Delhi High Court on GST Audit Timelines & Premature SCN: Varian Medical Systems International India Pvt. Ltd. v. UOI & Ors.
A GST audit is meant to be a "structured verification" exercise-not a surprise attack. Yet, in practice, many taxpayers experience audits as a fast-moving sequence where the "pre-SCN" (pre-show cause notice) stage becomes a mere formality and the SCN lands before the taxpayer's reply window even closes. The Delhi High Court's decision in Varian Medical Systems International India Pvt. Ltd. v. Union of India & Ors. (2025(10)LCX0135) is an important reminder that statutory timelines under Section 65 must be understood correctly, and natural justice cannot be short-circuited by issuing an SCN before the permitted reply time to the pre-SCN expires.
This ruling is practically valuable because it addresses two recurring audit disputes:
1. Whether the audit report/final findings were issued beyond the limitation prescribed by Section 65; and
2. Whether an SCN issued "too early" (before the pre-SCN reply period ends) can survive.
The Court's answer is nuanced: it did not strike down the audit report as time-barred on the facts, but it did set aside the SCN for being issued prematurely and relegated the matter back to the pre-SCN stage.
Case backdrop: what actually happened?
From the record placed before the Court, the dispute arose out of an audit initiated against the petitioner through an audit notice dated 11 January 2024, covering FY 2017-18 (from 1 July 2017) up to FY 2022-23. Multiple communications followed, with the department seeking information and clarifications. A draft audit report was also prepared, and additional clarifications were sought in early October 2024. The taxpayer responded on 11 October 2024.
Thereafter:
A pre-SCN was issued on 25 November 2024. The taxpayer was permitted time to file submissions (as reflected in the form/communication).
However, before even the permitted time to respond fully expired, the department issued the SCN on 27 November 2024.
While the first writ petition (challenging the SCN) was pending, the department finalized the audit report dated 11 February 2025 and communicated it on 13 February 2025, leading to a second writ petition challenging the audit report.
So the Court had two petitions before it:
One challenging the SCN issued during the audit sequence, and
Another challenging the audit report allegedly being beyond the timelines in Section 65.
The legal framework: why Section 65 timelines matter
Section 65-Audit by tax authorities (in brief)
Section 65 of the CGST Act empowers the Commissioner (or authorized officer) to undertake audit of a registered person, for a period, frequency, and manner as may be prescribed. It also mandates that the registered person be informed by notice (at least 15 working days prior, as per the scheme reflected in the provision).
The crux is Section 65(4) and the Explanation to it:
The audit is to be completed within 3 months from the date of commencement of audit.
This can be extended, for recorded reasons, by a further period not exceeding 6 months.
The Explanation clarifies what "commencement of audit" means: it is the later of (a) the date on which records/documents called for are made available by the registered person, or (b) the actual institution of audit at the place of business.
Further, Section 65(6) (as reflected in the order's discussion) contemplates that on conclusion of audit, the proper officer shall within 30 days inform the registered person about findings, rights, obligations, and reasons.
In audit-related litigation, taxpayers often argue:
"You issued the final report after 3 months-time-barred," or
"You began audit months ago (notice date), so your clock started then."
But Section 65 is more specific: the clock starts from "commencement" as defined in the Explanation, not merely from the first notice.
Issue 1: Was the audit report time-barred under Section 65?
Taxpayer's argument (in essence)
The petitioner contended that the audit report/final findings were issued beyond the time limits contemplated under Section 65-typically pointing to the 3-month completion requirement (and linked communication window).
Department's argument (in essence)
The department's position was that:
the audit must be completed within 3 months, but
the scheme allows some time thereafter for communication of findings, and
in any case, the relevant dates show compliance when "commencement" is correctly computed under the Explanation.
The Court's reasoning: what counts as "commencement"?
The Delhi High Court examined the sequence and treated the taxpayer's final submission (reply) as crucial for "commencement" computation under the Explanation.
The Court noted that the final reply was filed on 11 October 2024 and reasoned that after the final submission is made by the taxpayer, the "commencement date" should be treated as the next relevant date, i.e., 12 October 2024, for the purpose of Section 65 computation.
From that commencement date:
the audit had to be concluded within 3 months, and
the findings needed to be communicated (within the statutory contemplation discussed by the Court) thereafter.
On facts, since the audit report was prepared on 11 February 2025 and communicated on 13 February 2025, the Court was not inclined to hold the audit report as being beyond limitation.
Practical takeaway on limitation
This part of the decision is important because it signals that courts may not accept a simplistic "audit notice date = commencement date" approach. Instead, the Explanation matters, and the taxpayer's act of making records available / finalizing submissions can become the anchor point for counting limitation.
That said, taxpayers should not read this as a blanket approval for prolonged audits. The ruling is fact-driven: it essentially says "on these dates, we can't call it time-barred." The battle on limitation will always turn on:
when records were "made available,"
whether an audit was "instituted" at place of business (if relevant), and
whether any valid extension (with reasons recorded) exists.
Issue 2: Can an SCN be issued before the pre-SCN reply window ends?
Here lies the sharper and more taxpayer-friendly part of the ruling.
What the pre-SCN communication said
The pre-SCN, as reflected in the order, advised the taxpayer to pay tax, interest and penalty (linked to Section 74(5)) by a specified date, failing which an SCN would be issued under Section 74(1). It also allowed the taxpayer to furnish submissions by the specified date.
The problem: SCN was issued prematurely
Despite the permitted time to respond, the authority issued the SCN on 27 November 2024, i.e., before the reply period given to the taxpayer had even lapsed.
The Court's holding: violation of natural justice
The Delhi High Court held that this was completely in violation of principles of natural justice, at least at the pre-SCN stage, because the taxpayer was still within the allowed reply period when the SCN was triggered.
Accordingly, the Court:
set aside the SCN, and
relegated the proceedings to the pre-SCN stage, granting the taxpayer liberty to file its reply to the pre-SCN within the timeline provided by the Court; and
directed that after considering such reply, the department may proceed in accordance with law.
Why this matters in real life
In GST enforcement, the "pre-SCN" opportunity under Section 74 is often treated as a speed-breaker, not a real hearing. This judgment reinforces that:
If the department itself grants a time window to respond, it cannot undermine it by issuing an SCN before the clock runs out.
Natural justice is not merely about giving a document titled "pre-SCN." It is about meaningful opportunity within the timeframe provided.
This is a clean principle that can travel well to many fact patterns-especially when pre-SCN replies are invited through portal forms or letters but the SCN is issued automatically (or mechanically) before the due date.
The "exclusion of time" observation-an extra protective layer
The Court also recorded that the time during which the two writ petitions remained pending should not be counted for limitation purposes for either party (as reflected in its direction that such pendency period shall not be counted).
This prevents a "heads I win, tails you lose" outcome-where a party is forced into limitation prejudice merely because it approached the High Court and the matter took time to be heard.
Compliance lessons for taxpayers: how to use this judgment
(A) Document your "commencement" facts
Since Section 65's Explanation turns on when records are made available / audit instituted, keep a precise audit trail:
Date-wise acknowledgements of submissions
Portal screenshots of uploads
Covering letters/emails with attachments lists
Minutes/records of any physical visit (if audit is instituted at premises)
If a limitation dispute arises later, these documents decide the clock.
(B) Treat pre-SCN timelines as enforceable
If a pre-SCN grants time till a particular date, and the SCN is issued before that date:
raise the objection immediately, in writing
specifically plead natural justice and rely on the proposition that premature SCN issuance vitiates the process
seek dropping/withdrawal and reversion to pre-SCN stage
This case is a strong citation for that narrow (but powerful) proposition.
(C) Respond to pre-SCNs with structure
Even where you suspect the SCN may be inevitable, treat the pre-SCN reply as the foundation for your later defense:
factual rebuttal and reconciliations
legal position with case law
limitation/extended period defenses
"no suppression" narrative (especially relevant in Section 74 contexts)
A well-drafted pre-SCN reply often narrows the SCN or forces the department to record reasons more carefully.
Guidance for the department: process hygiene (and litigation reduction)
This judgment also indirectly gives the administration a roadmap to avoid avoidable writs:
1. Do not auto-issue SCNs before the reply window ends. If system workflows do it, fix the workflow.
2. Track Section 65 timelines through an internal date-sheet: commencement, three-month end, communication window, and extension orders (if any).
3. Record reasons properly if relying on extension-because courts often scrutinize whether extension is as per statute.
4. Use pre-SCN as a real filter-where the taxpayer's explanation is plausible, consider closure or narrowing.
Writs on "premature SCN" are entirely avoidable if the process respects its own timelines.
Concluding thoughts: the real message of Varian
The Delhi High Court's decision is not merely about dates on a calendar. It is about two broader governance principles in GST:
Statutory timelines must be computed as the statute defines them, especially where an Explanation clarifies "commencement."
Procedural fairness must be genuine-if time is granted to respond, it must be honored; otherwise the action becomes vulnerable.
In summary, Varian Medical Systems offers a balanced outcome: it does not lightly invalidate an audit report on limitation when the statutory "commencement" logic supports the department, but it firmly protects taxpayers against a premature SCN that short-circuits the pre-SCN opportunity.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.