Understanding GST Audits: Instances When Tax Authorities May Conduct an Examination

A Goods and Services Tax (GST) audit involves scrutinizing a taxable person's records, returns, and other relevant documents. Its primary goal is to confirm the accuracy of declared turnover, taxes paid, refunds claimed, and input tax credit utilized, thereby ensuring adherence to GST regulations. This process is occasionally necessary to verify that correct GST amounts are paid and refunds properly claimed, especially for specific taxpayer categories.

Types of GST Audits

Several categories of GST audits exist in India:

• Statutory Audit under Section 35(5) - Abolished as of August 1, 2021
• Audit conducted by Tax Authorities under Section 65
• Special Audit mandated under Section 66

Statutory Audit under Section 35(5) - Removed from August 1, 2021

Previously, Section 35(5) of the Central Goods and Services Tax (CGST) Act mandated a statutory audit for GST-registered entities whose annual turnover exceeded Rs. 2 crore. These businesses were required to have their accounts audited by a chartered accountant or cost accountant.

However, the Finance Act 2021 eliminated this requirement, effective August 1, 2021, through CGST Notification No. 29/2021–Central Tax dated July 30, 2021. This statutory audit was superseded by a self-certified Form GSTR-9C statement. Currently, taxpayers with an annual turnover above Rs. 5 crore must file this form on the GST portal or via a facilitation center, accompanied by their Audited Accounts and Annual Return in Form GSTR-9.

Audit by Tax Authorities under Section 65

The Commissioner of CGST/SGST, or an officer specifically authorized by them, holds the power to conduct an audit of any taxpayer. This audit may encompass a single financial year, a part of a financial year, or multiple financial years. A notice is dispatched to the auditee in FORM GST ADT-01 at least 15 working days prior to the audit's commencement. The audit process is expected to conclude within three months from its start date. The Commissioner has the discretion to extend this period for an additional six months, provided the reasons for such an extension are recorded in writing.

Obligations of the Auditee

During an audit, the taxable person is required to:

• Provide all necessary facilities to allow verification of books of account and other relevant documents.
• Offer information and assistance to ensure the timely completion of the audit.

Findings of the Audit

Upon the conclusion of an audit, the officer must inform the taxable person within 30 days of the audit’s findings, the underlying reasons for these findings, and the taxpayer's associated rights and responsibilities. This communication is issued using FORM GST ADT-02. If the audit identifies unpaid or underpaid taxes, incorrect refunds, or erroneously claimed input tax credits, appropriate demand and recovery actions will subsequently be initiated.

Special Audit under Section 66

An Assistant Commissioner, with the Commissioner's prior approval, may order a special audit in writing. This directive is issued if, during any phase of scrutiny, inquiry, or investigation, they form an opinion that values have been inaccurately declared or input tax credits wrongly availed. The concerned officer issues this direction to the taxable person in FORM GST ADT-03.

A chartered accountant or cost accountant, nominated by the Commissioner, conducts this special audit. They are mandated to submit a signed and certified report to the Assistant Commissioner within a period of 90 days. This timeframe can be extended by an additional 90 days if a written request is submitted by either the taxpayer or the appointed auditor. The Commissioner determines and covers the expenses of this examination and audit, including the auditor’s remuneration. Notably, a special audit can proceed even if the taxpayer's records have undergone a prior audit.

Findings of the Audit

Following the conclusion of the special audit, the taxpayer receives notification of the findings in FORM GST ADT-04 and is afforded an opportunity to be heard. Should the audit reveal unpaid or underpaid taxes, improper refunds, or wrongly claimed input tax credits, demand and recovery procedures will be initiated.