Scrutiny, Audit, Special Audit or Investigation: Telling Them Apart

Scrutiny explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A communication arrives from the department. Before anything else, one question decides the whole response: under which power was it issued?

Scrutiny — s.61, desk verification of a return, notice in ASMT-10, reply in ASMT-11, thirty days. Audit — s.65, records examination for a period, ADT-01 with fifteen working days' notice, findings in ADT-02. Special audit — s.66, by a CA or cost accountant nominated by the Commissioner, direction in ADT-03, report and findings in ADT-04. Investigation — s.67 inspection, search and seizure, and s.70 summons, driven by reasons to believe or an inquiry, with no fixed reply form. Each has a different power, a different standard and a different response.

The four instruments

Scrutiny is the narrowest

Section 61(1): the proper officer may scrutinise the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, and seek his explanation.

Section 61(2): where the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken.

Section 61(3): where no satisfactory explanation is furnished within thirty days or such further period as may be permitted, or where the person fails to take the corrective measure after accepting the discrepancy, the officer may initiate appropriate action including under s.65, s.66, s.67, or proceed to determine tax under s.73 or s.74.

Two features follow. First, scrutiny is confined to the return and related particulars — it is not a records examination, and a scrutiny notice cannot properly demand the general ledger. Second, s.61(2) gives a clean exit: an acceptable explanation ends it, and ASMT-12 records that. Section 61 scrutiny →

Investigation is the one to be careful with

A s.70 summons is not a notice seeking an explanation. It is a statutory summons, with the powers of a civil court under the Code of Civil Procedure, 1908, and s.70(2) declares every such inquiry a "judicial proceeding" within the meaning of s.193 and s.228 of the Indian Penal Code.

A statement recorded under summons is evidence. It is quoted back in show cause notices, and retracting it later is difficult and rarely persuasive.

The practical rules are simple:

• appear, or seek an adjournment in writing with a reason;
• take the summons text seriously — it names what documents are required and in what capacity you are summoned;
• answer only what is asked, from records rather than memory;
• read the statement before signing, and correct it on the face of the document;
• ask for a copy of the statement signed.

The temptation to "settle it" during an investigation by paying a figure suggested across the table should be resisted until the ascertainment is on paper. A DRC-03 paid under pressure is very hard to recover. Section 70 summons →

The overlaps, and what they mean

Scrutiny can escalate. Section 61(3) expressly names s.65, s.66 and s.67 as the next steps. An unanswered ASMT-10 is a common route into an audit.

Audit can trigger a special audit. Section 66(1) operates at "any stage of scrutiny, inquiry, investigation or any other proceedings", which includes an audit in progress.

Investigation and audit can run together. Nothing bars a s.65 audit while a DGGI inquiry is on foot, though the department's own instructions discourage parallel proceedings on the same issue for the same period — a point worth raising in writing where it arises.

All four converge on the same place. Whatever the instrument, a liability can only be fixed under s.73, s.74 or s.74A. That is the stage at which the notice, the reply, the hearing and the appeal exist.

The first four questions on any departmental communication

1. Which section is it issued under — it is stated on the form, and the form itself tells you.
2. Which period does it cover, and is that period within limitation for a demand?
3. What is the reply time, and does it run from issue or from receipt?
4. What is the exit — is there an s.61(2) acceptance, a Rule 101(4) discrepancy stage, an s.73(5) payment, or none?

Answering those four before drafting anything prevents the most common and most expensive error: replying to an audit as though it were a scrutiny, or treating a summons as though it were a letter.

Key takeaways

• Scrutiny (s.61) examines the return; an acceptable explanation ends it under s.61(2).
• Audit (s.65) examines the records for a period, with ADT-01 and ADT-02.
• Special audit (s.66) is conducted by a Commissioner's nominee, only on value or abnormal credit grounds.
• Investigation runs on s.67 and s.70; a summons inquiry is a judicial proceeding under s.193/228 IPC.
• Section 61(3) allows scrutiny to escalate into audit, special audit, inspection or a demand.
• All four converge on s.73, s.74 or s.74A, which is where liability is actually determined.

Read next

• Section 61 Scrutiny: ASMT-10 and the Thirty-Day Reply
• Section 65 Audit: ADT-01, the Three Months and the Extension
• Section 66: Special Audit and the Commissioner's Nomination
• From Audit Finding to Demand: The Section 65(7) Handoff

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).