GST Departmental Audit Under Section 65: What to Expect and How to Prepare

GST officers can audit any registered business. It's a routine part of GST administration, but it can lead to demands if records aren't in order. This guide explains the process and how to prepare.

What a Departmental Audit Is

Under Section 65 of the CGST Act, the Commissioner, or an officer authorised by them, can audit a registered person to verify the correctness of turnover declared, taxes paid, refunds claimed and input tax credit availed, and to assess compliance generally.

The Notice: Form ADT-01

The audit starts with a notice in Form ADT-01, given at least 15 working days before the audit. It usually lists the period covered and the documents to be produced.

Where It Happens

The audit may be carried out at the business's premises or at the tax office.

How Long It Takes

The audit is to be completed within three months of its start, extendable by up to six months more by the Commissioner for reasons recorded in writing.

During the Audit

• Officers review books, returns, invoices and other records.
• They compare returns with your books and with third-party data like supplier filings and e-way bills.
• They may ask for explanations, reconciliations and additional documents.

Findings: Form ADT-02

At the end, the officer communicates the findings, the reasons for them, and the taxpayer's rights and obligations, in Form ADT-02, within 30 days of completing the audit.

What Happens Next

• If you agree with a discrepancy, you can pay the tax with interest, and the matter can be closed.
• If you disagree, or the amount isn't paid, the department may start proceedings, usually with a show-cause notice, which you can contest.

How to Prepare

1. Reconcile the period: books, GSTR-1, GSTR-3B, GSTR-2B and the annual return.
2. Prepare explanations for known differences.
3. Organise invoices, contracts and supporting documents.
4. Review credit claimed for eligibility.
5. Nominate one person to coordinate with the officers.
6. Consider having your advisor attend.

Special Audit

Separately, under Section 66, an officer can direct a special audit by a CA or cost accountant nominated by the Commissioner, where the value has not been correctly declared or credit availed isn't within normal limits, considering the nature and complexity of the case.

Getting Help

Think Filing prepares businesses for GST audits, attends with them, and handles any show-cause notice that follows.