Understanding GST Audits: When Tax Authorities May Conduct an Examination

GST audits are sometimes essential to ensure that the correct tax is being paid and refunds are claimed accurately, particularly for specific taxpayer categories. This article will explain what a GST audit entails and outline the various types of GST audits.

Introduction to Goods and Services Tax Audits

An audit under GST involves scrutinizing records, returns, and other documents maintained by a taxable individual or entity. The primary goal is to verify the accuracy of declared turnover, taxes paid, refunds claimed, and input tax credit utilized, thereby assessing compliance with GST provisions.

Categories of GST Audits

GST audits are categorized into different types, as detailed below:

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

Statutory Audit Under Section 35(5) - Discontinued

Previously, under Section 35(5) of the Central Goods and Services Tax (CGST) Act, every GST-registered taxable person whose annual turnover exceeded Rs. 2 crore was required to undergo a statutory audit. These businesses had to have their financial records audited by a chartered accountant or a cost accountant.

However, this mandatory statutory audit requirement was abolished by an amendment to Section 35(5) of the CGST Act in the Finance Act 2021. This change, notified via CGST Notification No. 29/2021–Central Tax dated July 30, 2021, took effect from August 1, 2021. The audit obligation was replaced by a self-certified Form GSTR-9C statement. Taxpayers with an annual turnover exceeding Rs. 5 crore must now file this statement on the GST portal or through a facilitation center, along with their Audited Accounts and Annual Return in Form GSTR-9.

Audits by Tax Authorities Under Section 65

• The Commissioner of CGST/SGST, or any authorized officer, possesses the authority to conduct an audit of a taxpayer. This audit may cover a single financial year, part of a financial year, or multiple financial years.
• A notice in FORM GST ADT-01 must be issued to the auditee at least 15 working days before the audit commences.
• The audit process must be finalized within three months from its start date.
• The Commissioner has the discretion to extend the audit period by an additional six months, provided the reasons are documented in writing.

Obligations of the Auditee

The taxable person is obligated to:

• Provide all necessary facilities for the verification of books of account and other required documents.
• Offer information and assistance to ensure the audit's timely completion.

Audit Findings

Upon the conclusion of an audit, the officer must inform the taxable person within 30 days of:

• The audit findings.
• The justifications for those findings.
• The taxable person’s rights and responsibilities.

This communication must be made in FORM GST ADT-02. Should the audit uncover unpaid or underpaid tax, incorrect refunds, or wrongly claimed input tax credit, demand and recovery procedures will be initiated.

Special Audits Under Section 66

• An Assistant Commissioner, with prior approval from the Commissioner, can order a special audit in writing. This may occur if, during any stage of scrutiny, inquiry, or investigation, it is believed that the value has been incorrectly declared or credit has been improperly availed.
• The relevant officer is required to issue a directive in FORM GST ADT-03 to the taxable person.
• A chartered accountant or a cost accountant nominated by the Commissioner will conduct the special audit. They must submit a signed and certified report to the Assistant Commissioner within 90 days.
• This timeframe can be extended by the Assistant Commissioner for another 90 days if a written request is made by the taxpayer or the auditor.
• The Commissioner will determine and cover all expenses associated with the examination and audit, including the auditor’s remuneration.
• Notably, a special audit can be initiated even if the taxpayer’s records have been audited previously.

Findings of the Special Audit

After the special audit concludes, the taxpayer will be notified of the findings in FORM GST ADT-04 and given an opportunity to be heard. If the audit reveals any unpaid or underpaid tax, incorrect refunds, or improperly availed input tax credit, appropriate demand and recovery actions will be taken.

For additional information, consider reading our articles on GST audit topics:

• Turnover based Audit under GST
• All about GSTR-9C- Reconciliation Statement under GST
• Introduction to Assessments, Advance Rulings & Demand and Recovery