29.11.2022: Draft Audit Report And Final Audit Report Issued On The Same Date Not Maintainable – Orissa High Court

The Hon’ble High Court of Orissa vide its order dated 09.11.2022 in the matter of M/s Simon India Ltd. Vs. CT And GST Officer, Cuttack – II Circle, Cuttack and Another in W.P. (C) No. 26443 of 2022, set aside the final audit report issued without following the procedure prescribed under Section 65 of the OGST Act read with rule 101 of the OGST rules.

The Petitioner filed the writ petition before the Hon’ble High Court challenging the draft audit report dated 30th June, 2022 issued by the Audit Team – 1, CT & GST Circle, CU-II, Cuttack as well as the final audit report of the same date under Section 65(6) of the Orissa GST Act, 2017 (OGST Act).

Petitioner’s Submissions: –

  • Referring to rule 101(4) of OGST Rules, 2017, it was submitted on the behalf of the petitioner that no opportunity to file a reply to the draft audit report was granted and unexpectedly, on the same day the final audit report was issued by the respondents.
  • Referring to law stated in Section 65(4) of the OGST Act, it was pointed out that audit under Section 65(1) had to be completed ‘within a period of three months from the date of commencement of the audit.’ Further in terms of the proviso to Section 65(4), where the Commissioner is satisfied that the audit cannot be completed within three months then ‘for the reasons to be recorded in writing’ he may extend the period for completion of the audit ‘by a further period not exceeding six months.’

Held: –

  • The Hon’ble Court after considering the submissions made and facts of the case, found that admittedly in the present case, the audit exercise commenced on 8th October, 2021, however the three months period commenced on 22nd March, 2022, when the petitioner provided documents to the authorities.
  • The Hon’ble Court after taking note of law stated in Section 65(4) and 65(6) of the OGST Act, 2017, found that in view of the Explanation to Section 65(4) of the OGST Act, the 3-month period in the present case within which the audit had to be completed, commenced on 22nd March, 2022. Therefore, the whole audit exercise, in view of Section 65(6), had to be completed on or before 22nd June, 2022.
  • It was found by the Hon’ble Court that the respondents being aware that the deadline of 3-month had already been crossed, issued the draft audit report as well as the final audit report on the same day e., 30th June, 2022. Further on plain reading of Section 65(4) with Section 65(6) of the OGST Act and Rule 101(4) of the OGST Rules, it is evident that the procedural requirement of granting 30 days’ time to the Petitioner for filing the reply to the draft audit report, was not followed in the present case.  The Hon’ble Court on this ground only set aside the Final audit report dated 30th June, 2022 issued under Section 65(6) of the OGST Act.
  • The Hon’ble High Court relegating the petitioner to the stage, at which the draft audit report was issued on 30th June, 2022. However, even if the Petitioner is afforded an opportunity at this stage to file a reply to the above draft audit report, followed by the authorities issuing the final audit report, the original deadline of three months would be crossed on 21st December 2022.

The Hon’ble Court with the above findings, disposed of the writ petition, subject to the Commissioner extending the time for completion of audit by the maximum permissible further period of six months, with the following directions: –

  • The Petitioner will file its reply to the draft audit report accompanied by all the documents that the Petitioner wishes to rely on not later than 28th November, 2022.
  • After considering the reply of the Petitioner, the final audit report will be issued by the Opposite Party Department under Section 65 (6) of the OGST Act not later than 21st December, 2022.

Further the above directions will be subject to the Commissioner granting extension of time for the issuance of the final audit report in terms of the proviso to Section 65(4) of the OGST Act.  However, if such extension is not granted, then even the draft audit report would stand automatically quashed.

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