GST Updates

Andhra Pradesh High Court Quashes GST Audit for Violating Section 65(3) Notice Period

Published 11 Sept 2026· 7 min read

The Story

Vardhaman Gold’s GST audit for FY 2017-18 through FY 2021-22 followed a pattern that will feel familiar to anyone who has sat through one: a notice, a discrepancy list, a chance to respond, and — eventually — a report. The trouble was in the “eventually.”

The original audit notice was dated 4 September 2023. A revised version of that notice, though, wasn’t actually uploaded to the portal until 14 September 2023. Section 65(3) of the Andhra Pradesh GST Act gives a taxpayer a clean 15 working days from receiving that notice before the audit can even proceed — a floor, not a suggestion. Counting from 14 September, that runway should have carried well into early October. Instead, the Audit Officer finalised the findings and submitted the report on 29 September 2023 — 15 calendar days, and considerably fewer working days, after the revised notice reached the taxpayer.

Sidebar: the taxpayer’s reply wasn’t even late by its own account. It was dated 28 September 2023 — one day before the audit was finalised — though the department says it only physically reached them on 3 October. Rule 101(4) doesn’t ask whether a reply arrived in time to be convenient; it says the proper officer “shall finalise the findings of the audit after due consideration of the reply furnished.” A report submitted before that reply had any chance to be considered isn’t a close call under that rule — it’s a sequencing problem the department created for itself by moving too fast.

The very same day the audit report went out — 29 September 2023 — the department also issued a Section 73 show cause notice built directly on that report, proposing a tax demand of ₹17,36,445 plus interest of ₹9,61,673. Vardhaman Gold challenged both, and along the way raised two further objections: that its GST registration had already been cancelled with effect from 1 May 2022, which it argued meant no Section 65 audit could be conducted against it at all for that period; and that the audit itself had overshot its own three-month completion window without any recorded extension.

The department pushed back on the central timing point by arguing that a Section 73 notice can be issued independent of any audit under Section 65 — which the Court agreed was correct as a general proposition. But that argument only helps if the notice actually stands on its own. Here, the Section 73 notice expressly referred back to the 29 September audit report as its basis. Once the department tied its own notice to a defective audit report, it couldn’t then claim the notice was independent of it.

Why It Matters

GST audits under Section 65 (and its state-law equivalents — every state’s GST Act carries the same 15-working-day notice requirement and the same Rule 101(4) reply-consideration mandate) are running right now across the country for periods stretching back to FY 2017-18, often because litigation and portal backlogs have pushed timelines well past when anyone expected these years to still be open. This ruling is a reminder that the audit process itself carries hard procedural floors, and that a Section 73 or Section 74 notice inherits the defects of the audit report it’s built on if it expressly relies on that report. For any firm currently sitting through a client’s GST audit — or defending against a notice issued on the back of one — the sequencing of notice, reply, and finalisation is worth checking line by line before the merits of the tax demand are even reached.

Key Takeaways

Section 65(3) of the GST Act (Central and every State enactment) requires the registered person be given no less than 15 working days’ notice before an audit is conducted — measured from when the notice actually reaches the taxpayer, not from the date printed on it.
Rule 101(4) requires the proper officer to consider the taxpayer’s reply to audit discrepancies before finalising the audit findings — finalising before a timely reply has had a chance to be considered breaches this rule even if the report is otherwise accurate.
A Section 73 (or Section 74) show cause notice that expressly references a defective audit report as its foundation cannot be salvaged by arguing that Section 73 notices can generally be issued independently of Section 65 audits.
The Court quashed both the audit findings and the Section 73 notice, but expressly left the department free to pass a fresh audit report after properly considering the reply, and separately free to issue a fresh Section 73 notice independent of any audit, provided due notice is given either way — this is a procedural reset, not a final win on the underlying tax demand.
The taxpayer’s separate objections (registration already cancelled; audit exceeding its three-month window) were not adjudicated on their merits, since the matter was disposed of on the notice-period ground alone — practitioners should not assume those arguments were accepted or rejected.

Practical Implications

Firms handling a live GST audit, or defending a notice issued on the back of one, should reconstruct the exact timeline: the date the audit notice was uploaded or served (not merely dated), the 15-working-day window running from that date, the date the audit findings were finalised, and — critically — whether any taxpayer reply filed within that window was actually considered before finalisation. Where a Section 73/74 notice expressly cites a defective audit report as its basis, that dependency is itself a ground to challenge the notice, distinct from disputing the tax demand’s merits. Firms should also note the Court’s specific carve-out: winning on this ground buys a procedural reset, not a permanent bar — the department can still start over with due notice, so clients should not treat a quashed audit as the end of the matter.

Action Checklist

Pull the actual upload/service date of any audit notice on file (via the GST portal’s own dashboard, not the date printed on the notice) and calculate the 15-working-day window from that date.
Confirm whether the taxpayer’s reply to audit discrepancies was filed within the statutory window, and whether the audit report explicitly records that the reply was considered before finalisation.
Where a Section 73/74 notice cites an audit report as its basis, check the notice’s own text for that reference — it determines whether the notice can be attacked as dependent on the audit’s validity.
If a fresh audit or fresh notice follows a successful challenge on this ground, re-verify the new timeline independently rather than assuming the department will get the sequencing right the second time.
Keep a dated log of every audit-related communication (notice upload, reply submission, and any acknowledgment) precisely because timing, not substance, decided this case.

Relevant Sections / Rules / Notifications

Section 65(3), Andhra Pradesh Goods and Services Tax Act, 2017 (pari materia with Section 65(3) of the CGST Act and every State GST Act) — mandatory 15-working-day audit notice period.
Rule 101(4), Andhra Pradesh Goods and Services Tax Rules, 2017 (pari materia with Rule 101(4) of the CGST Rules) — mandatory consideration of the registered person’s reply before finalising audit findings.
Section 73, CGST/AP GST Act, 2017 — show cause notice and demand process for non-fraud cases.

FAQs

Q: Does this ruling mean the underlying GST demand of ₹17.36 lakh has been permanently dropped? A: No. The Court quashed the audit findings and the Section 73 notice on procedural grounds and remanded the matter, expressly permitting the department to pass a fresh audit report after considering the taxpayer’s reply, or to issue a fresh Section 73 notice independently, with due notice either way. The underlying dispute on the merits remains open.

Q: Does “15 working days” mean 15 calendar days, or does it exclude weekends and holidays? A: “Working days” specifically excludes weekends and gazetted holidays, making the effective calendar window longer than 15 days in most cases — which makes the shortfall in this case (barely over two calendar weeks from the revised notice to finalisation) even clearer on the facts.

Q: What happens if a registered person’s GST registration was already cancelled before an audit notice is issued — can an audit still be conducted? A: The petitioner raised exactly this objection here, relying on the Madras High Court’s ruling in Tvl. Raja Stores v. Assistant Commissioner (ST), but the Andhra Pradesh High Court did not need to decide this point since the matter was resolved on the notice-period ground alone. This remains an open, fact-specific question that would need to be argued on its own footing in a case where it is outcome-determinative.

Internal Links

GST/Case Law hub — /category/case-law/

None found on admin.finoscape.com addressing Section 65(3)/Rule 101(4) audit-notice procedure specifically; this is Finoscape’s first article on this fact pattern.

Author & Disclaimer

Prepared by Finoscape Editorial Team — hello@finoscape.com. This article is for general informational purposes and does not constitute legal or professional advice, and is based on TaxGuru’s full reproduction of the Andhra Pradesh High Court’s order rather than direct retrieval from the High Court’s own portal. Practitioners should independently verify the order before citing it in client advice or submissions.