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A GST audit is an examination of a registered business’s records and compliance; a show cause notice (SCN) proposes a tax demand or other consequence and requires the business to answer. An audit finding is not automatically a final demand or an SCN, though specified audit discrepancies can lead to separate demand proceedings. This guide covers the Indian CGST framework; parallel State or Union Territory GST and Integrated GST provisions may also be relevant.
How an audit differs from a show cause notice
| Point | GST audit | Show cause notice |
|---|---|---|
| Purpose | Review declared turnover, tax paid, refunds, input tax credit (ITC), and compliance. | Set out the department’s proposed case and ask why a specified amount or consequence should not be determined against the recipient. |
| Legal stage | Examination under section 65 of the CGST Act, ordinarily through an audit notice and findings communication. | Demand proceedings under the provision cited in the notice; the notice is not itself the final adjudication order. |
| Typical document | Form GST ADT-01 for the section 65 audit notice; Form GST ADT-02 communicates its conclusion. | A demand SCN identifying the provision, tax period, allegations, and proposed amounts. The audit forms are not substitutes for it. |
| What the business should provide | Relevant books, returns, records, and explanations in response to audit observations. | A reasoned, evidence-backed reply addressing the specific allegations and proposed treatment. |
| Possible consequence | Findings may close the audit or prompt further action under an applicable demand provision. | Adjudication may determine tax, interest, and applicable penalty, subject to the Act and the notice’s stated case. |
The relevant law and deadlines depend on the tax period and the provision actually cited. Do not assume that every matter follows the same demand section or timeline.
What happens in a section 65 audit
A section 65 audit is a structured review of the records a registered person maintains or furnishes. The officer may conduct it at the business premises or at the tax office. The statutory purpose includes checking the correctness of declared turnover, tax paid, refunds claimed, ITC taken, and compliance with the CGST Act and rules. The audit period under the rules is a financial year or multiples of one. CGST Act, section 65; CBIC Assessment-Audit Rules.
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Notice, examination, and findings
- The registered person must be informed at least 15 working days before the audit.
- The ordinary completion period is three months from commencement. The Commissioner may extend it by up to a further six months if reasons are recorded in writing. The Act defines commencement by reference to the later of records being made available or the audit actually beginning at the business premises.
- The officer examines records supporting accounts and returns, including matters such as turnover, exemptions and deductions, tax rates, ITC, and refund claims. If discrepancies arise, the officer may communicate audit observations; the business may reply, and the officer is to consider that reply before finalizing the findings.
- Within 30 days after the audit concludes, the proper officer must inform the registered person of the findings, rights and obligations, and reasons for the findings. Form GST ADT-02 is used to communicate the audit conclusion.
These are the section 65 statutory periods described in the cited Act text. Check the actual notice and applicable law for the case at hand. CGST Act, section 65; Assessment-Audit Rules.
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Special audit is a separate process
A special audit under section 66 is not the ordinary department audit under section 65. In specified circumstances, an officer not below Assistant Commissioner rank may, with prior Commissioner approval, direct a nominated chartered accountant or cost accountant to conduct one. The direction and findings use Forms GST ADT-03 and ADT-04 respectively. CBIC Assessment-Audit Rules.
What a show cause notice alleges
An SCN tells the recipient what the department proposes and gives the recipient an opportunity to answer before the matter is determined. Under sections 73 and 74 as set out in the cited Act text, the proposed case may concern tax not paid or short paid, an erroneous refund, or ITC wrongly availed or utilized, along with applicable interest and penalty provisions. Section 73 covers the route for reasons other than fraud, wilful misstatement, or suppression to evade tax; section 74 addresses those specified allegations where one of those grounds is alleged. A section 74 allegation is the department’s case to be answered, not a finding that fraud has already been established. CGST Act, sections 73–75.
For newer tax periods, do not assume sections 73 or 74 are necessarily the governing route: section 74A may be relevant. The CBIC-hosted CGST Act PDF dated 1 August 2021 is an older text, so it does not establish the complete current rules for those periods. Check the current consolidated Act, commencement notifications, and applicable rules before relying on a section, deadline, penalty, or payment option. CBIC CGST Act PDF dated 1 August 2021.
Notice and final order are not the same
The SCN is the proposed case; adjudication is the later decision stage. In the circumstances specified by the Act, the recipient must be given an opportunity of hearing. An adjudication order must set out relevant facts and its basis, cannot confirm tax, interest, or penalty above the amounts specified in the notice, and cannot confirm a demand on grounds outside those stated there. These protections do not replace the need to meet the response deadline and address the actual allegations. CGST Act, sections 73–75.
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What to do when an audit notice or SCN arrives
- Identify the document and stage. Check whether you have Form GST ADT-01 (section 65 audit notice), ADT-02 (audit findings), a special-audit form, or a demand SCN. Note the issuing authority and cited provision. The forms and statutory routes are distinct. CBIC Assessment-Audit Rules.
- Record the period and deadline. Note the tax period, date and method of service, stated response date, and any submission instructions. Keep proof of delivery. Audit timelines and a demand notice’s response deadline are not interchangeable.
- Preserve the relevant records. Gather the returns, ledgers, invoices, reconciliations, ITC support, refund documents, and correspondence that relate to the period and issue. The records needed will depend on what the officer is examining or alleging.
- Reconcile each issue separately. Compare the department’s proposed treatment with the books, returns, and source documents. Prepare a point-by-point explanation and identify the evidence supporting each answer.
- For an SCN, assess the case and hearing needs. Review the exact section, allegations, proposed tax, interest, and penalty. Where appropriate, request a hearing in writing and seek qualified GST professional advice if the amount, legal interpretation, or records are disputed.
- Keep a complete procedural file. Retain filed replies and acknowledgments, hearing records, audit communications, and any order. Check an actual final order and current law for any appeal route and deadline; do not infer them from audit periods.
Which deadline applies?
The section 65 audit time limits govern audit procedure; they are not the response deadline for a demand SCN. For a notice, follow the response date and instructions stated in that notice, and verify the applicable demand provision and current law for its tax period. If the issue is an audit observation rather than a demand notice, respond through the audit process and preserve the supporting record.
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