GST Audit Can Cover Period After Backdated Cancellation Date When Cancellation Order Came Later: Delhi HC

The Petitioner’s GST registration, granted in July 2017, was the subject of a cancellation application filed on 11 January 2020, seeking cancellation with effect from 31 December 2019.

While that application remained pending, the Respondent issued a notice under Section 65 of the CGST Act on 15 September 2022, proposing an audit for 1 July 2017 to 31 March 2021.

In an earlier writ petition seeking cancellation from 31 December 2019, the Petitioner did not disclose the audit notice, although it had replied to it on 3 May 2023; the High Court directed cancellation with effect from the requested date.

The registration was subsequently cancelled retrospectively, and the Petitioner brought this petition to quash the audit notice and related proceedings.

Section 2(13) of the CGST Act defines an audit as an examination of a registered person’s records, returns and documents to verify compliance; Section 2(94) defines a registered person by reference to registration under Section 25. Section 65 authorises audit of any registered person, while Rule 101 of the CGST Rules provides for the audit period and notice.

Under Rule 21A, a cancellation application suspends registration pending completion of the cancellation proceedings but does not itself terminate registration. Section 29(3) preserves liabilities and obligations relating to periods before cancellation.

Reading these provisions contextually, a person whose registration was granted may be audited in respect of records and conduct referable to that registration, even if the registration is later cancelled retrospectively.

The Court adopted the contextual approach in L.J. Victoria Properties Private Limited v. Union of India and agreed with its criticism of the narrower construction in Tvl. Raja Stores v. Assistant Commissioner (ST); it treated Ashoka Fabricast Private Limited v. Union of India as rejecting an absolute bar to audit after cancellation.

The Court held that Section 65 audit examines past records and compliance, so “registered person” in that context is not limited to a person whose registration remains effective when the audit occurs.

The Petitioner’s registration had been granted, and its cancellation application remained undecided when the audit notice was issued; subsequent retrospective cancellation did not erase the historical fact of registration or place records relating to it beyond audit.

The Court further held that the order treating post-cancellation returns as void and non-est did not, by itself, eliminate the underlying records or transactions from audit scrutiny; any consequential action would still have to meet the requirements of the applicable statutory provision.

The Court declined to curtail the stated audit period, while clarifying that the audit could not disregard the retrospective cancellation or presume post-cancellation supplies or tax liability.

Independently, the Petitioner’s failure to disclose the audit notice in the earlier proceedings, despite its materiality and the Petitioner’s awareness of it, weighed against discretionary relief.

It dismissed the writ petition, vacated the interim stay, and left open the Respondent’s right to seek modification of the order in the earlier writ petition in accordance with law.