Dhruv Medicos Pvt Ltd v. Deputy Commissioner, Central Gst Circle 5, Audit-I, Delhi & Ors.

What happened

Dhruv Medicos Pvt. Ltd., a distributor of medicines, was served with an audit notice in Form GST ADT-01 dated 6 September 2024, and an on-site audit was held between 20 and 25 March 2025. On 25 March 2025 it deposited ₹40,10,153 by Form GST DRC-03, which it says was made under coercion, and an audit memo of 28 March 2025, supplied on 4 April 2025, asked for ₹75,41,830 with interest and penalty. The Audit Report No. 111/2025-26 dated 29.04.2025 appropriated the deposit, and working papers were given only on 14 May 2025. After an intimation in Form GST DRC-01A of 2 June 2025 and the company's detailed reply of 18 June 2025, a demand-cum-show-cause notice No. 137 dated 27 June 2025 was issued under section 74. The company challenged the notice and the audit report and asked that the deposit not be appropriated.

Questions before the court

• Should the Court interfere at the show-cause notice stage because the reply to the audit objections was not properly considered under rule 101(4)?

Why the court ruled this way

The petitioner argued that rule 101(4) requires the proper officer to finalise the audit findings after considering the registered person's reply. The Court held that the statutory adjudication had begun with the notice, which calls on the petitioner to show cause and does not by itself determine liability, and that once proceedings under section 74 start, the petitioner can put all its objections before the adjudicating authority (paragraphs 19 and 20). The fact that the reply had been dealt with in a single sentence could not lead the Court to adjudicate the tax liability or quash the subsequent notice, since whether the treatment satisfies the statute and whether the objections should be accepted are matters for the adjudicating authority (paragraph 26). It saw no reason to interdict the adjudication because the petitioner disputed the way its reply was handled at the audit stage (paragraph 31).

Controlling point

Audit proceedings and section 74 adjudication are distinct, and once the show-cause process has begun, objections to the audit and the proposed demand belong before the adjudicating authority.

Order and next steps

No interference with the notice dated 27 June 2025 was warranted at this stage, and the petitioner is at liberty to raise before the adjudicating authority all objections available in law, including those in the writ petition and its reply of 18 June 2025, which the authority is to consider independently on merits. The Court expressed no opinion on the audit objections, the proposed liability, limitation, the alleged coercion in respect of the payment of 25 March 2025 or its appropriation. The writ petition and pending application were disposed of, and the contempt proceedings were closed after the explanation of respondent no. 5.

Practical implications

A registered person who disagrees with an audit finding should put the objections, including limitation and the claim that a deposit was coerced, in the reply to the section 74 notice and before the adjudicating authority. The High Court is unlikely to stop adjudication because the reply to the audit objections was dealt with briefly.

Limits of this ruling

• The Court dealt only with whether the writ petition could be entertained at the stage of the notice and expressed no opinion on the merits of the audit objections or the deposit.