GST Audit under Section 65 of CGST Act: Complete Guide, Process & Compliance Tips

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Is your business prepared for a GST audit?

Navigating the complexities of Section 65 of the Central Goods and Services Tax (CGST) Act, 2017, is vital for ensuring compliance and maintaining seamless business operations.

Audit by Tax Authorities

Section 65 grants the Commissioner or any authorized officer the authority to conduct audits of registered persons. This can be initiated through a general or specific order and is executed for specified periods, at determined frequencies, and in prescribed manners

Venue of the Audit

Audits may be conducted at the registered person’s place of business or at the tax authorities’ office, depending on the circumstances and requirements.

Comprehensive Procedure for GST Audit

  1. Advance Intimation
    2. Taxpayers will receive a notice at least fifteen working days before the audit’s commencement, as stipulated in Section 65(3). This notice is typically issued in Form GST ADT-01.
  2. Submission of Records
    3. Upon receiving the notice, taxpayers must provide all pertinent documents, including:
      • Books of account
      • Filed returns
      • Invoices
      • Agreements and contracts
      • Any other relevant records
  3. Audit Duration
    4. The audit should be completed within three months from its commencement date. If necessary, the Commissioner can extend this period by up to six additional months, provided reasons are documented in writing. Commencement of the audit is defined as the later of:
      • The date when the taxpayer makes the requested records available, or
      • The date when the audit actually begins at the taxpayer’s business premises.
  4. Audit Report
    5. Within thirty days of concluding the audit, the proper officer must inform the audited person of the findings, their rights and obligations, and the reasons for the findings. This communication is made using Form GST ADT-02.
  5. Post-Audit Actions
    6. If the audit uncovers unpaid or short-paid taxes, erroneous refunds, or improperly availed or utilized input tax credits, the proper officer may initiate proceedings under Sections 73 or 74 of the CGST Act.

Rights and Duties of the Department and the Taxpayer

Tax Authorities' Rights and Duties:

  • Rights:
    1. Access the taxpayer’s place of business to conduct the audit.
    2. Examine and verify relevant documents and records.
    3. Seek clarifications and additional information as needed.
  • Duties:
    1. Provide a minimum of fifteen working days’ notice before commencing the audit.
    2. Conduct the audit within the stipulated time frame unless an extension is justified and documented.
    3. Communicate audit findings transparently, detailing the taxpayer’s rights and obligations.

Taxpayer's Rights and Duties:

  • Rights:
    1. Receive prior notice before the audit begins.
    2. Be informed of the audit’s findings and the rationale behind them.
    3. Challenge or appeal against the audit findings if disagreements arise.
  • Duties:
    1. Maintain comprehensive and accurate records as mandated by GST laws.
    2. Provide all requested documents and information promptly.
    3. Offer necessary assistance to facilitate the timely completion of the audit.

Precautions for Taxpayers

Preparation Before the Audit:

    • Ensure meticulous bookkeeping and record maintenance in line with Section 35 requirements.
    • Reconcile GSTR-1, GSTR-3B, GSTR-9, and GSTR-9C with your books of accounts.
    • Verify that all Input Tax Credit (ITC) claims adhere to Section 16 and are not disqualified under Section 17.

During the Audit:

    • Cooperate fully with the audit team, providing requested documents promptly.
    • Keep copies of all submitted documents for your records.
    • Offer clear explanations for any discrepancies identified during the audit.

After the Audit:

    • Carefully review the notice in Form GST ADT-02 to ensure the findings are accurate.
    • Settle any additional liabilities if applicable and correct errors in subsequent returns.
    • If you disagree with the findings, consider filing an appeal under Section 107.

Recent Judicial Interpretations

In the case of Tvl. Raja Stores vs. The Assistant Commissioner (ST), West Veli Street Circle [W.P.(MD). No. 15291 of 2023, dated August 11, 2023], the Madras High Court held that Section 65 audits apply only to registered businesses. The court concluded that authorities cannot conduct audits for businesses that have closed. However, it clarified that this does not prevent authorities from initiating assessment proceedings under Sections 73 and 74 of the CGST Act.

In another case, P S K Engineering Construction & Co. vs. Assistant Commissioner of GST & Central Excise [W.P.No.13418 of 2024, dated June 10, 2024], the Madras High Court addressed the issue of audit powers under Section 65 of the CGST Act. The petitioner challenged a notice issued by the Central GST authorities while State GST proceedings on similar grounds were ongoing. The court clarified that the prohibition under Section 6(2)(b) of the CGST Act applies only if the subsequent proceedings by the Central GST authorities are on the same subject matter. The court allowed the audit to proceed under Section 65 of the CGST Act,

Final Thoughts

GST audits under Section 65 play a crucial role in ensuring tax compliance and transparency. By maintaining proper records, reconciling returns, and cooperating with tax authorities, businesses can navigate the audit process smoothly. In case of discrepancies, taxpayers must proactively address them and, if necessary, seek legal remedies. A well-prepared taxpayer can avoid penalties and unnecessary legal hassles.

Follow TaxGroww for more updates on GST compliance, audits, and taxation insights.

Summary Table: GST Audit under Section 65 of CGST Act

Aspect Key Details
Authority Commissioner or authorized officer can conduct the audit.
Intimation At least 15 working days’ notice in Form GST ADT-01.
Place of Audit At the taxpayer’s business premises or the department’s office.
Required Documents Books of account, invoices, GST returns, agreements, contracts, etc.
Audit Duration 3 months (extendable by 6 months with written justification).
Commencement Date When records are provided or when the audit begins, whichever is later.
Audit Report Issued in Form GST ADT-02 within 30 days of audit completion.
Consequences If discrepancies are found, action under Sections 73 or 74 may be initiated.
Taxpayer’s Rights Receive prior notice, challenge audit findings, and appeal under Section 107.
Taxpayer’s Duties Maintain records, cooperate with auditors, and provide necessary documents.
Precautions Reconcile GST returns with books, ensure proper ITC claims, and review audit notices.

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