as per section 65 of the CGST Act, the Respondent are empowered to
F: RATE OF TA
Wealth Tax conduct audit if the concern is a registered unit but as on the date, the Petitioner’s registration is
DENTISTS' CH
cancelled, i.e. the Petitioner is an unregistered concern. Therefore, the Respondent is not having any
jurisdiction to conduct an audit. F: ITC credit e
Service Tax
commercial ve
Central Excise Issue:
C: Clarification
shares held in
Whether the Revenue Department has right to conduct the audit under Section 65 of the CGST Act
Delhi VAT
after closure of the business? N: Central Gov
Central Sales Tax specifies the M
Held:
C: Clarification
↑
The Hon’ble Madras High Court in TVL. RAJA STORES, REPRESENTED BY ITS PARTNER MR. ITC in respect
Top
PITCHAI NADAR VERSUS THE ASSISTANT COMMISSIONER (ST) - 2023 (8) TMI 1089 - MADRAS C: Clarification
HIGH COURT held as under: under Sec 52 o

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9/14/23, 9:49 AM GST Audit cannot be conducted after winding up of business

Observed Section 65 of the CGST Act and opined that, Section 65 specifically states 'any C: Clarification
registered person’ then it ought to be construed as existence concern and the unregistered difference in In
person is exempted from the purview of the section 65 of the CGST Act. N: Supersessio
No. S.O. 2127
Held that, the Respondent can conduct an audit only while the business was operational, they
could not do so after it had closed. However, this will not preclude the Respondent from initiating H: Validity of su
during investig
assessment proceedings for the said concern under Sections 73 and 74 of the CGST Act.
H: Assessee in
Quashed the Impugned SCN, with liberty to the Respondent to initiate assessment proceedings
u/s 201(1) - TD
under Sections 73 and 74 of the CGST Act.
H: Validity of re
Our comments: assessment - H

H: Revision u/s
The judgement of the Hon’ble Madras High Court highlights the crucial importance of respecting head of income
jurisdictional limits in tax audits. While it clarifies that closed businesses are exempt from GST audits, it
also acknowledges the possibility of assessment proceedings under Sections 73 and 74 of the CGST
Act. The judgment provides essential direction for both businesses and tax authorities, influencing their
future strategies when dealing with GST audits and closed businesses.

Relevant Provision:

Section 65 of CGST Act

Audit by tax authorities

(1) The Commissioner or any officer authorized by him, by way of a general or a specific order, may
undertake audit of any registered person for such period, at such frequency and in such manner as
may be prescribed.

(2) The officers referred to in sub-section (1) may conduct audit at the place of business of the
registered person or in their office.

(3) The registered person shall be informed by way of notice not less than fifteen working days prior to
the conduct of audit in such manner as may be prescribed.

(4) The audit under sub-section (1) shall be completed within a period of three months from the date of
commencement of the audit: Provided that where the Commissioner is satisfied that audit in respect of
such registered person cannot be completed within three months, he may, for the reasons to be
recorded in writing, extend the period by a further period not exceeding six months.

Explanation - For the purposes of this sub-section, the expression "commencement of audit" shall
mean the date on which the records and other documents, called for by the tax authorities, are made
available by the registered person or the actual institution of audit at the place of business, whichever
is later.

(5) During the course of audit, the authorized officer may require the registered person,-

(i) to afford him the necessary facility to verify the books of account or other documents as he may
require;

(ii) to furnish such information as he may require and render assistance for timely completion of the
audit.

(6) On conclusion of audit, the proper officer shall, within thirty days, inform the registered person,
whose records are audited, about the findings, his rights and obligations and the reasons for such
findings.

(7) Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or
erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate
action under section 73 or section 74.

(Author can be reached at info@a2ztaxcorp.com)

By: CA Bimal Jain - September 13, 2023

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