Special Audit Under GST: Scope, Procedure, and Implications – Section 66 of GST

The GST regime has brought about comprehensive reforms in the indirect taxation system in India. To ensure transparency, compliance, and protection of revenue, the law empowers GST authorities with various tools. One such powerful mechanism is Section 66 – Special Audit, which is invoked in specific circumstances to scrutinize a taxpayer’s records in greater depth. This article provides a detailed overview of Section 66 of the CGST Act, 2017, including its scope, procedural aspects, and implications for registered persons.

What is Section 66 of the CGST Act?

Section 66 deals with the Special Audit that can be directed by a GST officer if discrepancies or complexities are found during proceedings such as scrutiny, inquiry, or investigation. This provision empowers authorities to require the taxpayer to get their accounts audited by an independent professional — a Chartered Accountant (CA) or Cost Accountant (CMA) — nominated by the Commissioner.

When Can a Special Audit Be Ordered?

A Special Audit under Section 66(1) can be initiated at any stage of any proceedings — scrutiny, inquiry, investigation, or any other assessment — if:

• The nature and complexity of the case demand deeper examination,

• The value declared in returns appears to be incorrect,

• Input tax credit (ITC) availed seems to exceed normal limits, or

• There is a reason to protect the interest of the revenue.

Importantly, the authority to order a special audit rests with an officer not below the rank of Assistant Commissioner, and such direction can be issued only after obtaining prior approval from the Commissioner.

Who Conducts the Special Audit?

The Chartered Accountant or Cost Accountant who conducts the special audit is nominated by the Commissioner, and not chosen by the taxpayer. This ensures an independent and impartial evaluation of the records.

The nominated professional must submit the audit report within 90 days from the date of the order. However, this period can be extended by another 90 days upon application by the auditor or taxpayer, provided there are sufficient and valid reasons.

Key Features of Section 66 – Subsections Explained

Sub-section (1): Initiation

Grants the Assistant Commissioner the power to order a special audit if discrepancies are observed, subject to the Commissioner’s approval.

Sub-section (2): Timeframe and Reporting

Specifies that the audit report must be submitted within 90 days, extendable by another 90 days if justified.

Sub-section (3): Applicability Irrespective of Other Audits

Clarifies that a special audit can be conducted even if the taxpayer has already undergone statutory or internal audits under any other law or provisions of the GST Act.

Sub-section (4): Right to Be Heard

Ensures the principle of natural justice by providing the taxpayer with an opportunity to be heard before using any adverse findings from the audit in further proceedings.

Sub-section (5): Expenses of the Audit

States that audit expenses, including the remuneration of the nominated professional, shall be borne and determined by the Commissioner, and the determination shall be final. This means the taxpayer does not pay for the special audit.

Sub-section (6): Consequences of the Special Audit

If the audit leads to the detection of non-payment or short payment of tax, wrongful availment of ITC, or erroneous refunds, the proper officer can proceed to initiate demand and recovery action under Section 73, Section 74, or the newly added Section 74A of the CGST Act (inserted via the Finance Act No. 2 of 2024).

Implications of Special Audit for Taxpayers

A Special Audit can have serious implications, including:

• Temporary disruption in business operations during the audit process.

• Increased scrutiny and documentation burden.

• Potential financial liability if discrepancies are confirmed.

• Reputational risks and possible litigation.

However, it also gives the taxpayer a formal opportunity to clarify issues and correct errors before the imposition of penalties or initiation of prosecution.

Legal Safeguards for the Taxpayer

Despite the intrusive nature of the special audit, Section 66 ensures fairness through the following provisions:

• Prior approval from the Commissioner is mandatory.

• The taxpayer has the right to be heard before adverse findings are used.

• Audit costs are borne by the department, not the taxpayer.

• Adequate time is given to complete and respond to audit proceedings.

Conclusion

Section 66 – Special Audit under GST is a potent mechanism aimed at safeguarding revenue interests while ensuring compliance with the GST framework. It is not a routine audit but is triggered under specific circumstances involving complexity or suspicion of irregularity. Both taxpayers and professionals must be aware of its implications and be prepared to respond appropriately if such an audit is ordered.

Staying compliant, maintaining accurate records, and seeking professional GST advisory support can significantly reduce the risk of a special audit. If faced with one, it’s crucial to cooperate fully and provide all necessary documents to ensure a fair and timely resolution.