Audits Under GST The Goods and Services Tax (GST) regime in India is built on the principle of trust-based taxation, where taxpayers are expected to self-assess their tax liabilities and comply with regulations. However, to ensure that this trust is not misplaced, audits play a crucial role in verifying the accuracy of taxpayers’ declarations. According to Section 2(13) of the CGST Act, 2017, an audit examines records, returns, and other documents maintained or furnished by a registered person. The purpose of this examination is to verify the correctness of various aspects, including turnover declared, taxes paid, refund claimed, and input tax credit availed.
The audit also aims to assess the registered person’s compliance with the provisions of the GST Acts and the rules made thereunder. Under the GST Law, three types of audits are mandated: Mandatory GST Audit: Required for businesses with a turnover exceeding ₹2 crore, as per Section 35(5) of the Act. GST Audit by Tax Authorities: This is conducted by tax officials under Section 65 to verify compliance and accuracy of GST returns. Special GST Audit: This audit is initiated by the department under Section 66 to investigate specific transactions or discrepancies, requiring a detailed examination of records and accounts. Expert-Led PF & ESIC Course – Enroll Now & Get Certified Special GST Audit: Section 66. A thorough and detailed examination of a registered person’s records, accounts, and transactions, conducted by a Chartered Accountant or Cost Accountant nominated by the Commissioner, to verify the correctness of GST returns, tax payments, and input tax credits, and to detect any potential tax evasion, fraud, or non-compliance with GST laws and regulations. Objectives of the special audit. The main goal of a special audit is to guarantee GST law compliance and prevent revenue loss. It enables tax authorities to scrutinize a taxpayer’s business activities, transactions, and financial records, ensuring accurate tax returns and proper tax payment.
Essentially, special audits serve as a verification tool to confirm taxpayers’ adherence to GST regulations. The procedure of Special Audit u/s 66. In the case of Woodland Works (I) Pvt. Ltd vs Union Of India And 3 Ors the court ruled that audits shall be conducted in conformity with the CGST Act, 2017. Grounds for Initiating a Special Audit:During the examination of a registered person’s records, the Assistant Commissioner or a higher-ranking officer may form an opinion that: the declared value is inaccurate, or the claimed credit exceeds reasonable limits, based on the complexity of the case and potential revenue implications.The Assessing Authority may direct the registered person to undergo a special audit, with the prior approval of the Commissioner. The audit will be conducted by a Chartered Accountant or Cost Accountant nominated by the Commissioner, and the registered person will be issued directions in Form GST ADT-03. (Rule 102(1) CGST Rules,2017). ·
In the case of M/S Rajkamal and Company vs The Union Of India And 5 Ors The court held that, before ordering a special audit, the competent authority must form an opinion that the value declared or credit availed is incorrect. This opinion must be based on two considerations firstly the nature and complexity of the act, and secondly Interest of revenue If the competent authority fails to consider these aspects, it indicates a lack of application of mind and arbitrariness. Expert-Led PF & ESIC Course – Enroll Now & Get Certified Time Limit: The nominated auditor will submit a signed and certified report to the Assistant Commissioner within 90 days, extendable by another 90 days. A special audit can be directed even if the registered person’s accounts and records are audited under other laws, such as the Companies Act 2013 or the Income Tax Act 1961 (Section 66(3)). The registered person will be allowed to be heard if any material gathered during the special audit is to be used against them in any proceeding under the Act. All expenses related to the special audit, including the auditor’s remuneration, will be determined and paid by the Commissioner (Section 66(5)). As per Rule 102(2) CGST Rules 2017,
After the audit is concluded, the registered person will be informed of the findings in Form GST ADT-04. If the audit reveals any discrepancies, such as unpaid or underpaid tax or wrongly availed input tax credit, the officer may initiate action under Sections 73 and 74 of the Act (Section 66(6)). The special audit is intended as an investigative tool to examine financial records comprehensively. However, it must remain within the parameters set by law. Any attempt to extend beyond these boundaries could lead to legal challenges. Expert-Led PF & ESIC Course – Enroll Now & Get Certified Conclusion The importance of special audits under the Goods and Services Tax (GST) framework cannot be overstated. These audits serve as a critical tool for ensuring compliance, safeguarding government revenue, and maintaining the integrity of the tax system.
By allowing tax authorities to delve deeper into complex transactions and assess the accuracy of declared values and availed credits, special audits help identify potential discrepancies that could undermine the effectiveness of GST. While Section 66 provides a framework for initiating special audits based on reasonable grounds of discrepancies in tax declarations or credits, the GST authorities need to operate within these defined legal boundaries.