Functions of GST Audit Commissionerate

Functions of GST Audit Commissionerate: Role, Process and Powers

The GST Audit Commissionerate performs an important role in verifying whether registered taxpayers have correctly reported turnover, paid the applicable GST, claimed eligible input tax credit and refunds, and complied with the provisions of GST law.

Quick Answer: Under the present GST framework, departmental audit is primarily governed by Section 65 of the CGST Act and Rule 101 of the CGST Rules. The Commissioner or an authorised officer may undertake the audit of a registered person. The process generally begins with FORM GST ADT-01 and, after examination of records and consideration of the taxpayer’s explanations, the audit findings are communicated through FORM GST ADT-02.

Businesses preparing for a departmental audit may also refer to our GST Audit Services in India and detailed GST Audit Checklist.

What Is the GST Audit Commissionerate?

Role of the GST Audit Commissionerate

The GST Audit Commissionerate or the relevant departmental audit formation is responsible for carrying out GST audits of selected registered persons in accordance with the statutory framework and departmental procedures.

Its role is different from that of a private statutory auditor or an internal auditor. A departmental GST audit is an exercise undertaken by the GST authorities to examine compliance with GST law.

Why Businesses May Be Selected for GST Audit

A GST audit may involve examination of a taxpayer’s returns, books of account, financial statements, input tax credit, tax payments, refunds and supporting documentation.

Businesses should therefore maintain appropriate reconciliations and supporting records throughout the year rather than beginning preparation only after an audit notice is received.

Current Legal Framework for GST Departmental Audit

Definition of Audit under the CGST Act

Section 2(13) of the CGST Act broadly defines audit as examination of records, returns and other documents to verify the correctness of turnover declared, taxes paid, refunds claimed, input tax credit availed and compliance with GST law.

The statutory provisions of the CGST Act can be accessed through the official CBIC GST Acts portal.

Section 65 – Audit by Tax Authorities

Section 65 authorises the Commissioner or an officer authorised by the Commissioner, through a general or specific order, to undertake audit of a registered person.

The audit may be conducted at the registered person’s place of business or at the office of the GST authorities.

Rule 101 – Procedure for GST Audit

Rule 101 of the CGST Rules prescribes the procedure for audit under Section 65. It covers issuance of FORM GST ADT-01, examination of books and returns, communication of discrepancies, consideration of the taxpayer’s reply and communication of final findings through FORM GST ADT-02.

The current audit rules may be referred to on the CBIC Assessment and Audit Rules page.

Main Functions of GST Audit Authorities at a Glance

Audit Selection and Planning

The audit function includes identifying taxpayers for audit, determining the audit period and scope, planning the audit programme, allocating appropriate officers and carrying out preliminary examination of available information.

Verification and Follow-Up

The audit team may verify returns, accounting records, input tax credit, tax payments, classifications, refunds and other matters relevant to GST compliance. Where discrepancies are identified, explanations and supporting documents may be sought from the taxpayer.

For practical preparation before departmental verification, businesses can use our GST Audit Checklist.

Selection of Taxpayers for GST Audit

Risk-Based Selection

Departmental audit selection may take into consideration risk parameters, available return data, taxpayer profile, nature of business, compliance behaviour, departmental information and other relevant factors.

Selection for audit does not by itself establish that the taxpayer has committed any default.

Data and Return Mismatches

GST administration increasingly relies on electronic data. Differences between information reported in GST returns and other records may therefore attract greater departmental attention.

Examples may include differences between:

• GSTR-1 and GSTR-3B;
• GSTR-2B and input tax credit claimed;
• GST turnover and financial statements;
• e-invoices and GST returns;
• e-way bills and sales records;
• customs data and GST records; and
• refund claims and supporting returns.

GST Audit Is Not Automatically Based on Turnover

The earlier mandatory turnover-based GST audit requiring specified taxpayers to get their accounts audited by a Chartered Accountant or Cost Accountant has been discontinued.

Accordingly, businesses should distinguish the old turnover-based GST audit requirement from a departmental audit under Section 65 and a Special Audit under Section 66.

For a broader explanation of the current framework, refer to our GST Audit Services in India.

Planning and Coordination Functions

Audit Scheduling

Audit authorities undertake planning and scheduling so that selected audits can be conducted systematically. The audit period, nature of business and expected complexity may influence the manner in which the audit is organised.

Allocation of Audit Teams

Officers and officials may be assigned to an audit based on departmental requirements, nature of the taxpayer’s activities and issues expected to require examination.

Coordination and Maintenance of Audit Records

The audit function also involves maintaining relevant taxpayer information, audit records, working papers, audit observations and internal reports required for effective monitoring and completion of the audit process.

Desk Review and Risk Analysis Before GST Audit

Review of GST Return Data

Before or during audit, departmental officers may examine returns and statements filed by the registered person.

Relevant information may include:

• GSTR-1;
• GSTR-3B;
• GSTR-9, wherever applicable;
• GSTR-9C, wherever applicable;
• input tax credit data;
• tax liability and payment records; and
• refund-related information.

Review of Financial Statements and Ledgers

Tax authorities may compare GST information with the trial balance, financial statements, sales register, purchase register, expense ledgers, fixed asset records and other books of account.

Businesses should prepare reconciliations before submitting data so that legitimate accounting and GST differences can be properly explained.

Use of System and Third-Party Information

Relevant information available to the department through statutory filings and government systems may also assist in identifying matters requiring detailed verification.

Businesses should therefore ensure consistency between GST records and related statutory and transaction data wherever applicable.

Conduct of GST Departmental Audit

Audit at Taxpayer Premises or Departmental Office

Section 65 permits the audit to be conducted either at the registered person’s place of business or at the office of the GST authorities.

The location and manner of audit may depend upon the circumstances and the requirements communicated by the audit authorities.

Verification by the Audit Team

Rule 101 contemplates verification of documents on the basis of which books of account are maintained, together with returns and statements furnished under GST law.

The audit team may examine the correctness of turnover, exemptions, deductions, GST rates, input tax credit, refunds and other relevant issues.

Interaction with the Taxpayer

During audit, officers may seek explanations, reconciliations, agreements, invoices, workings and supporting records relating to transactions under review.

Responses should be factual, consistent with books and returns, supported by documents and reviewed from a GST-law perspective before submission.

Records and Documents Examined During GST Audit

GST Returns and Accounting Ledgers

Documents commonly examined during a departmental audit may include:

• GSTR-1;
• GSTR-3B;
• annual return;
• GSTR-9C, wherever applicable;
• sales register;
• purchase register;
• general ledger;
• trial balance;
• GST ledgers; and
• input tax credit reconciliations.

Financial and Transaction Documents

Depending on the business and audit scope, authorities may also examine:

• audited financial statements;
• tax invoices;
• debit and credit notes;
• agreements and contracts;
• expense ledgers;
• fixed asset register;
• bank-related supporting records;
• branch-transfer documents; and
• related-party transaction records.

E-Way Bill, E-Invoice and Import-Export Records

Businesses dealing in movement of goods, imports or exports may also need to provide e-way bills, e-invoice data, shipping bills, bills of entry, LUT documentation and other supporting records.

For movement-of-goods compliance, refer to our E-Way Bill under GST Guide.

Key Areas Verified by the GST Audit Commissionerate

Turnover and GST Liability

One of the main functions of GST audit is verifying whether turnover and GST liability have been correctly reported.

The audit may examine taxable supplies, exempt supplies, zero-rated supplies, inter-State transactions, intra-State transactions, branch transfers, credit notes, debit notes and other relevant adjustments.

Input Tax Credit and GSTR-2B Reconciliation

Input tax credit is a major area of departmental examination. Authorities may verify eligibility, supporting documents, blocked credits, reversals and reconciliation of the purchase records with relevant GST data.

Businesses should be able to explain material differences between input tax credit appearing in their books and credit claimed through GST returns.

Reverse Charge, GST Rate and Classification

Audit may also cover:

• reverse charge liability;
• HSN classification;
• SAC classification;
• applicable GST rates;
• exemptions;
• composite supplies;
• mixed supplies; and
• valuation of supplies.

Refunds, Exports and Place of Supply

Where a taxpayer has claimed GST refunds or undertaken cross-border transactions, authorities may verify refund eligibility, export documentation, zero-rated turnover, input tax credit and place-of-supply treatment.

Businesses with wider GST advisory requirements may refer to our GST & Indirect Tax Advisory and Litigation Services.

FORM GST ADT-01 – Notice for Departmental Audit

Minimum Notice of 15 Working Days

Under Section 65, a registered person is required to be informed by notice not less than 15 working days prior to the conduct of audit.

Rule 101 provides for issuance of the notice in FORM GST ADT-01.

What Should a Taxpayer Do After Receiving ADT-01?

After receiving an audit notice, the taxpayer should immediately:

• identify the financial years covered;
• review the information and documents requested;
• download relevant GST returns and portal data;
• prepare turnover reconciliation;
• prepare GSTR-1 versus GSTR-3B reconciliation;
• prepare input tax credit reconciliation;
• review RCM liability;
• identify material classification or rate issues;
• compile supporting documents; and
• identify matters requiring a written explanation.

Our GST Audit Checklist may be used as a starting point for this review.

Obligations of a Taxpayer During GST Audit

Providing Access to Books and Records

During audit, the authorised officer may require the registered person to provide necessary facilities for verification of books of account and other relevant documents.

Records submitted should be properly organised and should correspond with the information reported in GST returns.

Providing Information and Assistance

The registered person may also be required to furnish information and provide assistance necessary for timely completion of the audit.

Where a query involves a complex transaction, the response should explain both the factual position and the GST treatment adopted, supported by appropriate documents and legal provisions.

GST Audit Observations and Taxpayer Reply

Communication of Discrepancies

During the audit, the proper officer may communicate discrepancies identified as audit observations.

Such observations may relate to tax short payment, input tax credit, RCM, valuation, classification, refunds, reporting differences or documentation.

Reply to GST Audit Observations

Rule 101 allows the registered person to furnish a reply to the discrepancies communicated during audit, and the proper officer is required to consider the reply while finalising the audit findings.

A strong response should normally contain:

• clear facts;
• transaction background;
• reconciliation;
• relevant invoices or agreements;
• supporting workings;
• applicable GST provisions;
• relevant notifications or circulars, where applicable; and
• a specific response to each audit observation.

Completion of GST Audit and FORM GST ADT-02

Time Limit for Completion of Audit

Section 65 provides that the audit should ordinarily be completed within three months from the date of commencement of audit.

Where the Commissioner is satisfied that the audit cannot be completed within that period, the period may, for reasons recorded in writing, be extended by a further period not exceeding six months.

For this purpose, commencement of audit is determined in accordance with the specific explanation contained in Section 65.

Communication of Findings Within 30 Days

On conclusion of the audit, the proper officer is required to inform the registered person of the audit findings, rights and obligations and reasons for the findings within the statutory period.

Under Rule 101, the findings of a Section 65 audit are communicated in FORM GST ADT-02.

What Happens After GST Audit?

If no material discrepancy remains, the audit may conclude based on the findings communicated.

Where the audit identifies tax not paid or short paid, an erroneous refund, wrongly availed or utilised input tax credit or another material issue, further action may be initiated under the applicable GST demand and adjudication provisions for the relevant tax period.

Receiving an audit observation should therefore not be treated as equivalent to a final tax demand. The factual and legal position should be examined before responding.

Organisational Functions Within the GST Audit Setup

The precise internal organisational structure may vary between departmental formations. Administrative functions performed within an audit setup should also be distinguished from the statutory rights and obligations created by Sections 65 and 66 of the CGST Act.

Planning and Coordination Function

Planning and coordination activities may include scheduling audits, maintaining audit-related information, allocating work, coordinating audit teams and monitoring progress of pending audits.

Administration and Vigilance Function

Administrative sections generally deal with internal establishment, personnel, administrative, budgetary and vigilance-related matters necessary for functioning of the audit formation.

Technical and Legal Function

Technical and legal functions may involve examination of legal issues arising during audit, interpretation of GST provisions, review of complex audit objections and coordination on matters requiring further legal or departmental action.

Risk Management, Quality Review and Audit Circles

Risk-management and quality-review functions may assist in identification of audit risks, review of audit work and consistency of audit processes.

The field audit team or relevant audit circle performs the substantive verification of taxpayer records and follows up on audit observations in accordance with applicable departmental procedures.

Departmental Audit under Section 65 vs Special Audit under Section 66

Who Conducts Audit under Section 65?

A departmental audit under Section 65 is undertaken by the Commissioner or an officer authorised by the Commissioner.

This should not be confused with the discontinued turnover-based audit previously undertaken by an external Chartered Accountant or Cost Accountant.

When Can Special Audit under Section 66 Arise?

Section 66 provides a separate mechanism for Special Audit. During scrutiny, inquiry, investigation or other proceedings, an officer not below the prescribed rank may, subject to the statutory conditions and prior approval of the Commissioner, direct a special audit where issues relating to valuation or input tax credit require specialised examination having regard to the nature and complexity of the case and the interest of revenue.

ADT-03, ADT-04 and Special Audit Timeline

A Special Audit is carried out by a Chartered Accountant or Cost Accountant nominated by the Commissioner.

FORM GST ADT-03 is used for the direction for Special Audit and FORM GST ADT-04 is used for communication of findings.

The nominated auditor is generally required to submit the report within 90 days, subject to the statutory provision permitting an extension of up to a further 90 days in appropriate circumstances.

The official provisions can be checked through the CBIC Assessment and Audit Rules.

How EzyBiz India Assists During GST Departmental Audit

GST Audit Readiness and Reconciliation

EzyBiz India Consulting LLP assists Indian companies, multinational companies, foreign-owned businesses, exporters, manufacturers, service providers and other registered taxpayers in preparing for GST departmental audits.

Our assistance may include:

• review of FORM GST ADT-01;
• preparation of document checklist;
• turnover reconciliation;
• GSTR-1 and GSTR-3B reconciliation;
• GSTR-2B and ITC reconciliation;
• reverse charge review;
• HSN/SAC and GST rate review;
• place-of-supply review;
• export and import review;
• refund review;
• financial statement reconciliation; and
• identification of GST exposures before submission of information.

For comprehensive assistance, visit our GST Audit Services in India.

Replies to Audit Observations and Representation

Where the department raises audit observations, we assist in examining the factual and legal position, preparing reconciliations and documentary evidence, drafting responses and supporting representation before GST authorities.

For GST notices, assessments, audits and litigation support, refer to our GST & Indirect Tax Advisory and Litigation Services in India.

Frequently Asked Questions on GST Audit Commissionerate

Who Can Conduct a GST Departmental Audit?

Under Section 65, a GST departmental audit may be undertaken by the Commissioner or an officer authorised by the Commissioner through a general or specific order.

Is GST Audit Mandatory Above a Particular Turnover?

No. The earlier mandatory turnover-based GST audit by a Chartered Accountant or Cost Accountant has been discontinued. Departmental audit under Section 65 and Special Audit under Section 66 continue under the GST framework.

How Much Notice Is Given Before a GST Audit?

Section 65 requires the registered person to be informed by notice not less than 15 working days prior to the conduct of audit. The prescribed notice for departmental audit is FORM GST ADT-01.

Can GST Audit Be Conducted at the Department’s Office?

Yes. Section 65 permits the authorised officers to conduct the audit either at the registered person’s place of business or at the office of the GST authorities.

What Happens After GST Departmental Audit Is Completed?

The proper officer communicates the findings of the audit, including reasons and the registered person’s rights and obligations. Rule 101 provides for communication of Section 65 audit findings through FORM GST ADT-02.

Related GST Services and Guides

• GST Audit Services in India – Assistance with departmental audits, GST compliance reviews, reconciliations and audit observations.
• GST Audit Checklist – Detailed checklist of returns, records, ITC, RCM, reconciliations and documents to review before a GST audit.
• GST & Indirect Tax Advisory and Litigation Services – GST advisory, compliance, audits, assessments, notices, appeals and litigation support.
• E-Way Bill under GST – Current guidance on e-way bill applicability, documentation, validity and compliance.
• Tax and Regulatory Advisory Services in India – Integrated assistance with taxation, GST and regulatory matters.
• Contact EzyBiz India – Speak with our team regarding GST audit, compliance or departmental proceedings.

Official References:

• CBIC – GST Acts
• CBIC – Assessment and Audit Rules
• GST Portal – Government of India