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GST Departmental Audit

Goods and Services Tax (GST) works on a trust-based system. Hence under GST, the taxpayer himself measures the tax liability; pays the requisite taxes and accordingly, files the returns. In order to ensure the correctness of the self-assessment done by the taxpayer, audit under GST plays a vital role.

One such significant change which the new law brought was audit and more specifically departmental audit under GST law. As significant period i.e., 4 years of the new law has passed, GST department has started issuing audit notices to assessee for verification and scrutiny of records. In this situation it becomes imperative for the business to understand the meaning of audit and potential challenges/ issues which they might face during the departmental proceedings.

Definition of Audit

Section 2(13) of the Central Goods and Services Tax Act, 2017 defines the word ‘Audit’ as an examination of returns; records and any other GST documents maintained or furnished by the taxpayer to verify the correctness of any of the following-

·       Input Tax Credit availment and utilization

·       Turnover

·       Taxes paid

·       Refund claimed

·       Exemption/ deduction claimed and

·       Satisfactory compliance with the provisions of the CGST Act and rules made thereunder.


Selection for GST Audit 

Selection for Departmental audit is being done based on certain risk parameters and Computer enabled techniques. Some of the risk parameters that could be considered during selection of audit are as follows –


Size of the Taxpayer’s turnover.

Change in Taxpayer’s turnover from the previous year.

Higher incidence of supplies without issuance of e-way.

High variance in ITC between 3B and 2A.

Taxpayers who do not file periodical returns but issues E-way bill.

Financial ratio analysis.

Size of the Taxpayer’s refund.

Taxpayer who has requested waivers or is bankrupt.

Specific information received from other Government authorities like Income Tax, ROC, RBI, etc.

Types of departmental audit:

There are two types of GST audit conducted by the department which are as follows:

1) An audit conducted by tax authorities (Section 65 of the CGST Act read with rule 101 of the CGST Rules):

Department can carry out a GST audit of any registered person.

Such an audit can be conducted either at the place of business of the registered person or at the office of the tax authority.

Prior to the commencement of audit, it is mandatory to inform the registered person about conduct of audit through the issuance of notice in Form GST ADT-01. Notably, the notice for the conduct of audit should be issued at least before 15 working days.

Following are some of the responsibilities of the taxpayer during the conduct of the audit-

Facilitate the authority to verify books of accounts and other documents.

Furnish all the necessary information.

Render adequate support for timely completion of the audit.

Time limit to complete the audit

Such audit needs to be completed within a period of 3 months (may extend to maximum of 6 months) from the date of commencement of the audit.

The findings of the audit will be informed to the taxpayer in Form GST ADT-02.


2) Special audit (Section 66 of the CGST Act read with rule 102 of the CGST Rules):

Prior requirement of conduct of special audit-

Scrutiny, investigation, inquiry or any other proceedings is already initiated before the taxpayer,

The officer (not below the rank of Assistant Commissioner) is of the opinion that the value is not correctly declared, or the input tax credit is availed beyond the normal limits,

Prior approval of the Commissioner is mandatory.

On satisfaction of all the prior requirements, the officer will issue a direction in Form GST ADT-03 for getting books of accounts audited by the nominated Chartered Accountant or Cost Accountant.

The nominated Chartered/ Cost Accountant is required to complete the audit within a period of 90 days (extendable to a further 90 days).

On completion of the audit, the Chartered/ Cost Accountant is required to submit a report in Form GST ADT-04.

Probable list of documents or records verified during a departmental audit:

During the conduct of the GST audit, the departmental officer can call for and verify various information/ records. A probable list of some of the documents/ records/ information possibly be verified by the officers are summarized hereunder-

Books of accounts including balance sheet, profit & loss account etc.,

Various returns filed under GST,

Tax invoices, debit or credit notes, receipt voucher and payment voucher, bill of supply, delivery challans etc. issued under GST,

Invoice copies based on which input tax credit is availed,

Job-work register, stock register, production and process register, fixed assets register etc.

Sample copies of e-way bills,

Sample purchase orders or work orders or any other orders/ agreements, Income tax return,

Form 26AS,

Income tax audit report or cost audit report,

Reconciliation of amounts declared under GST with amount declared under other laws.


Summarized data for Types of departmental audit is as below:


Section 65

Section 66

Format under which notice intimating conduct of audit is communicated to the registered person

Form GST ADT-01

Form GST ADT-03

Duration of audit

Three months. Commissioner can extend the same to further period of six months.

The nominated Chartered Accountant/ Certified Management Accountant will submit audit report within 90 days.

Period of audit

Financial year or part or multiples thereof

Financial year or part or multiples thereof

Format and time period under which observations will be intimated to the registered person

Form GST ADT-02

Within 30 days from the date of completion of the audit.

Form GST ADT-04

Process after conducting Audit

1. Dropping the proceedings

After completion of the GST audit, there are no observation/ findings of the officer; or

The observation/ findings of the officer are satisfactorily replied by the registered person. Accordingly, the findings will be  dropped by the officer

2. Issuance of show cause notice

Show cause notice under section 73 or section 74 will be issued to the registered person, if during an audit, it is observed that there is any-

1.    Non-payment/ short payment of taxes; or

2.    Erroneous refund claim; or

3.    Wrong availment or wrong utilization of the input tax credit.

4.    Any other non-compliance.

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