GST Audit Completion Does Not Bar Further Tax Proceedings for Unpaid Tax: J&K and Ladakh High Court

The High Court of Jammu & Kashmir and Ladakh has recently held that completion of a GST audit does not prevent tax authorities from initiating further proceedings for unpaid or short-paid tax.

Referring to section 65(7) of the CGST Act, the court observed,

“A plain reading thereof makes it abundantly clear that where an audit conducted under sub-section (1) of Section 65 results in detection of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer, i.e., the STO concerned, may initiate action under Sections 73 or 74 of the Act.”

A Division Bench of Justice Sanjeev Kumar and Justice Wasim Sadiq Nargal made the observation while dismissing a petition filed by a proprietorship concern engaged in works contract services.

The business had undergone a GST audit in 2024 for FYs 2017-18, 2018-19, 2019-20, 2020-21 and 2022-23, and claimed it had addressed all discrepancies flagged during the audit and paid the required dues.

However, the State Taxes Officer subsequently issued a show cause notice for FY 2022-23 and later raised a demand of ₹3,41,80,109 towards tax, interest, and penalty after the firm failed to file a response.

The firm argued that once the audit process had concluded and discrepancies had been addressed, the tax department lacked jurisdiction to initiate further proceedings.

Rejecting this contention, the Court said:

“The contrary argument advanced by Mr. Amin, learned counsel for the petitioner, that once the audit has been conducted and the discrepancies found therein have been met, the proper officer is devoid of jurisdiction to initiate proceedings under Sections 73 or 74 of the J&K GST Act/CGST Act, is contrary to what is provided under sub-section (7) of Section 65 of the Act.”

The firm also argued that it had been denied a fair hearing because it could not attend the scheduled hearings, including one date that allegedly fell on a public holiday.

The Court rejected that plea as well. observing:

“It is not the case of the petitioner that she went to attend the personal hearing on 22.03.2026 or made any request to the STO for providing her another opportunity of personal hearing. That apart, nothing prevented the petitioner from at least submitting his reply by 21.03.2026. Viewed thus, the petitioner had sufficient time to submit his reply to the show cause notice from 06.02.2026 till 21.03.2026. She chose not to submit any reply and, therefore, cannot be said to have been denied the opportunity of hearing.”

The High Court ultimately dismissed the petition, holding that the challenge was not maintainable.