Audits Under GST
Definition u/s 2(13) CGST Act, 2017. Section 65 — Audit by Authorities and Section 66 — Special Audit. Forms GST ADT-01, 03 & 04. General Principles, No Spot Recovery, SCN, and Action u/s 73/74 — all decoded.
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1. Definition of Audit — u/s 2(13) CGST Act, 2017
GST Audit means examination of records, returns and other documents to verify the correctness of:
📌 Audit = Correctness Verification
GST Audit is fundamentally a verification exercise — not a punishment. It checks whether what was declared in returns matches the books. It can lead to demand if discrepancies are found, but due process (SCN + Opportunity of Being Heard) is mandatory before any demand.
2. Two Types of GST Audit — Sec 65 vs Sec 66
3. GST Audit Forms — Quick Reference
| Form | Purpose | Timeline | Section |
|---|---|---|---|
| GST ADT-01 | Notice for Audit | 15 working days prior to audit | Sec 65 |
| GST ADT-03 | Special Audit Report | Within 90 days to Asst. Commissioner | Sec 66 |
| GST ADT-04 | Extension of Special Audit Report | Additional 90 days extension | Sec 66 |
4. General Principles — Post-Audit Flow
Once audit findings are available, the following principles and process apply — this is non-negotiable regardless of the audit type:
(Sec 65 or Sec 66)
u/s 73/74
(Mandatory)
Must Give
🚫 No Automatic Demand Post-Audit
After Sec 65 or Sec 66 audit, there is NO automatic demand. The proper legal process must be followed — Sec 73/74 → SCN → O.O.B.H. → then demand raised against taxpayer.
🚫 No “Spot Recovery”
Audit officers cannot recover tax on the spot during audit. Any immediate recovery without SCN and due process is illegal. This is a fundamental protection for taxpayers.
5. What Triggers Action u/s 73/74?
Tax Not Paid
GST liability existed but no tax was paid — neither via ITC nor cash. Entire amount becomes demand.
Tax Short Paid
Tax paid but less than what was actually due. The differential amount is demanded with interest.
Erroneous Refund
Refund granted but taxpayer was not eligible — or amount exceeded entitlement. Recovery initiated.
Wrong ITC Availed/Utilised
ITC taken on ineligible items (Sec 17(5)), excess ITC, or ITC without actual receipt of goods/services.
6. Sec 73 vs Sec 74 — Key Difference
| Parameter | Section 73 | Section 74 |
|---|---|---|
| Nature | Without fraud, wilful misstatement or suppression | With fraud, wilful misstatement or suppression of facts |
| Penalty | 10% of tax (minimum ₹10,000) | 100% of tax (minimum ₹10,000) |
| Reduced Penalty | If paid before SCN — nil penalty | If paid before SCN — 15% of tax |
| SCN Required | Yes — mandatory | Yes — mandatory |
| O.O.B.H. | Must give | Must give |
7. Day 29 — Key Takeaways
📌 Quick Recall — Audits Under GST
- Definition u/s 2(13): Correctness of — Turnover, Tax, Refund, ITC, Compliance, Reg. Provisions
- Sec 65: By Commissioner/Auth. Officer. Rule 101. ADT-01 (15 WD prior). 3 months + 6 months ext. Location: Business/Tax Office
- Sec 66: Special Audit. Not below Asst. Commissioner. Grounds: Value or ITC incorrect. ADT-03 (90 days) → ADT-04 (90 days ext.)
- No automatic demand. No spot recovery. SCN is mandatory before demand.
- O.O.B.H. — Must be given if proceeding against Registered Person
- Triggers: Tax not paid / Short paid / Erroneous refund / Wrong ITC availed or utilised
- Sec 73 = No fraud (10% penalty) | Sec 74 = Fraud/suppression (100% penalty)
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