Section 65 – Audit by Tax Authorities Under GST: Process, Notice, Documents and Compliance Guide

Received a GST Audit Notice? Understand Section 65 Before Responding

GST compliance is not limited to filing returns and paying taxes on time. The GST department also has the authority to verify whether registered taxpayers have correctly reported their transactions, claimed eligible Input Tax Credit, applied correct tax rates, and maintained proper records.

One such verification mechanism is the audit by tax authorities under Section 65 of the CGST Act, 2017.

Under Section 65, the Commissioner or an authorised officer can conduct an audit of any registered person for a specified period to verify GST compliance. The audit can be conducted at the taxpayer’s place of business or at the office of the tax authorities.

A GST audit under Section 65 does not mean that the taxpayer has committed any violation. It is a statutory verification process through which the department examines whether GST provisions have been properly followed.

During a GST departmental audit, authorities may verify:

• Turnover reported in GST returns.
• Tax liability calculation.
• GST rates applied.
• Input Tax Credit claimed and utilised.
• Refunds claimed.
• Exempt supplies.
• Books of accounts.
• Supporting documents.

Many businesses become concerned after receiving a GST audit notice because they are unsure about:

• Why the audit has been selected.
• What documents need to be submitted.
• How the audit process works.
• What happens after audit findings.
• Whether tax demand will automatically arise.

A proper understanding of Section 65 helps businesses prepare effectively and protect their compliance position.

This detailed guide explains:

• Meaning of Section 65 GST audit.
• Purpose of audit by tax authorities.
• GST ADT-01 notice.
• GST audit procedure.
• Documents required during audit.
• Taxpayer rights and responsibilities.
• Difference between GST scrutiny and GST audit.
• Difference between Section 65 and Section 66 special audit.
• GST ADT-02 audit report.
• Practical examples.
• Common mistakes.
• Compliance checklist.

What Is Section 65 of GST Act?

Section 65 of the CGST Act deals with audit by tax authorities.

It empowers the Commissioner or an authorised GST officer to conduct an audit of a registered person for a specific period and in the prescribed manner.

The purpose of this audit is to verify the correctness of GST compliance maintained by the taxpayer.

During the audit, authorities may examine:

• Books of accounts.
• GST returns filed.
• Tax payments.
• Input Tax Credit records.
• Invoices.
• Other relevant documents.

The audit may be conducted:

• At the registered person’s place of business.
• At the GST officer’s office.

The registered person must be informed through a notice before the audit begins. The notice must generally be issued at least 15 working days before the conduct of audit.

Why Is GST Audit Under Section 65 Conducted?

The GST system follows a self-assessment mechanism where taxpayers themselves calculate tax liability and file returns.

However, errors may occur due to:

• Incorrect tax classification.
• Wrong Input Tax Credit claims.
• Reporting mistakes.
• Incorrect exemptions.
• Accounting differences.

The purpose of GST audit is to ensure:

1. Verification of Tax Compliance

The department verifies whether businesses have correctly followed GST provisions.

This includes checking:

• Tax payment.
• Return filing accuracy.
• Invoice compliance.

2. Checking Input Tax Credit Claims

Input Tax Credit is one of the major areas examined during GST audits.

The officer may verify:

• Whether ITC was eligible.
• Whether invoices are available.
• Whether goods/services were received.
• Whether credit was correctly utilised.

3. Identifying Tax Short Payment

During audit, authorities may identify situations such as:

• Tax not paid.
• Short payment of GST.
• Wrong refund claim.
• Incorrect ITC utilisation.

If discrepancies are detected, further action may be initiated under applicable provisions.

4. Improving GST Compliance

GST audit encourages businesses to maintain:

• Accurate books.
• Proper documentation.
• Regular reconciliation.
• Correct reporting.

When Can GST Department Conduct Audit Under Section 65?

The GST department may conduct an audit of any registered person when authorised by the Commissioner or competent authority.

There is no requirement that every registered taxpayer must undergo a GST audit every year.

Audit selection may depend on various factors, including:

• Risk parameters.
• Compliance history.
• Return data analysis.
• Business transactions.
• Other departmental criteria.

The audit may cover:

• A financial year.
• Part of a financial year.
• Multiple financial years, wherever applicable.

Under GST rules, the period of audit under Section 65 is generally a financial year or part thereof or multiples thereof.

GST ADT-01 Notice Under Section 65

Before conducting a GST audit, the proper officer issues a notice in:

FORM GST ADT-01

This notice informs the registered person about the proposed audit.

The notice generally includes:

• Date of audit.
• Place of audit.
• Period covered.
• Documents required.
• Other relevant instructions.

The taxpayer should carefully review ADT-01 and prepare the required records before the audit begins.

GST Audit Notice Timeline

The taxpayer must receive prior notice before the audit.

Under Section 65:

The notice must generally be issued at least:

15 working days before the conduct of audit.

This gives the taxpayer reasonable time to:

• Arrange documents.
• Coordinate with accounts teams.
• Prepare explanations.
• Review GST records.

GST Audit Process Under Section 65

The GST audit process generally involves multiple stages.

Step 1: Receipt of GST ADT-01 Notice

The process begins when the taxpayer receives an audit notice.

The business should immediately review:

• Audit period.
• Documents requested.
• Date of audit.
• Officer details.

The taxpayer should assign responsible persons from:

• Finance department.
• Accounts team.
• Tax compliance team.

Step 2: Collection of Required Documents

Before the audit begins, businesses should prepare relevant records.

These may include:

• GST returns.
• Sales invoices.
• Purchase invoices.
• ITC records.
• Ledgers.
• Financial statements.
• Tax payment records.

Proper preparation helps avoid delays during audit proceedings.

Step 3: Verification of Records by GST Officers

During the audit, authorised officers verify records and documents.

They may examine:

• Turnover accuracy.
• Tax rates applied.
• Exemptions claimed.
• Input Tax Credit availed.
• Refund claims.
• Other GST compliance matters.

The officer may also seek clarification or additional information from the taxpayer.

Step 4: Recording Audit Observations

If the officer identifies discrepancies, observations may be recorded during the audit.

Examples:

• Difference between books and GST returns.
• Incorrect ITC claim.
• Tax rate mismatch.
• Missing documentation.

The taxpayer gets an opportunity to provide clarification regarding these observations.

Step 5: Finalisation of Audit Findings

After considering taxpayer explanations, the officer finalises audit findings.

The audit findings are communicated through:

FORM GST ADT-02

The report informs the taxpayer about:

• Audit findings.
• Reasons for findings.
• Rights and obligations.

GST Audit Completion Timeline Under Section 65

The audit under Section 65 should generally be completed within:

Three months from the date of commencement of audit.

However, if the Commissioner is satisfied that additional time is required, the period may be extended by a further period not exceeding six months, with reasons recorded in writing.

The commencement of audit is considered from the date when:

• Required records and documents are made available by the taxpayer.

OR

• Actual audit begins at the place of business,

whichever is later.

Documents Required During GST Audit Under Section 65

When a business receives a GST audit notice under Section 65, proper preparation of documents is one of the most important steps.

The authorised GST officer may verify books of accounts, GST returns, invoices, ITC records, tax payments, and other relevant documents to check the correctness of GST compliance.

The documents required may vary depending on the nature of business and audit scope.

Generally, businesses should keep the following records ready:

1. GST Return Records

Businesses should maintain copies of:

• GSTR-1 filed returns.
• GSTR-3B returns.
• Annual returns, wherever applicable.
• GST refund applications.
• Other GST statements.

The officer may compare return data with books of accounts to identify differences.

2. Sales Related Documents

The audit officer may verify outward supply details.

Important documents include:

• Sales invoices.
• Debit notes.
• Credit notes.
• Export documents.
• E-invoice records.
• E-way bill details.
• Customer-wise sales details.

These records help verify:

• Turnover reported.
• Tax calculation.
• Applicable GST rate.
• Place of supply.

3. Purchase and Input Tax Credit Documents

Input Tax Credit is one of the major areas reviewed during GST audits.

Businesses should maintain:

• Purchase invoices.
• Supplier details.
• ITC register.
• GSTR-2B reconciliation.
• Input tax ledger.
• Reverse charge records.

The officer may verify whether:

• ITC was eligible.
• Invoice conditions were fulfilled.
• Credit was correctly claimed.
• Blocked credits were avoided.

4. Accounting Records

GST audit involves comparison between GST returns and financial records.

Businesses should keep:

• General ledger.
• Trial balance.
• Profit and loss account.
• Balance sheet.
• Bank statements.
• Expense records.

The purpose is to verify whether accounting records match GST disclosures.

5. Tax Payment Records

Businesses should provide:

• GST payment challans.
• Electronic cash ledger details.
• Electronic credit ledger details.
• Tax adjustment records.

These records help verify whether reported liabilities were properly discharged.

6. Business Agreements and Supporting Documents

Depending on the industry, GST officers may require:

• Contracts.
• Work orders.
• Service agreements.
• Purchase agreements.
• Pricing documents.

These documents help determine:

• Nature of supply.
• Taxability.
• Applicable GST rate.

Key Areas Checked During GST Audit Under Section 65

During a GST departmental audit, officers generally verify various compliance areas.

Rule 101 of the CGST Rules provides that the authorised officer may verify turnover, exemptions, deductions, tax rates, Input Tax Credit availed and utilised, refunds claimed, and other relevant issues.

1. Verification of Turnover

The GST officer may compare:

• Sales register.
• GST returns.
• Financial statements.
• E-invoice data.
• Bank records.

Possible issues identified:

• Unreported sales.
• Difference between books and returns.
• Incorrect reporting period.

Example:

Books of accounts show turnover:

₹5 crore

GSTR-3B turnover:

₹4.80 crore

Difference:

₹20 lakh

The taxpayer may need to explain whether the difference relates to:

• Credit notes.
• Exempt supplies.
• Timing differences.
• Accounting adjustments.

2. Verification of GST Rates

The audit officer may check whether correct GST rates have been applied.

Common issues include:

• Wrong HSN classification.
• Incorrect service classification.
• Applying lower GST rate incorrectly.

Example:

A product taxable at 18% GST is incorrectly reported at 12%.

The department may examine the classification and tax impact.

3. Input Tax Credit Verification

ITC verification is one of the most detailed parts of GST audit.

The officer may examine:

• Purchase invoices.
• Supplier compliance.
• ITC eligibility.
• GSTR-2B reconciliation.
• Blocked credit provisions.

Common ITC issues include:

• Excess ITC claim.
• Duplicate ITC.
• ITC without proper invoices.
• ITC on restricted items.

4. Reverse Charge Mechanism (RCM) Compliance

GST audit may also include verification of reverse charge transactions.

Businesses should verify:

• Whether RCM was applicable.
• Whether tax was paid correctly.
• Whether eligible ITC was claimed after payment.

Examples of areas examined:

• Legal services.
• Goods transport services.
• Other notified supplies.

5. Exempt and Zero-Rated Supplies

The department may verify:

• Exempt supplies.
• Nil-rated supplies.
• Export transactions.
• Supplies under LUT.

Documents may include:

• Export invoices.
• Shipping bills.
• LUT details.
• Refund records.

6. Refund Claims Verification

If the taxpayer has claimed GST refunds, the officer may verify:

• Refund eligibility.
• Supporting documents.
• Calculation method.
• Relevant transactions.

GST Audit Findings and GST ADT-02 Report

After completing the audit, the proper officer communicates the audit findings through:

FORM GST ADT-02

The audit report includes:

• Audit observations.
• Reasons for findings.
• Rights and obligations of the taxpayer.

The findings must generally be communicated within 30 days after conclusion of audit.

If discrepancies are identified, the taxpayer may need to take appropriate action.

Possible outcomes include:

1. No Discrepancy Found

If the audit does not identify any issue:

• The audit is concluded.
• No further action may be required.

2. Minor Compliance Issues

The taxpayer may be advised to correct procedural issues.

Examples:

• Record maintenance improvements.
• Documentation corrections.

3. Tax Short Payment or Wrong ITC Detection

If audit reveals:

• Tax not paid.
• Short payment of tax.
• Wrong refund.
• Wrong ITC claim.

The department may initiate further action under applicable provisions.

GST Audit vs GST Scrutiny Under Section 61

Many businesses confuse GST audit with GST scrutiny.

Both involve verification by GST authorities, but their scope is different.

GST scrutiny mainly focuses on return discrepancies, whereas GST audit involves a wider examination of records and compliance.

GST Audit Under Section 65 vs Special Audit Under Section 66

Section 65 and Section 66 audits are different mechanisms under GST.

Section 66 is generally used where authorities believe that the value declared or ITC claimed requires detailed professional examination.

Rights and Responsibilities of Taxpayer During GST Audit

Businesses undergoing GST audit have certain responsibilities as well as rights.

Responsibilities of Taxpayer

The taxpayer should:

• Provide required documents.
• Allow verification of records.
• Provide accurate information.
• Cooperate with audit proceedings.

During audit, authorised officers may require access to books of accounts and relevant documents.

Rights of Taxpayer

The taxpayer has the right to:

• Receive prior audit notice.
• Know audit findings.
• Provide explanations.
• Submit supporting documents.
• Receive reasons for audit observations.

The taxpayer should carefully review every observation before accepting any liability.

Practical Examples of GST Audit Under Section 65

Understanding GST audit becomes easier with practical business situations.

Example 1: GST Audit Due to ITC Mismatch

ABC Manufacturing Private Limited receives a GST audit notice under Section 65.

During verification, the GST officer observes:

ITC claimed in GSTR-3B:

₹25 lakh

Eligible ITC based on purchase records:

₹22 lakh

Difference:

₹3 lakh

The officer asks for clarification.

The company reviews its records and finds that:

• Some invoices were entered twice in the accounting system.
• Certain credits related to restricted transactions were incorrectly claimed.

The company prepares reconciliation and provides clarification.

After verification, the taxpayer may:

• Reverse incorrect ITC, if applicable.
• Pay applicable interest.
• Provide supporting explanation for eligible credits.

This example shows why regular ITC reconciliation before audit can prevent major compliance issues.

Example 2: GST Audit Due to Turnover Difference

XYZ Traders receives a GST audit notice for the financial year.

During audit, the officer compares:

Books of accounts turnover:

₹8 crore

GSTR-3B reported turnover:

₹7.60 crore

Difference:

₹40 lakh

The taxpayer reviews the difference and identifies that:

• Certain exempt supplies were incorrectly compared.
• Some adjustments were not considered while comparing figures.
• Reporting differences existed between accounting records and GST returns.

The business prepares a detailed reconciliation statement and submits supporting documents.

A proper explanation helps establish the actual tax position.

Example 3: GST Rate Classification Issue

A company sells products under multiple categories.

During GST audit, the officer identifies that one category of products was reported under a lower GST rate.

The department reviews:

• HSN classification.
• Product description.
• Applicable notifications.
• Tax treatment followed.

The taxpayer must provide supporting documents explaining the classification adopted.

If the classification is found incorrect, applicable tax adjustments may be required.

Common Mistakes Businesses Make During GST Audit

A GST audit becomes difficult when businesses do not maintain proper records or fail to prepare before proceedings.

Below are common mistakes businesses should avoid.

1. Not Preparing Documents Before Audit

Many businesses start collecting documents only after the audit begins.

This creates delays and may result in incomplete explanations.

Businesses should prepare:

• GST returns.
• Ledgers.
• Invoices.
• ITC reconciliation.
• Financial records.

before the audit starts.

2. Ignoring Differences Between Books and GST Returns

A common issue during GST audit is mismatch between:

• Accounting software.
• GST returns.
• Financial statements.

Businesses should regularly reconcile:

• Turnover.
• Tax liability.
• ITC.
• Refund claims.

before receiving any audit notice.

3. Incorrect ITC Records

Input Tax Credit is one of the most reviewed areas during GST audits.

Common ITC-related mistakes include:

• Claiming credit without proper invoices.
• Not maintaining ITC registers.
• Ignoring blocked credit provisions.
• Not reconciling GSTR-2B.

A proper ITC review reduces audit risks.

4. Providing Incomplete Information

During audit, the authorised officer may require books, documents, and information necessary for verification.

Businesses should provide accurate information and cooperate with proceedings. Section 65 allows the authorised officer to require facilities for verification and necessary information during the audit.

Incomplete or delayed responses may increase compliance difficulties.

5. Accepting Audit Observations Without Verification

Businesses should carefully review every audit observation.

A difference identified by the department may require:

• Explanation.
• Reconciliation.
• Additional documents.

Taxpayers should verify facts before accepting any liability.

How Businesses Can Prepare for GST Audit Under Section 65

A proactive compliance approach helps businesses handle GST audits smoothly.

1. Perform Regular GST Reconciliation

Businesses should regularly reconcile:

• GSTR-1 with sales register.
• GSTR-3B with books of accounts.
• GSTR-2B with purchase register.
• Tax payments with ledgers.

Regular reconciliation helps identify errors before audit.

2. Maintain Proper Documentation

Businesses should maintain:

• Tax invoices.
• Purchase records.
• Contracts.
• Agreements.
• Expense documents.
• GST workings.

Proper documentation supports the taxpayer’s position during audit.

3. Conduct Internal GST Reviews

An internal GST compliance review can identify:

• Wrong tax rates.
• ITC issues.
• Return mismatches.
• Documentation gaps.

Businesses can correct errors before they become audit issues.

4. Keep GST Records Organised

Records should be maintained systematically.

Important categories include:

• Sales records.
• Purchase records.
• ITC records.
• Tax payment records.
• Refund documents.

GST Audit Preparation Checklist

Frequently Asked Questions (FAQs)

1. What is Section 65 of GST Act?

Section 65 of the CGST Act allows the Commissioner or an authorised officer to conduct an audit of a registered person for a specified period to verify GST compliance.

The audit may be conducted at the taxpayer’s place of business or at the tax office.

2. What is GST audit by tax authorities?

GST audit by tax authorities is a departmental verification process where officers examine GST records, returns, invoices, ITC claims, tax payments, and other compliance matters.

3. What is GST ADT-01 notice?

GST ADT-01 is the notice issued for conducting audit under Section 65.

It informs the taxpayer about the audit and the records required for verification.

4. What is GST ADT-02 report?

GST ADT-02 is the audit report issued after completion of GST audit.

It communicates the audit findings, observations, and relevant details to the registered person.

5. How much time is given before GST audit?

The taxpayer must generally be informed through notice at least 15 working days before the audit begins.

6. How long does GST audit take?

GST audit should generally be completed within three months from the commencement of audit.

The period may be extended by the Commissioner for reasons recorded in writing by a further period not exceeding six months.

7. Can GST audit result in tax demand?

Yes.

If audit identifies:

• Tax not paid.
• Short payment of tax.
• Wrong refund.
• Incorrect ITC claim.

the department may initiate further proceedings under applicable provisions.

8. Is GST audit compulsory for every taxpayer?

No.

Section 65 audit is conducted by the GST department for selected registered persons based on applicable criteria and authorisation.

9. What is the difference between GST audit and GST scrutiny?

GST scrutiny under Section 61 mainly examines discrepancies in filed returns.

GST audit under Section 65 involves a detailed verification of books, records, returns, ITC, tax payments, and other compliance areas.

10. How can businesses avoid GST audit issues?

Businesses should:

• Maintain proper records.
• Reconcile GST returns regularly.
• Verify ITC claims.
• Keep invoices safely.
• Conduct internal GST reviews.

Need Expert Support for GST Audit Compliance?

A GST audit requires careful preparation, proper documentation, and a detailed understanding of GST provisions.

Even a small mismatch in:

• GST returns.
• ITC records.
• Turnover reporting.
• Tax classification.

can create unnecessary compliance challenges.

At FilingSuvidha, our GST experts help businesses prepare for GST audits, handle departmental communications, reconcile records, and manage complete GST compliance.

Our GST audit support services include:

✔ GST Audit Preparation Assistance
✔ GST ADT-01 Notice Review
✔ GST ADT-02 Audit Finding Analysis
✔ GST Return Reconciliation
✔ ITC Verification and Reconciliation
✔ Turnover Matching Support
✔ GST Compliance Review
✔ Professional GST Advisory Services

Received a GST audit notice or want to ensure your GST records are audit-ready? Connect with FilingSuvidha experts today and get professional assistance to handle GST audits with confidence.

Contact FilingSuvidha

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