Background : In the grand theatre of GST compliance, Sections 65 and 66 act as backstage inspectors ensuring no script goes off track. While Section 65 empowers the tax department to conduct routine audits of registered persons to verify tax accuracy, Section 66 is the surprise twist—invoked only when complexity or suspicion calls for a deeper probe by an independent CA or CMA. One is procedural, the other surgical. Together, they safeguard government revenue, ensure transparency, and keep taxpayers alert to the importance of clean books and consistent returns. Welcome to the world where tax tells a story.
Part 1 : Section 65 – Audit by Tax Authorities: Legal Analysis & Commentary
Background : In the dynamic landscape of GST compliance, Section 65 of the CGST Act serves as a crucial checkpoint, empowering tax authorities to ensure that businesses play by the rules. It authorizes the Commissioner or his delegate to conduct audits of registered taxpayers, not randomly, but strategically—based on risk, patterns, or anomalies. Think of it as a financial X-ray, revealing gaps, errors, or even intentional missteps in filings, ITC claims, or valuations. Through structured timelines, prescribed notices, and fair opportunity for clarification, this section upholds transparency while holding taxpayers accountable for their declarations and transactions under GST.
1. Sub-section (1): Power to Order Audit
| “The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.” |
→ Key Points:
- Audit can be initiated generally (for all or group of taxpayers) or specifically (individual entity).
- No threshold limit prescribed (unlike earlier CA/CMA audit u/s 35(5)).
- Covers any registered person under CGST, SGST, or IGST.
→ Professional Insight:
This sub-section gives discretionary powers to initiate audits based on risk-based analysis, data analytics, or routine checks, often triggered by red flags like:
- Excessive ITC,
- Misreporting in returns,
- Mismatch between GSTR-1, 3B, and 2A/2B.
2. Sub-section (2): Place of Audit
| “The officers… may conduct audit at the place of business of the registered person or in their office.” |
→ Key Points:
- Audit may be on-site (field audit) or desk-based (office audit).
- Depends on volume, nature of business, and complexity.
Implication:
Taxpayers must maintain books and documents at the principal place of business, as per Rule 56 of CGST Rules. Failing to present records can lead to obstruction proceedings.
3. Sub-section (3): Advance Notice
| “The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.” |
→ Legal Form:
- Notice is issued in Form GST ADT-01 (as per Rule 101(2), CGST Rules).
- Must be issued at least 15 working days before the audit begins.
→ Practical Insight:
Allows time to prepare:
- Reconcile GSTR-1/3B with books,
- Compile ITC and outward supplies data,
- Respond to any pending notices before audit.
4. Sub-section (4): Time Limit for Completion
| “…audit shall be completed within a period of three months… may be extended by six months…” |
→ Key Points:
- Normal time: 3 months from “commencement of audit”.
- Extension: Up to 6 additional months by Commissioner, with written reasons.
→ Explanation Clause:
| Explanation : For the purposes of this sub-section, the expression “commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later. |
→ “Commencement of audit” = the date on which:
- Records are made available by the taxpayer, or
- Actual visit to business premises (whichever is later).
→ Professional Tip:
Start of the time limit is not the date of notice, but the date of:
- First access to records, or
- Physical initiation, whichever is later.
Track this date carefully to challenge delayed audit proceedings.
5. Sub-section (5): Duty of Registered Person During Audit
| During the course of audit, the authorised officer may require the registered person,–
(i) to afford him the necessary facility to verify the books of account or other documents as he may require; (ii) to furnish such information as he may require and render assistance for timely completion of the audit. |
6. Sub-section (6): Communication of Findings
“…the proper officer shall, within 30 days, inform the registered person… about the findings, rights and obligations and reasons…”
7. Sub-section (7): Consequences of Audit Findings
“Where audit… results in detection of tax not paid/short paid/… officer may initiate action under section 73 or 74.”
→ What Sections 73 and 74 Mean:
- Section 73: No fraud, suppression or willful misstatement → lower penalty (10% or ₹10,000).
- Section 74: Involves fraud, suppression or wilful misstatement → higher penalty (100%).
→ Advisory Note:
Respond promptly to audit findings to avoid issuance of SCN (Show Cause Notice) under 73/74. Voluntary payment via DRC-03 may resolve the issue with reduced penalties.
Summary Table: Action Timeline under Section 65
| Stage | Legal Reference | Timeline |
| Notice to conduct audit | Section 65(3), Rule 101(2) | Min. 15 working days before audit |
| Duration of audit | Section 65(4) | 3 months from audit commencement |
| Extension (if required) | Proviso to Sec 65(4) | Max. 6 months |
| Informing audit findings | Section 65(6) | Within 30 days of audit completion |
| Further action | Section 65(7) | Under Section 73 or 74 |
Part 2 : Section 66 – Special Audit: Legal Analysis & Commentary
Overview: What is a Special Audit under GST?
Special Audit under Section 66 is not routine—it is invoked only when a case demands deeper financial and technical examination by an external expert (CA/CMA) due to complexity, suspected underreporting, or excessive credit claims. Unlike departmental audits under Section 65, this audit is mandated during scrutiny, investigation, or inquiry, and is conducted by a professional appointed by the Commissioner.
1. Sub-section (1): Triggering Special Audit
| (1) If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any 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 the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner. |
→ Key Legal Elements:
- Triggered during ongoing proceedings: scrutiny, inquiry, or investigation.
- Officer must be Assistant Commissioner or above.
- Conditions:
- Complexity of case, or
- Incorrect valuation suspected, or
- ITC availed is abnormally high or not matching returns.
- Requires prior written approval of the Commissioner.
→ Professional Insight:
Used when departmental officers lack capacity or need independent expert validation. Often seen in:
- Multi-state operations,
- High-value transactions,
- Complex pricing models,
- Sudden spikes in ITC/refunds.
2. Sub-section (2): Time Limit for Audit Report
| (2) The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified:
Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further period of ninety days. |
→ Key Legal Details:
- Report must be submitted to the Assistant Commissioner within 90 days of appointment.
- Extension: Max 90 more days with proper justification/application.
- Report must be signed and certified, and include prescribed particulars.
→ Pro Tip:
CA/CMA must ensure completeness and objectivity in the report, as it becomes the basis for further legal proceedings. Registered persons should cooperate fully and maintain documentation to defend their position.
3. Sub-section (3): Overriding Clause
| (3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force |
→ Interpretation:
Even if:
- A CA has already audited accounts under Companies Act, or
- Audit has been conducted under Income Tax, or
- Even if GSTR-9C is filed,
A special audit can still be directed under GST law.
→ Importance:
This clause ensures tax authorities’ right to conduct fresh audit, irrespective of previous audits done under any other law.
4. Sub-section (4): Natural Justice
| (4) The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder. |
→ Key Point:
Before using findings from the special audit in any proceeding, the taxpayer must be:
- Informed,
- Given a chance to explain or clarify,
- Allowed to present evidence/defense.
→ Legal Compliance:
This ensures natural justice and prevents arbitrary demand orders. The taxpayer should ask for a copy of the audit report and respond within a reasonable time.
5. Sub-section (5): Expenses and Remuneration
| (5) The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final. |
→ Highlights:
- No cost burden on the taxpayer.
- Commissioner bears and finalizes payment of CA/CMA.
- No dispute mechanism for this payment.
→ Implication:
This encourages independent opinion without conflict of interest. CA/CMA should remain neutral and unbiased, as they’re paid by the department—not the taxpayer.
6. Sub-section (6): Consequences of Special Audit
| (6) Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74. |
→ Same as Section 65(7):
- Section 73: Non-fraud cases – lower penalty (10% or ₹10,000).
- Section 74: Fraud/suppression cases – 100% penalty and prosecution risk.
→ Advisory:
Taxpayers should respond:
- Before issuance of SCN,
- Consider making voluntary payment through Form DRC-03 to avoid harsher action.
7. Section 66 Special Audit
| Sr. No. | Particulars | Details / Action Required |
| 1 | Trigger for Special Audit | Complexity in transactions, high ITC claims, undervaluation, suspicious patterns detected. |
| 2 | Authority to Order Audit | Assistant Commissioner (or above) with prior approval of Commissioner. |
| 3 | Audit by Whom | Chartered Accountant or Cost Accountant nominated by Commissioner. |
| 4 | Legal Intimation | Written communication from Assistant Commissioner to registered person. |
| 5 | Time Limit to Submit Report | Within 90 days from appointment (can be extended by further 90 days with reasons). |
| 6 | Audit Expenses & Fees | Paid and determined by the Commissioner. Taxpayer bears no cost. |
| 7 | Applicable Even If Other Audits Done | Yes. Overrides audits under other laws (e.g., Income Tax, Companies Act). |
| 8 | Right to Be Heard | Taxpayer must be given a fair hearing before using audit findings in proceedings. |
| 9 | Action if Tax Issues Found | Officer may initiate action under Section 73 or 74 (depending on fraud/suppression). |
| 10 | Maintain Proper Documentation | Books of accounts, GST returns, ledgers, tax invoices, reconciliation statements, etc. |
| 11 | Cooperation with Auditor | Mandatory. Must provide information, records, clarification and attend meetings as needed. |
| 12 | Suggested Internal Preparations | Reconcile ITC with GSTR-2B, match turnover with GSTR-3B/1, analyze abnormal patterns. |
| 13 | Professional Guidance Recommended | Engage your CA/CMA to help coordinate with the departmental auditor and review findings. |
| 14 | Avoid Delays | Submit records timely to avoid escalation or Section 74 action. |
| 15 | Post-Audit Response | File response to audit report, make voluntary payment if needed, or contest unjust findings. |
Key Differences: Section 65 vs. Section 66
| Feature | Section 65 (Dept Audit) | Section 66 (Special Audit) |
| Who initiates? | Commissioner or officer | Assistant Commissioner (with approval) |
| Who conducts audit? | Departmental Officer | Independent CA or CMA |
| Trigger | General order / risk-based selection | Complex cases during scrutiny/investigation |
| Taxpayer’s Cost | Not specified | Borne by Commissioner |
| Time Limit | 3 months (+6 months) | 90 days (+90 days) |
| Audit Report Format | Not prescribed | Signed and certified by CA/CMA |
Conclusion: Section 66 as a Forensic Tool
Section 66 is a surgical tool in the hands of GST authorities—used not for routine compliance but to dissect complex or suspicious transactions. While it may feel intrusive, it provides an opportunity for taxpayers to defend their position transparently, and for professionals (CAs/CMAs) to play a pivotal role in maintaining the integrity of the GST framework. Preparation, cooperation, and accurate documentation are key to navigating it successfully.
Q&A on Section 65 & 66 of CGST Act, 2017
Part 1 : Section 65 – Audit by Tax Authorities
Q1. What is Section 65 of the CGST Act about?
Ans. Section 65 empowers the Commissioner or any authorised officer to conduct an audit of a registered person to verify the correctness of turnover, taxes paid, ITC claimed, and compliance with the provisions of the Act.
Q2. Who can initiate the audit under Section 65?
Ans. The Commissioner or any officer authorised by him, by general or specific order.
Q3. Where can the audit be conducted?
Ans. Either at the place of business of the registered person or at the tax office.
Q4. What is the notice period required before conducting an audit?
Ans. At least 15 working days advance notice must be issued in Form GST ADT-01.
Q5. What is the time limit to complete an audit under Section 65?
Ans.
- 3 months from the commencement of audit.
- Can be extended by 6 more months by Commissioner with reasons recorded in writing.
Q6. What is the meaning of “commencement of audit”?
Ans. It means the date on which:
(a) records/documents are made available to authorities or
(b) audit starts at business premises — whichever is later.
Q7. What happens after completion of the audit?
Ans. A report in Form GST ADT-02 is issued within 30 days detailing:
- Findings,
- Rights & obligations of the taxpayer,
- Reasons for the findings.
Q8. What if the audit finds unpaid tax or wrongly availed ITC?
Ans. The officer can initiate proceedings under Section 73 (non-fraud cases) or Section 74 (fraud/suppression cases).
Part 2 : Section 66 – Special Audit by CA/CMA
Q1. When is Section 66 invoked?
Ans. When during scrutiny, investigation, or proceedings, the officer (not below Assistant Commissioner) suspects:
i. Incorrect value declaration or
ii. Excessive ITC claim,
and finds the case complex and significant to revenue.
Q2. Who orders the special audit?
Ans. Assistant Commissioner, with prior approval of the Commissioner.
Q3. Who conducts the special audit?
Ans. A Chartered Accountant or Cost Accountant, nominated by the Commissioner.
Q4. Is special audit allowed even if the taxpayer was audited under another law?
Ans. Yes, special audit under Section 66 applies notwithstanding other audits like Income Tax or Companies Act audits.
Q5. What is the time limit to complete the special audit?
Ans. i. 90 days from the date of appointment.
ii. Extendable by another 90 days on request and with valid reasons.
Q6. Who bears the cost of special audit?
Ans. Commissioner pays the audit expenses and remuneration of CA/CMA — the taxpayer is not charged.
Q7. Does the taxpayer get a chance to respond?
Ans. Yes, the taxpayer must be given an opportunity of being heard before using audit findings.
Q8. What action follows if tax discrepancies are found?
Ans. Proceedings under Section 73 or 74 may be initiated by the proper officer.
Q9. Can the taxpayer appoint their own CA/CMA for special audit under Section 66?
Ans. No, the appointment is made only by the Commissioner from empanelled professionals.
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