Top Stories Audit and Special Audit Provisions under GST: A Comprehensive Analysis of Section 65 and 66 If the audit uncovers any instances of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized, the officer may initiate recovery actions under Sections 73 or 74 of the GST Act, or even Section 74A By Navasree A.M – On December 15, 2024 12:24 pm – 4 mins read

The audit and special audit under Goods and Services Tax ( GST ) is explained in Section 65 and 66. It is the process of examination of records, returns and other documents maintained by a taxable person under GST. Section 65 of the GST Act deals with the Audit. It allows the Commissioner or any authorized officer to conduct an audit of any registered person to ensure compliance with GST regulations.

The audit can cover any period, and the frequency and manner of such audits are prescribed by the rules. This provision is essential for ensuring that businesses comply with the tax obligations set forth under GST. While, the Section 66, the Special Audit, which can be ordered by an officer not below the rank of Assistant Commissioner if they suspect discrepancies in the value declared or the input tax credit availed by a registered person. Special audits are ordered in cases involving complex transactions or when the officer believes that the declared value or tax credit is not in line with the prescribed norms. AUDIT UNDER SECTION 65 OF GST ACT Scope and Procedure of Audit Under sub-section (1) of Section 65, the Commissioner or any officer authorized by them may undertake an audit of a registered person’s business records. The scope of the audit extends to examining the business’s books of accounts and other relevant documents.

The audit may be initiated at the place of business of the registered person or in the officer’s office, as specified under sub-section (2). The registered person must be notified at least fifteen working days prior to the commencement of the audit. This notice requirement is designed to ensure that businesses have enough time to prepare for the audit and provide the necessary documentation and assistance. Timelines for Audit Completion The audit must be completed within three months from the commencement date, as per sub-section (4). The “commencement of audit” is defined as either the date on which the registered person provides the required documents or the actual initiation of the audit at the business premises. In cases where the Commissioner finds that the audit cannot be completed within the stipulated period, the timeline can be extended by a further six months, subject to a written explanation for the delay.

Rights and Obligations During the Audit During the audit, the authorized officer may request the registered person to provide the necessary facilities to verify the books of accounts or any other documents required for the audit. The registered person is also obligated to furnish any information and render assistance to ensure the timely completion of the audit, as detailed in sub-section (5). Communication of Audit Findings Upon completion of the audit, the officer is required to inform the registered person about the audit findings, their rights, and obligations, and the reasons for these findings within 30 days, as mentioned in sub-section (6). This clinches clarity in the audit process and provides the registered person an opportunity to address any discrepancies or issues raised by the officer.

Action Based on Audit Findings If the audit uncovers any instances of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized, the officer may initiate recovery actions under Sections 73 or 74 of the GST Act, or even Section 74A. These sections provide a framework for recovering taxes and imposing penalties for non-compliance. SPECIAL AUDIT UNDER SECTION 65 OF GST ACT Conditions for Initiating Special Audit As per sub-section (1) of Section 66, if the Assistant Commissioner believes, based on scrutiny, inquiry, or investigation, that the declared value or input tax credit availed is incorrect, they may direct the registered person to undergo a special audit. The audit must be conducted by a chartered accountant or a cost accountant, who is nominated by the Commissioner. This process is initiated with the prior approval of the Commissioner, ensuring that the decision to carry out a special audit is well-considered and justified. The special audit is a more in-depth review, typically ordered when there is a significant concern regarding the registered person’s tax declarations. Timelines for Completion of Special Audit Sub-section (2) of Section 66 specifies that the chartered accountant or cost accountant must submit a report of the audit within 90 days. However, if necessary, the Assistant Commissioner may extend the period by another 90 days, provided a valid reason is given.

This extension is designed to accommodate cases where the audit is complex or time-consuming. Impact of Special Audit on Other Audits Sub-section (3) clarifies that the special audit provisions apply even if the registered person’s accounts have already been audited under any other provisions of the GST Act or other applicable laws. This ensures that the special audit takes precedence in cases where further scrutiny is required. Opportunity for the Registered Person to Be Heard Sub-section (4) provides that the registered person must be given an opportunity to be heard regarding any material gathered during the special audit that could be used in subsequent proceedings.

This protects the registered person’s rights and ensures that the audit findings are fair and just. Expenses of Special Audit The expenses incurred for the special audit, including the remuneration of the nominated chartered accountant or cost accountant, are to be determined and paid by the Commissioner, as per sub-section (5). This ensures that the cost of conducting a special audit does not burden the registered person unnecessarily, while also maintaining fairness in the process. Consequences of Special Audit Findings Like the regular audit under Section 65, the special audit findings may lead to the detection of tax discrepancies such as unpaid or short-paid taxes, erroneous refunds, or improperly availed input tax credits. If such issues are identified, action can be initiated under Section 73, 74, or 74A to recover the taxes owed.