The Delhi High Court in the case of Dhruv Medicos (P.) Ltd. v. Deputy Commissioner Central GST, Delhi vide W.P. (C) No. 10213 of 2025 and CM APPL. No. 42602 of 2025 dated 24.07.2025, has held Audit findings must be communicated and reply considered before finalization – mandatory under Rule 101(4). Premature finalization of audit report vitiates the SCN if based solely on such report.
Facts of the case: In this case, the petitioner engaged in the business and distribution of medicines, filed petition challenging the Show Cause Notice dated 27.06.2025 issued by the CGST Department.
An on-site audit was conducted on the Petitioner from 20.03.2025 to 25.03.2025. The complete Audit Report was furnished only on 14.05.2025, but in the meantime, the Audit Report was finalized on 29.04.2025. The Petitioner furnished a detailed reply to the Audit findings on 19.06.2025, after receiving the audit details. However, the audit report had already been finalized and submitted, which led to issuance of the impugned SCN.
The Petitioner also submitted that an amount of ₹40,10,153/- was deposited on 25.03.2025 under protest, and requested the amount be retained in an FD till further orders.
Issue: Whether the finalization of the audit report before considering the reply of the registered person violates Rule 101(4) of the CGST Rules, 2017, and whether such a violation renders the subsequent Show Cause Notice liable to be stayed or quashed.
Held that:
The Court observed that though the language of Rule 101(4) uses the word “may” in regard to informing the taxpayer and receiving a reply, it uses the word “shall” in the context of considering the reply before finalising the audit findings, making that part mandatory.
Since the audit report was finalized on 29.04.2025, prior to the Petitioner’s reply dated 19.06.2025, the procedure under Rule 101(4) was prima facie violated. Though the matter is at the SCN stage, the Court found it appropriate to stay the further proceedings under the impugned Show Cause Notice considering the issue of interpretation of Rule 101(4) and procedural infirmity.
The Respondents were directed to place the amount paid by the Petitioner in a fixed deposit, and submit details by affidavit.
The Court issued notice and fixed the matter for further hearing on 17.09.2025.
To read the complete judgment 2025 Taxo.online 1742
