Audit by GST Authorities – Section 65 of GST

Section 65 of the CGST Act, 2017 lays down the provisions for audits conducted by GST authorities on registered taxpayers. Understanding this section is essential for every business registered under GST, as it outlines the conditions, manner, and timelines for audits, along with taxpayer obligations and consequences of non-compliance.

In this detailed post, we will decode Section 65, highlight its implications, and explain the audit process as per the latest amendments, including those introduced by the Finance Act (No. 2) of 2024.

What is Section 65 of the CGST Act?

Section 65 empowers the Commissioner or any authorised officer to conduct audits of registered persons to verify the correctness of returns filed, taxes paid, refunds claimed, and input tax credit (ITC) availed or utilized. This audit ensures transparency, compliance, and proper tax administration under GST.

Authority and Scope to Audit (Sub-section 1)

The Commissioner or an officer authorised either through a general or specific order may initiate an audit of any registered person. The audit can be for any period and conducted at such intervals and in such a manner as prescribed by the GST Rules.

Location of Audit (Sub-section 2)

The audit can be carried out:

• At the place of business of the registered person, or

• At the office of the tax officer.

This flexibility allows authorities to decide based on the nature of the case and complexity of the records.

Prior Notice Requirement (Sub-section 3)

The registered person must receive a notice at least 15 working days before the audit is initiated. This provision ensures adequate time for the taxpayer to prepare and gather relevant documents.

Time Limit for Audit Completion (Sub-section 4)

An audit under Section 65 must be completed within:

• 3 months from the date of commencement.

• The period can be extended up to 6 months by the Commissioner, but only with valid reasons recorded in writing.

Note: “Commencement of audit” means:

• The date when documents and records are made available by the taxpayer, or

• The date the audit actually begins at the business premises, whichever is later.

Obligations During Audit (Sub-section 5)

The registered person must:

• Provide access to books of account, records, and other documents.

• Furnish information and assistance required for completing the audit in a timely manner.

Non-cooperation may lead to further legal consequences under the GST law.

Communication of Audit Findings (Sub-section 6)

Within 30 days of audit completion, the tax officer must inform the registered person about:

• Findings of the audit,

• Rights and obligations,

• And the reasons for such findings.

This ensures transparency and allows the taxpayer to respond or rectify any discrepancies.

Consequences of Adverse Findings (Sub-section 7)

If the audit reveals:

• Tax not paid or short paid,

• Erroneous refunds,

• Wrongly availed or utilized input tax credit,

Then the tax officer may initiate proceedings under:

• Section 73 (for cases not involving fraud or willful misstatement),

• Section 74 (for cases involving fraud or suppression), or

• Section 74A (inserted by the Finance Act (No. 2), 2024).

Importance of Section 65 for Registered Taxpayers

1. Ensures Compliance – Regular audits promote better record-keeping and accurate GST return filing. It encourages businesses to remain compliant and avoid penalties.
2. Detects Tax Leakage – Audits help detect cases of tax evasion or unintentional errors that can lead to revenue loss for the government.
3. Enhances Transparency – By mandating prior notice, defined timelines, and communication of findings, Section 65 upholds the principles of natural justice and procedural fairness.

Best Practices to Prepare for a GST Audit

1. Maintain updated books of accounts and GST records.

2. Respond promptly to audit notices and cooperate during audits.

3. Seek professional help from Chartered Accountants for smooth handling of audits.

4. Regularly reconcile GSTR-2B, GSTR-3B, and GSTR-1 filings.

5. Address discrepancies immediately to avoid penal consequences.

Conclusion

Section 65 of the CGST Act is a powerful tool in the hands of the tax authorities to ensure compliance and transparency in the GST system. Businesses must understand their rights and responsibilities under this section and proactively prepare for audits.

With the latest amendment through the Finance Act (No. 2), 2024, Section 65 now also includes a reference to Section 74A, giving broader powers to tax officers in cases of incorrect tax credits or payments.

For businesses, the key is compliance, documentation, and timely response. Partnering with a trusted Chartered Accountant can make a significant difference in navigating audits smoothly.

Need assistance with GST audits or compliance?
Connect with our team of GST experts at +91 9769647582 for end-to-end support in managing your books, filings, and facing tax audits with confidence.