Parallel scrutiny and audit proceedings are valid separate actions under GST despite structural corporate changes.

By | July 7, 2026
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Parallel scrutiny and audit proceedings are valid separate actions under GST despite structural corporate changes.

Issue

Whether the revenue department can legally run separate, parallel audit-based and scrutiny-based proceedings for the same period under Sections 65 and 61 of the CGST/TNGST Act, and whether a Show Cause Notice under Section 74 is valid if it relies on a GSTR-9 and GSTR-9C mismatch to invoke the extended period for suppression.

Facts

  • Corporate Restructuring: The petitioner underwent a corporate merger and demerger approved by the NCLT effective from April 1, 2018, resulting in the transfer of unutilized Input Tax Credit (ITC) and tax liabilities of the amalgamating entity to the petitioner.

  • The Audit Route: A departmental audit under Section 65 for the periods 2017–18 to 2020–21 culminated in a final report (Form GST ADT-02). This led to the issuance of DRC-01 notices for 2018–19 and 2019–20, with orders passed on October 10, 2023. These orders were subsequently set aside via a writ petition on December 21, 2023, and revised DRC-07 notices were issued on May 24, 2024.

  • The Scrutiny Route: In a parallel track, a scrutiny of returns under Section 61 led to an ASMT-10 notice on May 16, 2023, and a pre-notice consultation in DRC-01A on December 5, 2023. The petitioner filed a reply in Form DRC-06 on December 21, 2023.

  • The Impugned Action: Following the scrutiny trail, the department issued fresh, impugned Show Cause Notices (SCNs) in Form GST DRC-01 under Section 74 on May 10, 2024, citing a structural mismatch between Form GSTR-9 (Annual Return) and Table 12F of Form GSTR-9C (Reconciliation Statement).

  • The Challenge: The petitioner challenged the fresh SCNs via writ petitions, arguing that parallel proceedings for the same period are barred and that the department could not invoke Section 74 without proving willful suppression.

Decision

  • Parallel Tracks Permissible: The High Court held that audit-based proceedings and return scrutiny-based proceedings are distinct statutory functions that can legally run separately. The impugned SCNs arose strictly from return scrutiny, whereas the earlier demands flowed from a distinct audit report.

  • Conversion and Section 74 Jurisdiction Upheld: Even if the harsh elements of fraud under Section 74 are ultimately absent, converting a demand from Section 74 to Section 73 via Section 75(2) is a mechanism available only at the post-order or appellate stage, not at the notice stage.

  • Extended Period Applicable: The Nizam Sugar principle (barring repeated notices on known facts) does not apply here. While the SCNs did not repeat the legal definitions of fraud verbatim, they prima facie disclosed a factual suppression of mismatches, establishing the jurisdictional facts needed to invoke Section 74.

  • Timelines Validated: The notices were held to be completely within the limitation period even if viewed as a Section 73 action, when factoring in the statutory annual return due dates and successive extensions granted under Section 168A. The writ petitions were dismissed. (In favour of revenue)

Key Takeaways

  • Scrutiny and Audit are Mutually Exclusive: An active audit under Section 65 does not give a taxpayer absolute immunity against a return scrutiny under Section 61. If a return discrepancy (like a GSTR-9 vs GSTR-9C mismatch) is discovered via regular electronic scrutiny, the department can independently issue an SCN under Section 74.

  • Premature Challenges to Section 74 Notice: Taxpayers cannot easily knock down a Section 74 notice at the writ stage by claiming “no fraud occurred.” Under Section 75(2), if the department fails to prove fraud during adjudication, the law automatically scales the notice down to a routine Section 73 demand rather than killing it entirely.

  • Protection of Corporate Liability Transferred: Corporate reorganizations approved by the NCLT protect business continuity but do not erase or isolate historical tax mismatches. Inherited tax liabilities and ITC components from amalgamating entities remain fully subject to departmental scrutiny tracks.

HIGH COURT OF MADRAS
Sampoornam
v.
Assistant Commissioner (ST) (FAC) / Commercial Tax Officer
C.Saravanan, J.
W.P. Nos. 29744 & 29747 of 2025
W.M.P. Nos. 33368 & 33372 of 2025
JUNE  8, 2026
Ms. G. Vardini Karthik for the Petitioner. Mrs.P.Selvi, Govt. Adv. for the Respondent.
ORDER
1. These cases were heard along with a batch of 250 Writ Petitions and as one of the 53 Writ Petitions which were finally heard on the larger issue regarding the challenge to the proceedings under Section 74 of the respective GST Enactments.
2. By a Common Order today in W.P.No.2142 of 2026 [Turbo Energy Private Limited], W.P.Nos.35967, 35970, 35974 and 35976 of 2024 [Fastenex Private Limited] and W.P.Nos.14487, 14492 and 14500 of 2025 [Ispahani Estates Private Limited], a detailed order has been passed insofar as the invocation of extended period of limitation under Section 74 of the respective GST Enactments.
3. In these Writ Petitions, the Petitioner has challenged the respective Impugned Assessment Orders in Form GST DRC-07 issued under Section 74 of the respective GST Enactments as detailed below:-
Sl. No. W.P.No. Assessment Year Date of Pre Show Cause Notice in GST DRC-01A Date of Show Cause Notice in GST DRC-01 Date of Impugned Assessment Order
1. 29744 of 2025 2017-2018 12.10.2023 26.10.2023 31.01.2025
2. 29747 of 2025 2019-2020 19.09.2022 25.09.2024 20.03.2025

 

4. The facts on record reveal that the assessee died on 01.05.2020. The returns were filed and thereafter they were scrutinized and in the course of scrutiny, intimations in GST DRC-01A were issued in the name of the deceased/assessee for the respective Assessment Years as detailed below followed by a Show Cause Notice in GST DRC-01 together with detailed Show Cause Notice.
5. In W.P.No.29744 of 2025, the Petitioner has challenged the Impugned Assessment Order which has been passed under Section 74 of the respective GST Enactments on account of a mismatch between the Input Tax Credit reflected in GSTR-2A and GSTR-3B of the Petitioner.
6. Similarly, in W.P.No.29747 of 2025, the Petitioner has challenged the Impugned Assessment Order passed under Section 74 of the respective GST Enactments wherein the Petitioner has been imposed with a Late Fee under Section 47 of the respective GST Enactments on account of the belated filing of Annual Returns under Section 44 of the respective GST Enactments in Form GSTR-9.
7. The learned counsel for the Petitioner would submit that the assessee namely Mrs.Sampoornam died on 01.05.2020.
8. Insofar Assessment Order dated 31.01.2025 impugned in W.P.No.29744 of 2025 passed for the Assessment Year 2017-2018 is concerned, the limitation for passing order under Section 73 of the respective GST Enactments would have expired on 21.01.2025 as per the decision of the Court in Tata Play Ltd. v. Union of India  (Madras) dated 12.06.2025 as modified vide Order dated 05.11.2025.
9. It is therefore submitted that since the Impugned Assessment Order was passed only on 31.01.2025 after issuing the aforesaid Show Cause Notice dated 26.10.2023 and since the said Show Cause Notice does not specify any of the ingredients under Section 74 of the respective GST Enactments to justify either the issuance of the Show Cause Notice in GST DRC-01 dated 26.10.2023 or in the Impugned Assessment Order dated 31.10.2025, it is liable to be set aside.
10. It is also submitted that the Impugned Assessment Order is also passed in contravention of Section 75 of the respective GST Enactments.
11. Insofar as W.P.No.29747 of 2025 is concerned, the learned counsel for the Petitioner would submit that the due date for filing the returns in GSTR-9 would have expired initially on 31.12.2020. However, due to outbreak of Covid-19 pandemic, the date was extended to 28.02.2021 and further extended to 31.03.2021.
12. It is further submitted that neither the intimation in GST DRC-01A dated 19.09.2022 nor the Show Cause Notice in GST DRC-01 dated 25.09.2024 have either invoked the ingredients under Section 74 of the respective GST Enactments or justified the same in the Impugned Assessment Order. Therefore, the Impugned Assessment Order is liable to be quashed.
13. It is further submitted that in the absence of any of the ingredients necessary for invoking Section 74 of the respective GST Enactments, the impugned Assessment Order is liable to be quashed.
14. That apart, it is submitted that last date for passing the Impugned Assessment Order under Section 73 of the respective GST Enactments would have expired on 31.08.2024. However, to get over the limitation prescribed under Section 73 of the respective GST Enactments, the Impugned Assessment Order has been passed on 20.03.2025 after a detailed Show Cause Notice was issued on 25.09.2024.
15. On the other hand, the Learned Government Advocate for the Respondents would defend the Impugned Assessment Order stating that the limitations under Sections 73 and 74 of the respective GST Enactments are irrelevant in the context of detailed filing of the returns contemplated in the respective Rules. Hence, it is submitted that machinery under Sections 73 and 74 of the respective GST Enactments are only intended for levying the tax that has not been paid.
16. I have considered the arguments advanced by the learned counsel for the Petitioner and the learned Government Advocate for the Respondents.
17. In the present case, the assessee expired on 01.05.2020. The factum of the death of the assessee on 01.05.2020 appears to have not been intimated to the Department. It is in this background, the intimations in GST DRC-01A followed by Show Cause Notices in GST DRC-01 were issued as detailed below:-
Sl. No. W.P.No. Intimation in GST DRC-01A Show Cause Notice in GST DRC-01 Date of Impugned Assessment Order
1. 29744 of 2025 12.10.2023 26.10.2023 31.01.2025
2. 29747 of 2025 19.09.2022 25.09.2024 20.03.2025

 

18. None of the intimations in GST DRC-01A or the above- mentioned Show Cause Notices in GST DRC-01 were replied. Thus, they resulted in passing of the Impugned Assessment Orders on the dates mentioned above.
19. It was incumbent on the part of the deponent to have informed the Department that the assessee had died on 01.05.2020. Therefore, the argument that the proceedings were initiated contrary to the mandate of Section 74 of the respective GST Enactments cannot be countenanced. In fact, the proceedings were initiated in the name of the deceased / assessee even though the assessee died on 01.05.2020 as there were no intimations about the death of the assessee.
20. This is in view of the Common Order passed in the batch today by a separate order, wherein it has been explained in detail that the threshold for invoking the extended period of limitation under Section 74 of the respective GST Enactments is much lower compared to the earlier Indirect Tax Legislations.
21. That apart, even if the proceedings under Section 74 of the respective GST Enactments were not maintainable, the proceedings under Section 73 of the respective GST Enactments were still maintainable in view of the extensions granted by the Notifications issued under Section 168A of the respective GST Enactments and in view of the decision of the Hon’ble Supreme Court in Cognizance for Extension of Limitation, In re
(SC)/[2022] 441 ITR 722 (SC) in Miscellaneous Application Nos.21 and 29 of 2022 in Miscellaneous Application No.665 of 2021 dated 10.01.2022 from time to time.
22. This has been captured by this Court in its decision in Tata Play Limited (supra) in W.P.Nos.17184 of 2024 etc., batch dated 12.06.2025 as modified by 05.11.2025 [2025 32 Centax 318]. Paragraph No.3 of the Order dated 05.11.2025 is reproduced below:-
Sl. No. Financial Year Actual / Original due date for filing Annual Return under Section 44(1) Due date extended in exercise of power under Section 44 of CGST Act through Notifications Period of limitation under Section 73(10) of CGST Act Extended time limit under Section 73(10) for issuance of order under Section 73(9) in exercise of power under Section 168A of CGST Act (upto) Limitation under Section 73(10) after exclusion of period 15.03.2020 to 28.02.2022 as per Order dated 10.01.2022 of the Hon’ble Supreme Court
1. 2017-2018 31.12.2018 05.02.2020 07.02.2020 (Notification No.06/2020) 05.02.2023 31.12.2023 (Notification No.09/2023) 21.01.2025 Adding 715 days
2. 2018-2019 31.12.2019 31.12.2020 (Notification No.80/2020) 31.12.2023 30.04.2024 (Notification No.56/2023) 27.02.2025 Adding 424 days
3. 2019-2020 31.12.2020 31.03.2021 (Notification No.04/2021) 31.03.2024 31.08.2024 (Notification No.56/2023) 28.02.2025 Adding 334 days

 

23. Section 75(2) of the respective GST Enactments also mandates that where the proceedings initiated under Section 74 of the respective GST Enactments is found to be not established, orders can be passed under Section 73 of the respective GST Enactments.
24. As the Legal Heirs of the deceased assessee the Petitioner is bound to discharge the tax liability of the deceased assessee in terms of Section 93(1)(b) of the respective GST Enactments even if the business of the deceased assessee is discontinued. For the sake of clarity, Section 93 of the respective GST Enactments is reproduced below:-
“93. Special provisions regarding liability of pay tax, interest or penalty in certain cases:
(1) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016 (31 of 2016), where a person, liable to pay tax, interest or penalty under this Act, dies, then-
(a) If a business carried on by the person is continued after his death by his legal representative on any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act; and
(b) if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under this Act, whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.”
25. Since the impugned Assessment Orders are Ex parte Orders, the impugned Assessment Orders are set aside and the cases are remitted back to the 1st Respondent to pass a fresh order on merits subject to the Petitioner depositing 10% of the disputed tax in cash from the Petitioner’s Electronic Cash Register within a period of thirty (30) days from the date of receipt of a copy of this order.
26. Within such time, the Petitioner shall also file a reply to the Show Cause Notices in GST DRC-01 dated 26.10.2023 and 25.09.2024 together with requisite documents to substantiate the case by treating the Impugned Assessment Orders dated 31.01.2025 and 20.03.2025 as an addendum to the Show Cause Notices dated 26.10.2023 and 25.09.2024.
27. In case the Petitioner complies with the above stipulations, the 1st Respondent shall proceed to pass a final order on merits and in accordance with law as expeditiously as possible, preferably, within a period of three (3) months of such reply / pre-deposit. Subject to the Petitioner complying with the above stipulations, the attachment of the bank account of the Petitioner shall also stand automatically vacated.
28. It is made clear that bank attachment shall be lifted subject to the deposit of 10% of the disputed tax as ordered above and the Petitioner not being in arrears of any other amount for any other tax period barring the amount demanded under the Impugned Assessment Orders.
29. In case the Petitioner fails to comply with any of the stipulations, the 1st Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if these Writ Petitions were dismissed in limine today.
30. Needless to state, before passing any such order, the 1st Respondent shall give due notice to the Petitioner.
31. These Writ Petitions stand disposed of with the above observations. No costs. Connected Writ Miscellaneous Petitions are closed.