GST Audit U/s 65 of the CGST Act, 2017- Procedure and Precautions

GST Audit under Section 65 of the CGST Act, 2017 is conducted by the tax authorities to verify the correctness of the turnover, taxes paid, refunds claimed, input tax credit (ITC) availed, and other compliance-related aspects of a registered taxpayer. This audit is initiated by the Commissioner or an authorized officer and is distinct from the annual audit under Section 35(5) or the special audit under Section 66.

Below is a detailed explanation of the procedure and precautions to be taken during a GST audit under Section 65:

Procedure for GST Audit under Section 65

1. Initiation of Audit:
   • The Commissioner or an authorized officer can order an audit of a registered person.
   • The taxpayer is informed of the audit at least 15 days in advancethrough a notice in Form GST ADT-01.
2. Duration of Audit:
   • The audit is to be completed within 3 monthsfrom the date of initiation.
   • The Commissioner may extend the period by a further 6 monthsfor reasons to be recorded in writing.
3. Audit Process:
   • The audit is conducted at the taxpayer’s place of business or office.
   • The officer examines:
     • Records, books of accounts, and documents.
     • Returns filed under GST.
     • ITC availed and utilized.
     • Tax payments, refunds, and other compliance requirements.

4. Findings and Report:
   • After the audit, the officer informs the taxpayer of the findings, reasons, and any discrepancies.
   • A final audit report is submitted in Form GST ADT-02within 30 days of concluding the audit.
5. Action on Audit Findings:
   • If discrepancies are found, the officer may initiate:
     • Recovery proceedings under Section 79.
     • Demand and penalty proceedings under Section 73 or 74 (for non-fraud or fraud cases, respectively).

Precautions for Taxpayers during GST Audit under Section 65

1. Maintain Proper Records:
   • Ensure all books of accounts, invoices, and documents are maintained as per GST laws.
   • Keep records of:
     • Sales and purchase registers.
     • E-way bills.
     • Payment challans.
     • ITC availed and reversed.

2. Reconcile Returns and Books:
   • Regularly reconcile GSTR-1, GSTR-3B, and GSTR-9 with the books of accounts.
   • Ensure that ITC claimed matches with the supplier’s outward supplies (GSTR-2A/2B).
3. Verify Tax Payments:
   • Ensure that all tax liabilities are paid on time and reflected correctly in the returns.
   • Reconcile tax payments with the electronic cash ledger and credit ledger.
4. Respond to Notices Promptly:
   • If a notice is received under Section 65, respond within the stipulated time.
   • Provide all required documents and explanations to the audit officer.
5. Seek Professional Help:
   • Engage a GST consultant or auditor to review records and ensure compliance before the audit.
   • Address any discrepancies or issues proactively.
6. Prepare for On-Site Audit:
   • Designate a team to assist the audit officer during the on-site audit.
   • Ensure that all records are organized and readily accessible.
7. Review Past Audits and Assessments:
   • Identify and rectify any issues highlighted in previous audits or assessments.
   • Ensure that past discrepancies are not repeated.
8. Understand the Scope of Audit:
   • The audit under Section 65 is comprehensive and covers all aspects of GST compliance.
   • Be prepared to provide explanations for any unusual transactions or deviations.

Consequences of Non-Compliance

Where the audit conducted under sub-Section (1) results in detection of

• tax not paid or
• such short paid or
• erroneously refunded, or
• Input tax creditwrongly availed or utilized,

the Proper officer may initiate action under Section 73 or 74 or 74A.

Audit cannot conclude automatically resulting in a demand. Independent application of mind is necessary for a valid demand to be raised.

Obligation of Auditee-

During the course of audit, the authorized officer may require the registered person,

1. to afford him the necessary facility to verify the books of account or other documents as he may require,
2. to furnish such information as he may require and render assistance for timely completion of audit.

GST audits under Section 65 ensure transparency and compliance with GST laws. Taxpayers must maintain proper records, stay updated with GST rules, and be prepared for audits. With due diligence and accurate record-keeping, businesses can navigate GST audits smoothly and avoid penalties.