Chapter 18: Audit and Inspection

Statutory Basis: Section 65 and 66 of the CGST Act, 2017 read with Rules 101 and 102 of the CGST Rules, 2017.

Audit under GST ensures the correctness of turnover, taxes paid, ITC availed, and compliance with the provisions of law. It acts as a post-assessment verification tool by the tax authorities.

Types of Audits under GST:

Departmental Audit (Section 65):

Key Features: Authority: Conducted by the Commissioner or any authorised officer. Frequency: At such intervals as deemed necessary by the department. Place of Audit:

At the registered person’s place of business, or

In the office of the tax department. Notice:

Audit to be initiated through Form GST ADT-01 giving at least 15 working days’ notice. Completion Timeline:

Within 3 months from the date of commencement of audit (extendable to 6 months). Conclusion:

Findings communicated in Form GST ADT-02 along with discrepancies and observations.

After Audit: If discrepancies are found → proceedings under Section 73 (non-fraud) or Section 74 (fraud cases) may be initiated for recovery.

Objective: To verify accuracy and detect non-compliance post return filing.

Statutory Basis: Section 67(1) of the CGST Act, 2017 and Rule 139 of the CGST Rules.

Inspection is an investigative measure — less intrusive than search or seizure — enabling officers to verify records, stocks, or premises when they suspect evasion or irregularity.

Who Can Authorise:

The Joint Commissioner or above may authorise inspection in writing (Form GST INS-01).

Circumstances for Inspection:

Suppression of transactions or stock.

Excess ITC claim.

Unaccounted supply or movement of goods.

Non-issuance of invoice or fake invoicing.

Fraudulent activity or evasion suspected.

Scope of Inspection:

Access to business premises, godowns, transporters, warehouses, and any other relevant place.

Verification of accounts, documents, and goods.

Collection of statements and copies of documents.

Example: If the department suspects that a trader underreports outward supplies despite high e-way bill generation, inspection may be authorised under Section 67(1).

Statutory Basis: Section 67(2) & (3) of the CGST Act; Rules 139 to 141 of the CGST Rules, 2017. Modeled broadly on the principles of CrPC, 1973.

When Search Is Conducted:

If the proper officer has reasons to believe that:

Goods liable to confiscation, or

Documents/books/things useful for proceedings are secreted in a place.

Procedure:

Authorisation:

Written authorisation in Form GST INS-01 by a Joint Commissioner or higher authority. Conduct of Search:

Search conducted in presence of independent witnesses (panchas).

Panchanama prepared and signed. Seizure:

Goods or documents seized using Form GST INS-02.

Acknowledgment given to the taxpayer. Provisional Release:

Goods can be released on bond and security under Form GST INS-04. Retention of Documents:

Copies may be taken; originals returned within a reasonable time unless needed for proceedings.

Rights and Duties During Search:

Officer must identify himself and show authorisation.

Women can be searched only by female officers.

Taxpayer can obtain copies of seized documents.

Search must occur during reasonable business hours.

Example: Unaccounted stock found in a warehouse may lead to search and seizure under Section 67(2) for suspected tax evasion.

Statutory Basis: Section 66 of the CGST Act and Rule 102.

When the proper officer believes that the value has not been correctly declared or credit availed is excessive, a special audit may be ordered.

Key Features:

Authorisation:

Commissioner may direct the registered person to get his records audited by a Chartered Accountant or Cost Accountant nominated by him.

Notice:

Issued in Form GST ADT-03.

Timeline:

Audit report to be submitted within 90 days (extendable by another 90 days).

Communication of Findings:

Results to be shared with taxpayer in Form GST ADT-04.

Impact:

Findings may lead to further proceedings under Section 73 or 74.

Expenses of the special audit are borne by the department, not the taxpayer.

Example: If a manufacturer shows unusually high ITC utilisation despite low turnover, a special audit may be ordered to verify credit legitimacy.