Key Legal Aspects Discussed:

1. Acts and Sections:

   • Central Goods and Services Tax Act, 2017 (CGST Act):
     • Section 74 (Extended Period of Limitation for Tax Recovery)
     • Section 16 (Eligibility for Input Tax Credit)
   • Comptroller and Auditor General's (Duties, Powers, and Conditions of Service) Act, 1971:
     • Chapter III (Audit of Receipts Payable to the Consolidated Fund of India)

2. Legal Precedents Discussed:

   • Kiran Gems Private Limited v. Union of India (2021)
   • Union of India v. Dhanwanti Devi (1996)
   • Pooran Mal v. Director of Inspection (1974)

Ratio Decidendi:

The Court held that a show cause notice issued by the competent authorities based on discrepancies identified during the audit of government departments is not ultra vires or without jurisdiction. It emphasized that:

• CAG Audit Limits: CERA/CAG is empowered to audit government departments, not private entities. The petitioner company was not directly audited, and findings from the audit of government departments merely triggered further scrutiny.
• Jurisdiction of Authorities: Independent application of mind by GST authorities suffices to issue a show cause notice, even if CERA observations contributed to identifying discrepancies.
• Extended Limitation Period: Allegations of suppression of facts under Section 74 warranted invoking an extended limitation period for tax recovery.

1. Petitioner’s Claims (Paras 2–7):

   • The petitioner challenged a GST show cause notice dated December 7, 2023, on the grounds that it relied on a CERA audit report, which was argued to be outside the jurisdiction of the CAG.
   • Alleged lack of consideration for the petitioner's explanation and wrongful invocation of the extended limitation period were also raised.

2. Respondents’ Defense (Paras 8–12):

   • The respondents clarified that no audit of the petitioner was conducted by CERA. The audit pertained only to government departments, which uncovered discrepancies in the petitioner’s GST returns.
   • They asserted that the show cause notice reflected independent application of mind by GST authorities.

3. Court’s Observations on CAG’s Role (Paras 15–21):

   • The Court distinguished the present case from Kiran Gems, emphasizing that CAG is statutorily authorized to audit government revenue departments.
   • The petitioner’s records were reviewed during this departmental audit, but this did not constitute an audit of the petitioner itself.

4. Extended Limitation and Suppression Allegations (Paras 32–34):

   • The Court noted that the show cause notice included allegations of ITC availed in excess, suppression of value of supply, and short payment of tax. These sufficed to invoke the extended limitation period under Section 74.

5. Rejection of Premature Challenge (Paras 29–38):

   • A show cause notice reflects only a prima facie view, not a conclusive finding. Allegations of bias or a pre-determined mindset were dismissed as baseless.
   • The petitioner was given ample opportunity to respond during adjudication proceedings, and alternate remedies remained available.

6. Costs and Directions (Paras 37–41):

   • The Court dismissed the petition with costs of ₹1,00,000, directing the petitioner to deposit the amount with KEM Hospital.
   • Time to reply to the show cause notice was extended by four weeks.

Subjects:

Goods and Services Tax (GST) Compliance, Audit Jurisdiction, Input Tax Credit (ITC), and Tax Recovery Procedures.

GST Audit, CERA Observations, Jurisdiction, Input Tax Credit (ITC), Show Cause Notice, Extended Limitation, Natural Justice, Adjudication Proceedings.