GST Audit and Assessment: Types, Process and Adjudication Under CGST Act

The GST enforcement framework involves multiple levels: scrutiny of returns, audit of accounts, and formal assessment proceedings. Understanding each type helps businesses prepare adequately and respond effectively.

Types of GST Audits

Section 65 — Departmental Audit

• Conducted by Commissioner or authorized officer at the taxpayer's business premises
• 15 days advance notice to the registered person
• Duration: 3 months (extendable by 6 months with Commissioner's approval)
• Scope: verification of records, returns, ITC, classification, valuation, output tax
• On completion: audit report prepared; if discrepancies found, demand initiated under Section 73/74

Section 66 — Special Audit

• Ordered when transactions are complex, turnover has not been declared correctly, or ITC appears inflated
• CA or Cost Accountant nominated by Commissioner conducts the audit
• Must be completed within 90 days (extendable by 90 days)
• Cost borne by the Government

Return Scrutiny (Section 61)

GST officers scrutinize returns and compare with other data (GSTR-1 vs GSTR-3B mismatch, ITC claim vs GSTR-2B, annual return vs monthly returns). If discrepancies found:

1. Notice issued to taxpayer for explanation
2. Taxpayer must respond within 30 days
3. If explanation satisfactory: notice dropped
4. If unsatisfactory: proceedings under Section 73/74 initiated

Assessment Types

Show Cause Notice Process (Sections 73/74)

Section 73 — Non-Fraud Cases

1. DRC-01 (Show Cause Notice) served by proper officer
2. Taxpayer has 30 days to file reply
3. If agrees and pays tax + 18% interest: 10% penalty (or nil in some cases)
4. If partly agrees: pay agreed portion; contest the rest
5. If disagrees: provide detailed reply with evidence
6. Personal hearing — DRC-06 request
7. Adjudication order within 3 years

Section 74 — Fraud Cases

• Higher penalty: equal to 100% of tax (vs. 10%-15% in Section 73)
• Time limit: 5 years
• Voluntary payment before SCN issuance: 15% penalty + tax + interest
• Payment within 30 days of SCN: 25% penalty
• After order: 50% penalty; failure to pay: 100%

GST Appeals