In The Alleppey Company Ltd. v. Assistant Commissioner & Anr., the Kerala High Court quashed a GST show-cause notice issued before the audit findings were finalised. It also quashed the later final audit report because the taxpayer had not been given the reply opportunity required by Rule 101(4) of the CGST Rules. The Court did not accept the company’s separate argument that the audit report was out of time.
What happened in the GST audit
The Alleppey Company, a registered GST taxpayer, received an audit notice in Form GST ADT-01 dated 17 January 2024 and provided the requested documents. Draft audit observations were sent on 4 July. The company asked for more time to respond, saying the observations were voluminous and covered several years.
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The department issued an audit note on 16 July, followed by a show-cause notice on 31 July and a corrigendum on 1 August. A further final audit report was issued on 3 September 2024. The company challenged the sequence, arguing that the department had not complied with Section 65 of the CGST Act and Rule 101 of the CGST Rules. The department’s position was that the company could raise its objections during the show-cause proceedings and that the writ petition was premature.
Why the Court quashed the show-cause notice
The Court distinguished between an intimation of discrepancies and final audit findings. Under Section 65(6), after completing an audit the proper officer must inform the registered person of the audit findings, rights and obligations, and reasons. Rule 101(4) provides for the officer to communicate discrepancies, allow the taxpayer to reply, and finalise the findings after due consideration of that reply.
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The 16 July audit note was an intimation of discrepancies that could be answered; the Court did not treat it as the final audit findings. But the 31 July show-cause notice relied on that note before the final observations had been issued. The Court therefore held that the notice could not stand. A taxpayer’s ability to object later in show-cause proceedings did not cure that defect in the audit sequence.
Why the final audit report was also quashed
The later report had a distinct procedural defect. The company had asked for additional time to answer the observations, but the department issued the 16 July note without addressing those requests. In the Court’s view, the taxpayer had not received the reply opportunity required by Rule 101(4) before the findings were finalised.
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Justice Ziyad Rahman A.A. stated: “Therefore, the only conclusion possible from the aforesaid proceedings is that, the statutory mandate as contemplated under Rule 101 (4) of the CGST Rules has not been followed, while finalising the audit proceedings.”
The Court rejected the separate audit-limitation argument
The company also argued that the audit exceeded the period allowed by Section 65(4). That provision sets a three-month audit period from commencement. For this purpose, the statutory explanation uses the later of the date the authorities receive the requested records and documents or the actual institution of the audit at the business premises.
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The Court found that the audit at the premises took place between 24 May and 4 June 2024, with commencement on 24 May. On the limitation argument before it, the Court concluded that the 3 September report was not time-barred. That conclusion concerned the separate duration issue; it did not validate the defective notice or the failure to honour the reply opportunity.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the judgment directs next
The Court quashed both the 31 July show-cause notice and the 3 September final audit report. It directed the competent authority to allow the company to submit objections to the 16 July observations within one month after receiving the judgment, then to finalise the audit after considering the reply as expeditiously as possible.
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The one-month period is a direction for this case, not a general GST deadline for responding to audit observations. The decision, The Alleppey Company Ltd. v. Assistant Commissioner & Anr., WP(C) No. 30354 of 2024 (identifier 2026:KER:75858), was delivered by the Kerala High Court at Ernakulam on 30 September 2026.
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What GST taxpayers can take from the ruling
- A discrepancy intimation is not necessarily the final audit finding; the procedural stage matters.
- Under Rule 101(4), the officer must provide a meaningful opportunity to reply and consider the response before finalising audit findings.
- A later show-cause proceeding does not, by itself, remedy a notice issued before audit findings are finalised.
- The Court’s ruling turned on the sequence and reply opportunity in this case. It did not establish that every audit report issued after three months is invalid; the limitation challenge here was rejected on the commencement date found by the Court.
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