Who handles a GST audit under Section 65? Who conducts it, who can represent you, the ADT-01 notice, timelines and how to prepare in 15 working days.
As regards the question as to who can handle a GST audit, it may be noted that the audit under Section 65 of the CGST Act, 2017 is conducted by the Commissioner or an officer authorised by him and not by any auditor engaged by the assessee. On the side of the assessee, it is the registered person i.e. the owner, partner or director who is required to produce the records and give explanations therein, and he may be represented before the officers by an authorised representative under Section 116, which is usually a chartered accountant, though an advocate, cost accountant, company secretary in practice or enrolled GST practitioner may also so appear.
Take the case of a Gurugram based manufacturer which finds Form GST ADT-01 on the portal covering FY 2021-22 and FY 2022-23, intimating that the audit shall commence in 15 working days and listing the records to be kept ready. The question which arises at the outset is as to who is to deal with the officers, more so since the audit is carried out by the department and the concern of the assessee is therefore to ensure that a person who knows the books attends the audit, reconciles the returns and answers the findings in writing, so that the audit does not culminate in a demand.
Section 65 of the CGST Act empowers the Commissioner, or any officer authorised by him, to undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed, and the period so covered may be a financial year, a part thereof or multiple financial years. The object of the audit is to verify the correctness of the turnover declared, the tax paid, the input tax credit availed and the returns filed, and the procedure therefor is laid down in Rule 101 of the CGST Rules, 2017. It may be noted that the selection is generally risk based, inasmuch as businesses having large gaps between returns, large refund claims or heavy credit claims are more likely to be picked. The audit is conducted by the officers of the audit commissionerate having jurisdiction over the assessee, who may examine the records at the place of business of the registered person or at their own office, and the assessee has no choice as regards the officers so assigned nor can he object to them save in the case of a clear conflict of interest.
It is pertinent to note that the responsibility for producing the books and records, for affording access to the premises and for furnishing the information and explanations sought by the officers continues to rest upon the registered person even after a representative has been appointed. In so far as the data is concerned, the ledgers, invoices, returns and bank statements are best retrieved by the finance team of the assessee, whereafter the same ought to be furnished through the representative and not directly, in order that the officers are not given incomplete or contradictory answers by different persons.
The authorised representative appears on behalf of the assessee, and Section 116 of the Act inter alia permits a relative or regular employee, an advocate, a chartered accountant, cost accountant or company secretary in practice, an enrolled GST practitioner and, subject to conditions, certain retired officers to so appear, whereafter a written authorisation is to be given and the requirements of the audit office in that regard ascertained. In our view a chartered accountant is best suited to lead the audit inasmuch as the exercise is largely one of books, returns and reconciliation, whereas an advocate becomes more relevant in the event the audit results in a show cause notice, adjudication or an appeal.
Read More: CA vs Advocate vs Authorised Representative
The audit under Section 65 is required to be distinguished from the audit by a chartered accountant under Section 35(5), which earlier required larger businesses to get their accounts audited and to furnish a reconciliation statement, and which w.e.f. FY 2020-21 was dispensed with, the GSTR-9C being thereafter self-certified, as a result of which the same forms part of the own annual compliance of the assessee and is not an audit by the department.
A special audit under Section 66 stands on a different footing altogether, inasmuch as where the officer is of the opinion that the case is complex, for instance on valuation or credit, the Commissioner may direct vide Form ADT-03 a special audit by a chartered accountant or cost accountant nominated by him, the expenses whereof are borne by the department. Scrutiny of returns under Section 61 is a desk review which may result in a notice requiring the assessee to explain discrepancies without any visit to the premises, whereas summons and investigation under Section 70 emanate from the anti-evasion wing.
Also Read: GST Summons Under Section 70, Types of GST Notices Explained
As per Rule 101, the registered person is to be informed of the audit by way of a notice in Form GST ADT-01 issued at least 15 working days prior to the conduct of the audit, wherein the period and the place of audit are specified, whereafter the assessee is required to produce the books and documents called for alongwith reconciliations of the returns with the books of account.
The audit is to be completed within three months from the date of commencement thereof, and it may be noted that commencement for this purpose means the later of the date on which the records called for are made available by the registered person and the actual date of commencement of the audit at the place of business. The Commissioner may, for reasons to be recorded in writing, extend the said period by a further period not exceeding six months.
In the event any discrepancy is noticed during the audit, the proper officer may inform the registered person thereof under Rule 101(4), and the assessee is entitled to file a reply before the findings are finalised, which opportunity ought not to be missed inasmuch as it is the stage at which a misunderstanding can be resolved at the least cost. On conclusion of the audit, the findings alongwith the reasons therefor and the rights and obligations of the registered person are communicated vide Form GST ADT-02 within 30 days, whereafter the assessee may either accept the findings and pay the tax alongwith interest or file a reply setting out the facts, documents and legal grounds.
Where the audit results in detection of tax not paid or short paid, erroneous refund or input tax credit wrongly availed, the proper officer may initiate proceedings by way of a show cause notice under Section 73 or Section 74 for the years up to FY 2023-24, and under Section 74A from FY 2024-25 onwards.
Read More: GST Section 74A Merger Explained
Insofar as preparation is concerned, a single point of contact and an authorised representative ought to be nominated by the registered person before the commencement of the audit, alongwith execution of the authorisation, whereafter the notice is to be gone through for the period covered, the documents called for and the place of audit. The GSTR-1, GSTR-3B and GSTR-9 are thereafter required to be reconciled with the books of account and the input tax credit with GSTR-2B before the officers undertake the said exercise, and the sales and purchase ledgers, invoices, e-way bills, credit and debit notes, bank statements, stock records and tax payment challans are to be kept ready.
The areas which are generally examined first by the audit team, namely reverse charge, exports and refunds, credit on blocked items, stock transfers between units and ineligible credit, ought also to be reviewed first by the assessee. In the event an error is found, the correction thereof or the payment of tax alongwith interest prior to conclusion of the audit should be discussed with the adviser, and a log of every document handed over is to be maintained alongwith the date and the name of the officer who received the same.
Also Read: ITC Mismatch Under GST
The disputes arising out of audits are in most cases attributable to verbal explanations which do not match the return data, records handed over without copies or acknowledgement, the absence of a fixed representative as a result of which different persons give different answers, failure to reply within the time allowed after ADT-02, the findings being ignored on the ground that no demand has yet been raised, and the audit being treated as a mere formality without the reconciliation being carried out.
Also Read: How to Handle GST Litigation, Natural Justice in GST Adjudication
Disclaimer: The contents of this article are for general information only.
The officers are assigned by the department and the registered person has no choice in the matter, the choice of the assessee being confined to the person who is to represent and assist it during the audit under Section 65 of the CGST Act.
A chartered accountant in practice is entitled to appear as the authorised representative of the registered person under Section 116 of the CGST Act, provided a written authorisation in that behalf has been given by the registered person.
An advocate is generally not required at the audit stage, though in the event the audit results in a show cause notice, adjudication or an appeal, the services of an advocate become more relevant to the assessee.
The audit is required to be completed within three months from the date of commencement thereof, which period may be extended by the Commissioner by a further period not exceeding six months for reasons to be recorded in writing.
The audit under Section 65 is not the same as GSTR-9C inasmuch as the latter is the annual reconciliation statement which, from FY 2020-21, is self-certified by the registered person himself, whereas the audit under Section 65 is carried out by the officers of the department for the period specified in Form ADT-01.
Failure to produce the records or furnish explanations may attract penalty, and the officers may proceed on the basis of the information available with them or exercise the other powers conferred under the Act.
DSRV & Co. LLP has handled tax audits and disputes since 1987. We're an ICAI-registered, peer-reviewed CA firm in Gurugram. Send us the ADT-01 and we'll plan the reconciliation, sit through the audit with you and answer the findings in writing, on time.
Angel tax is gone for new rounds, but notices for older years are still coming. How startups can defend a Section 56(2)(viib) notice, step by step.
Section 154 rectification explained: what counts as a mistake apparent from the record, the four-year limit, how to file and what to put in the request.
Who can respond to a Section 143(1) intimation mismatch, and how? Taxpayer, signatory or authorised CA, the right portal route, deadlines and mistakes.
