GST Audit Must Be Concluded Within Three Months of Final Submission; HC Quashes Belated SCN.

Issue

Whether a GST audit conducted under Section 65 of the CGST Act is valid if it is not concluded within the statutory time limit of three months from the date of the assessee’s final submission, and whether a Show Cause Notice (SCN) issued based on such a time-barred audit is legally sustainable.

Facts

An audit was conducted against the assessee for the period 2017-18 to 2022-23.
The assessee filed its final reply to the audit clarifications on October 11, 2024.
The department subsequently issued a pre-show cause notice, giving the assessee three days to reply. However, the final SCN was issued before this three-day period had even expired.
The final audit report was dated February 11, 2025, (four months after the final submission) and was communicated to the assessee on February 13, 2025.
The assessee filed a writ petition, challenging the SCN and the audit report on the grounds that the audit was barred by limitation.

Decision

The High Court ruled decisively in favour of the assessee.
It held that the GST Act mandates that an audit must be concluded within a period of three months from the date of the assessee’s final submission.
In this case, the deadline to conclude the audit was January 11, 2025 (three months from October 11, 2024).
Since the audit report was dated February 11, 2025, the audit was beyond the prescribed limitation period.
Because the SCN was a direct consequence of the time-barred and invalid audit, the SCN was also set aside.
The proceedings were relegated back to the “pre-SCN stage” to be continued in accordance with the law (if permissible).

Key Takeaways

Strict 3-Month Deadline for Audit Completion: The timeline for completing a GST audit under Section 65 is not open-ended. It must be concluded within three months, running from the date of the taxpayer’s final reply or submission.
Time-Barred Audit Invalidates SCN: An SCN that is issued based on the findings of an audit that has exceeded its statutory time limit is invalid and will be quashed.
Procedural Timelines are Mandatory: The time limits prescribed under the GST Act are mandatory jurisdictional requirements, not mere procedural suggestions.
Hasty SCN is a Flaw: The court also noted the procedural impropriety of issuing a final SCN before the reply window for the pre-SCN had closed, further highlighting the department’s flawed process.

HIGH COURT OF DELHI

Varian Medical Systems International India (P.) Ltd.

Union of India^*

PRATHIBA M. SINGH and SHAIL JAIN, JJ.

W.P. (C) nos. 1064 and 13605 of 2025
CM APPL. nos. 5273 and 55801 of 2025

OCTOBER 28, 2025

Gajendra Maheshwari, Adv. for the Petitioner. R. Ramachandran, SSC, Prateek Dhir, Adv. and Ms. Gauri Goburdhun, Sr. Panel Counsel for the Respondent.

ORDER

Prathiba M. Singh, J.-This hearing has been done through hybrid mode.

2. The present two petitions arise out of an audit which had been commenced against the Petitioner vide audit notice dated 11^th January, 2024 for the Financial Year 2017-18 (from 1^st July, 2017) to Financial Year 2022-23. Various notices were issued to the Petitioner and information was sought in the form of documents and clarifications which were duly supplied by the Petitioner vide letters dated 22^nd February, 2024, 19^th April, 2024, 6^th September, 2024 and 24^th September, 2024.

3. A draft audit report was also prepared by the Department and in respect thereof as well, certain clarifications were sought on 4^th October, 2024. The reply was given by the Petitioner to the clarification sought in the draft audit report on 11^th October, 2024.

4. After the said reply was submitted, a pre-Show Cause Notice (hereinafter, ‘pre-SCN’) was issued on 25^th November, 2024 to which a reply was permitted to be filed by the Petitioner within three days. However, surprisingly before the expiry of the said three days itself, the Show Cause Notice (hereinafter, ‘SCN’) was issued on 27^th November, 2024.

5. W.P.(C) 1064/2025 was therefore filed challenging the issuance of the SCN dated 27^th November, 2024.

6. When the said writ petition was pending before this Court, the Department finalized the audit report and communicated the same on 13^th February, 2025 to the Petitioner. Thus, a further writ petition was filed by the Petitioner challenging the said final audit report being W.P.(C) 13605/2025.

7. Before this Court, therefore, there are two writ petitions. One challenging the pre-SCN and the second one challenging the audit report dated 13^th February, 2025.

8. The submission by Mr. Gajendra Maheshwari, ld. Counsel appearing for the Petitioner is two-fold:

(i) One that the audit report was issued beyond the period of limitation prescribed under Section 65 of the Central Goods and Services Tax Act, 2017 (hereinafter, ‘CGST Act’);

(ii) The second argument being that in respect of the pre-SCN even before the time for filing the reply to the pre-SCN lapsed, the SCN was issued and hence, the SCN deserves to be quashed.

9. On the first aspect, ld. Counsel has highlighted that under Section 65(4) of the CGST Act, the audit is to be completed within three months though the said period is extendable in terms of the proviso of the said provision for a further maximum period of six months.

10. It is further submitted that the findings have to be communicated within a period of 30 days after conclusion of the audit in terms of Section 65(6) of the CGST Act.

11. The second submission is that the SCN having been issued before the period for filing a reply to the pre-SCN having lapsed, the SCN is also not tenable.

12. Mr. Ramachandran, ld. Senior Standing Counsel appearing for the Department on the other hand argues that under Section 65 of the CGST Act, the audit has to be concluded within three months but a further period of 30 days exists to communicate the said audit report.

13. Heard. The Court has considered the various dates in this matter. Firstly, insofar as the audit report is concerned, the relevant provision reads as under:

“Section 65. Audit by tax authorities.-

(1) The Commissioner or any officer authorised 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 a 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 authorised 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 utilised, the proper officer may initiate action under section 73 or section 74”

14. In terms of the above provision, the scheme of the Act is that the registered person is to be informed by way of a notice period of at least 15 days prior to the conduct of the audit. The date from when the commencement of the audit takes place is the date from when the registered person makes available the records and other documents as called for by the authorities. Further, the audit has to be then concluded within three months and within a period of 30 days, the same has to be communicated to the registered person.

15. In the present case, the final reply was filed by the Petitioner on 11^th October, 2024. The audit report bears the date of 11^th February, 2025 and the same has been communicated on 13^th February, 2025. On this aspect, the Court has considered the matter. There can be no doubt that after the final submission is made by the Petitioner, the commencement date takes place in terms of the explanation to Section 65 of the CGST Act. The audit has to, therefore, commence from 12^th October, 2024 and has to be concluded within a period of three months.

16. According to Mr. Ramachandran, ld. SSC, the audit was completed and within a further period of 30 days, the report was prepared i.e., 11^th February, 2025 and was communicated on 13^th February, 2025. The submission, therefore, that the audit was not concluded within the three-month period, would not be correct and in any case, the said period of three months is also not a mandatory period as the proviso permits further maximum period of six months.

17. In the overall circumstances when the audit report has been prepared on 11^th February, 2025 and communicated to the Petitioner on 13^th February, 2025, this Court is not inclined to hold that the same is beyond limitation.

18. Insofar as the pre-SCN is concerned, the same records specifically as under:

“You are hereby advised to pay the amount of tax as ascertained above along with the amount of applicable interest and penalty under Section 74(5) by 28/ 11/ 2024, failing which Show Cause Notice will be issued under Section 74(1).

In case you wish to file any submissions against the above ascertainment, the same may be furnished by 28/11/2024 in Part B of this Form.

This letter has been issued on the basis of discrepancies observed so for during the audit conducted on the basis of information/details/documents submitted by you. In case any contradiction, misinformation and/or non-Information on part of the audited entity comes into the notice of the department/ Audit Commissionerate / or any other tax authority in future, the Department keeps its right reserved to take action and further examine the Issue.”

19. As is clear from the above, the Petitioner was given time to file submissions till 28^th November, 2024 in Part B of the form. However, surprisingly, the authority has decided to issue the SCN itself one day before the said day expires i.e. on 27^th November, 2024 itself. Thus, this would be completely in violation of the principles of natural justice in terms of the pre-SCN itself.

20. Accordingly, the SCN is set aside. The proceedings are relegated to the pre-SCN stage. The Petitioner is now free to file its reply to the pre-SCN dated 25^th November, 2024 on or before 10^th November, 2025.

21. At this stage, the Court is informed that the Petitioner has already filed the preliminary reply to the pre-SCN dated 25^th November, 2024. Accordingly, if any further reply is to be filed to the pre-SCN, the same may be filed on or before 10^th November, 2025. After considering the said reply, the concerned authority shall decide as to whether the SCN is to be issued or not and if any SCN is issued, the same shall proceed in accordance with law.

22. Needless to add, the time during which the present two writ petitions remained pending before this Court shall not be counted for counting the period of limitation for either of the parties.

23. Petition is disposed of in these terms. All pending applications, if any, are also disposed of.