Sri Saraswathi Nagar Maduravoyal GST Audit Support — Chennai West

Sub-section (1) of Section 65 of the Central Goods and Services Tax Act empowers the Commissioner, or any officer authorised by him through a general or specific order, to undertake audit of any registered person for such period, frequency and manner as may be prescribed. Sub-section (2) provides that the audit may be conducted either at the place of business of the registered person or at the office of the proper officer. It is to be noted that this provision is the substantive source of departmental audit jurisdiction and is read with Rule 101 for procedural mechanics.

Sub-section (1) of Section 66 provides that if at any stage of scrutiny, inquiry, investigation or any other proceedings, the officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with prior approval of the Commissioner, direct the registered person to get the records including books of account examined and audited by a chartered accountant or a cost accountant nominated by the Commissioner.

Sub-rule (1) of Rule 101 provides that the period of audit shall be a financial year or part thereof or multiples thereof. Sub-rule (2) prescribes Form GST ADT-01 for the audit notice. Sub-rule (4) directs the proper officer, on conclusion of audit, to record the audit observations in his audit notes and to inform the registered person of the discrepancies, who may file his reply. Sub-rule (5) prescribes Form GST ADT-02 for communication of audit findings.

Sub-section (3) of Section 65 provides that the registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit. The notice is issued in Form GST ADT-01 as prescribed under Rule 101(2). It is to be noted that the fifteen-working-day window is a substantive procedural safeguard; commencement of audit proceedings without compliance with this timeline is a jurisdictional infirmity that may be agitated under Article 226.

Section 74 governs the determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed by reason of fraud, wilful misstatement or suppression of facts to evade tax. The limitation is extended to five years from the due date of the annual return for the relevant financial year. Penalty equal to the tax demanded is leviable. It is to be noted that the higher penalty regime under this provision requires the proper officer to specifically allege and establish one of the three jurisdictional triggers.

Section 67 confers on the proper officer not below the rank of Joint Commissioner the power, where he has reasons to believe that a registered person has suppressed any transaction or has claimed input tax credit in excess of his entitlement or has indulged in contravention of any of the provisions of the Act with intent to evade tax, to authorise in writing any other officer to inspect any places of business. It is to be noted that Section 67 is a distinct enforcement track and is not the same as the audit jurisdiction under Section 65.

What is a GST audit and where does it sit in the compliance architecture

Self-certification under GSTR-9C and its audit interplay

Until Finance Act 2021 amendments, Section 35(5) had required certification of GSTR-9C by a Chartered Accountant or Cost Accountant for registered persons whose aggregate turnover exceeded the prescribed threshold. The Finance Act 2021 substituted Section 35(5) and amended Section 44, shifting GSTR-9C to a self-certified reconciliation statement filed by the registered person without third-party attestation, effective FY 2020-21 onwards (Notification 29/2021-CT). The reconciliation in GSTR-9C between audited financial statements and GSTR-9 annual return is now an internal-control disclosure; it does not substitute for departmental audit under Section 65. Audit teams treat GSTR-9C self-certified reconciliations as primary working papers — Table 5 (turnover reconciliation), Table 9 (tax payable reconciliation) and Table 12-14 (ITC reconciliation) become the starting points of Section 65 audit interrogation.

Comparative framework — VAT/CST audits versus GST audit

Pre-GST, the VAT regime in Tamil Nadu (Tamil Nadu VAT Act 2006) had an audit framework under Section 64 with mandatory CA audit certificates for dealers above prescribed turnover, and the Central Sales Tax framework had limited audit coverage focused on inter-State transactions. The GST framework consolidates and rationalises this — a single audit under Section 65 covers central, State and integrated tax dimensions; the cooperative-federal architecture under Article 246A and 279A means the audit can be conducted by either the central or State authority but not both (Section 6 cross-empowerment). The OECD International VAT/GST Guidelines emphasise audit-efficiency through risk-based selection and digital data analytics, both of which the Indian framework has incorporated through GSTN-driven analytics and the GSTR-9C self-certification feed.

Statutory framework under Chapter XIII of the CGST Act

The audit framework under the Central Goods and Services Tax Act 2017 is contained in Chapter XIII, comprising Sections 65, 66 and 71. Section 65 provides for departmental audit, Section 66 for special audit by a Chartered Accountant or Cost Accountant nominated by the Commissioner, and Section 71 for access to business premises by an authorised officer. The Empowered Committee 2009 First Discussion Paper had envisaged audit as the principal verification layer in a self-assessment regime, replacing the pre-GST pattern of routine assessment under the VAT/CST framework. The architecture is risk-based: not every registered person is audited; selection is driven by Section 65(2) read with internal CBIC risk-management directions which factor in turnover scale, sectoral risk profile, prior compliance history and reconciliation gaps surfaced in GSTR-9C self-certification. The audit-process closure under Section 65(7) feeds either into a no-objection certificate, a voluntary DRC-03 payment, or an SCN under Section 73 or Section 74 depending on whether tax has been short-paid, short-collected or wrongly availed as ITC.

Records retention under Section 35

Specific records prescribed under Rules 56 to 58

Rule 56 of the CGST Rules elaborates the records to be maintained under Section 35 — accounts of goods or services received and supplied, stock of goods (with opening balance, receipt, supply, goods lost stolen destroyed written off or disposed of by way of gift or free sample, balance), particulars of ITC availed, output tax payable and paid, names and complete addresses of suppliers and customers, complete addresses of premises where goods are stored including goods stored during transit, monthly production accounts (for manufacturers) showing quantitative details of raw materials and goods produced, and accounts of advances received and paid. Rule 57 provides for maintenance through electronic means with prescribed safeguards. Rule 58 covers transporter, owner and operator of warehouse records. The records-architecture is granular and audit teams systematically map registered-person records against the Rule 56 schema during Section 65 audits.

Consequences of failure to maintain records

Failure to maintain accounts and records as prescribed under Section 35 read with Rule 56 attracts consequences under multiple provisions. Section 35(6) empowers the proper officer to determine the tax payable on the goods or services or both not accounted for as if such goods or services or both had been supplied by such person, and the provisions of Sections 73 or 74 shall apply for determination of such tax. Section 122 provides for penalty for various offences including failure to maintain records — up to ₹10,000 or the amount of tax evaded, whichever is higher. The audit team's working assumption in cases of inadequate records is that the burden shifts to the registered person to demonstrate the correctness of declared turnover and ITC; this evidentiary shift is the most material consequence in practice.

Comparative framework — Income Tax Act 44AA and Companies Act records

The GST retention framework operates alongside the Income Tax Act Section 44AA requirement to maintain books of account for specified professions and businesses (with retention under Rule 6F for six years), and the Companies Act 2013 Section 128 requirement for books of account preservation for at least eight years preceding the current year. The longest applicable horizon governs — for a company carrying on a taxable supply business, the effective records-retention period is the Companies Act eight-year horizon. The OECD International VAT/GST Guidelines recommend a minimum retention of five years tied to the audit-period limitation, which the Indian GST framework comfortably exceeds. Coordinated retention policies across GST, income tax and Companies Act dimensions are the typical compliance design at well-run enterprises.

Rule 56 stock records

Stock-record obligations under Rule 56(2) and Rule 56(18)

Rule 56(2) of the CGST Rules requires every registered person, other than a person paying tax under Section 10 (composition), to maintain accounts of stock in respect of goods received and supplied — showing opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample, and balance of stock including raw materials, finished goods, scrap and wastage. Rule 56(18) imposes a higher-granularity obligation on registered persons dealing in goods of the kinds notified — currently primarily precious metals, precious stones and jewellery — requiring daily quantity-wise and value-wise stock registers. The granularity differential between Rule 56(2) and Rule 56(18) reflects the sector-specific revenue-risk assessment that has been part of Indian indirect-tax administration since pre-GST excise.

Reconstruction of stock records during audit

Where stock records under Rule 56(2) are incomplete or absent — a common scenario in SME manufacturing and trading — reconstruction during the ADT-01 fifteen-day window is the standard response. The reconstruction sources include purchase invoices and GSTR-2A entries (for inward stock), GSTR-1 outward supplies (for sales), e-way bill data (for stock movements), bank statements (for cash purchases or sales not invoiced through GST channels), and stock-take working papers from the statutory audit under the Companies Act or Section 44AB income tax audit. Reconstruction must be contemporaneous with the original transaction dates; backdated reconstruction is treated as fabrication by the audit team. The Tapas Dutta v UoI line of authority on retrospective records is occasionally invoked, but registered persons should not rely on it as a safe harbour.

Stock-difference treatment under Section 35(6) and Section 17(5)(h)

Where audit identifies stock differences — physical stock at audit visit differing from book stock — two provisions operate. Section 35(6) deems the unaccounted goods to have been supplied and attracts tax under Sections 73 / 74. Section 17(5)(h) blocks ITC on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free sample, requiring reversal of the ITC originally claimed. The audit team typically computes both legs — output tax on the deemed supply, and ITC reversal on the inward leg — leading to a double-impact. Voluntary disclosure of stock-differences with documented reasons (e.g. shrinkage, wastage, theft with FIR copy) limits the exposure; the audit team's discretion under Section 75 allows mitigation where reasons are substantiated.

GSTR-9C self-certification interplay with audit

Optional GSTR-9C and tactical considerations

For registered persons whose aggregate turnover is between ₹2 crore and ₹5 crore (where GSTR-9 is optional under Notification 47/2019-CT and similar; GSTR-9C threshold is above ₹5 crore), the strategic question is whether to file GSTR-9 and GSTR-9C voluntarily. Voluntary filing provides a contemporaneous reconciliation record that strengthens the audit-defence position; non-filing leaves the audit team to compute reconciliation themselves from primary records, often less favourably. The GST Council 47th Chandigarh and 53rd meetings have periodically rationalised these thresholds; the Empowered Committee 2009 First Discussion Paper had envisaged annual-return-as-integrating-layer architecture that the current threshold-based structure has partially diluted.

Self-certification regime from FY 2020-21

Notification 29/2021-CT and the Finance Act 2021 substitution of Section 35(5) shifted GSTR-9C from CA / CMA attested certification to self-certification by the registered person, effective from financial year 2020-21 onwards. The reconciliation statement now bears the signature of the registered person or the authorised signatory; the previous Part B CA-CMA certification has been dropped. The substantive contents of GSTR-9C — Part A (reconciliation between audited financial statements and GSTR-9, covering turnover Table 5, taxable value Table 7, tax payable Table 9, ITC Tables 12-14) and Part B (auditor certification, now omitted) — are otherwise broadly retained. The threshold for GSTR-9C continues to be aggregate turnover above ₹5 crore, per Notification 16/2022-CT.

GSTR-9C as audit working paper

From the Section 65 audit-team perspective, GSTR-9C is the primary working paper that drives initial audit-topic selection. Table 5 turnover reconciliation surfaces unbilled-revenue, advance-receipt and inter-State stock-transfer issues. Table 7 taxable-value reconciliation surfaces classification and exemption-claim issues. Table 9 tax-payable reconciliation triggers rate-of-tax interrogation. Tables 12 to 14 ITC reconciliation drive Section 16 eligibility and Rule 42 / 43 apportionment audits. The audit team treats unexplained variances in any of these tables as priority interrogation topics; the registered person's strongest defence is a contemporaneous explanatory note attached to GSTR-9C addressing each material variance. CBDT Circular 8/2021 (in the AIS context, on reconciliation principles) and CBIC Circular 124/43/2019-GST on GSTR-9C format offer guidance.

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