Importance of enquiry on audit discrepancies & issue of FORM GST ADT-02

Explore the crucial importance of conducting an inquiry on audit discrepancies and issuing FORM GST ADT-02 before initiating action under Sec 73 or 74. Understand the procedural nuances of departmental audits, ensuring fair and legal processes. Learn about the significance of inquiry letters, findings in audits, and the issuance of FORM GST ADT-02 for transparent and lawful tax procedures.

Section 65 Audit by tax authorities: Can officer issue FORM ADT-02 without enquiry on audit discrepancies (Or) Can officer initiate action under Section 73 or 74 without Issue of FORM GST ADT-02? (analysis of Section 65 and rule 101)

In this article we are going to discuss the importance of enquiry on audit discrepancies & issue FORM GST ADT-02 before initiation of action under Sec 73 or 74 in case of departmental audit, It was observed in the industry that officer are initiating the actions under Sec.73 &74 without following the proper procedure laid down in Sec 65 read with Rule 101 of CGST Act. Due to this actions, innocent tax payers are ending up with either paying the demands along with interest and penalties (or) approaching Appellate authorities and courts for justice.

Once’s officer are initiating actions under Sec.73 &74 the adjudication of the same are done by the jurisdictional GST Officers.

As jurisdictional GST Officer are not involved in the activity of audit, they are not having handful of knowledge over audit findings and they believe in the audit paras and they will issue orders for demands without giving proper opportunity of being heard to the tax payers.

The voice of tax payer is unheard upto the finalization of order under Section 73/74 by proving the opportunities which was reasonable and mandatory in the law.

Due result of above, tax payers either has to appears before appellate authorities by filing appeals (or) courts with writ petitions.

In many cases, tax payers are not able to afford lawyers or consultants resulting into injustice to the tax payers and they are ending up with paying huge penalties.

There are many hon’ble courts in their verdicts stating that officers has to act in Law binding manner & due to officers negligence there are huge number of cases are pending before them.

 So, let us understand meaning of Audit: 

It is first time in indirect taxation history (my knowledge) meaning of audit is defined in Act itself.

CGST Act defined audit is as under:

2(13) “audit” means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder;

Form the above can observe that audit can be done only for taxable person.

Procedure of departmental audit under section 65: 

Who will do: Commissioner or any other person authorised by him can conduct the audit

Issue of Form GST ADT-01:  Officer has to issue this form at least 15 days before commencement of audit as a intimation for tax payer.

Where it can be done: it can be done either tax payer place or office of the proper officer.

Making available of documents: in order to enable officer to conduct audit, tax payer has to make available all documents which were requested by officer.

Inquiry and Finding:  once data available to officers, he has to do inquiry on the discrepancies and he has issues final finding report.

Importance of the same as under!!

Inquiry and Finding meaning in audit:

Inquiry:

If officer identifies any discrepancies during audit he has to communicate same to the tax payer through his inquiry letter.

For the same tax payer may submit reply, after same officer will finalise his audit findings.

In many cases, it was observed that officer is not following this mandatory process of inquiry and they are issuing Audit finding letter in the FORM OF GST ADT-02 (or) show cause notice.

Rule 101 of CGST Act mandates officer to follow the inquiry procedure by using the words “SHALL” in Rule 101(4), it means there is no room left for officer to escape inquiry process

Rule 101(4). Extract:

(4) The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished.

It’s worthwhile to mention that, majority cases issues will be resolved in this step only, there is no need to drag the same up to show cause notice & appeal levels.

By keeping quick problem resolution process in mind, law used word “Shall” in the above rule.

And also by meaningful reading of FORM GST ADT – 02, we can conclude that officer has to upload file containing audit observations as annexure while issuing FORM GST ADT – 02.

It means before issue of FORM GST ADT – 02, officer has to communicate discrepancies and has to obtain reply for the same, by giving the reasonable time for tax payer to put forward his reply and to prove his innocence.

Finding:

after the above process ( ie. Inquiry), officer has to issue Form GST ADT-02. It contains the findings done by the officer and reply given by the tax payer and also why officer not agreeing with tax payers

And also amount payable under the audit as per his opinion.

Rule 101(5). Extract

(5) On conclusion of the audit, the proper officer shall inform the findings of audit to the registered person in accordance with the provisions of sub-section (6) of section 65 in FORM GST ADT-02

Many cases it was observed that officer are issuing adjudication notices under section 73/74 without issuing FORM GST ADT-02.

When law says particular thing has to be done in particular way it has to be done in same manner, it means issuing of FORM GST ADT-02 before initiation of adjudicating notice Sec.73 &74.

But many cases, authorities are taking law into their hands and passing the order either without inquiry or without audit finding letter in FORM GST ADT-02 by not following proper procedure laid down in law.

Conclusion:

From the above discussion we can conclude that:

1. Inquiry letter as per Rule 101(4) should be issued before FORM GST ADT-02

and

2. FORM GST ADT-02, as per Sec65(6) read with Rule 101(5) should be issued before Adjudication letters as per Sec.73 or 74.

Hope, the above content gives you some insights while making the valuable business decisions (or) giving suggestions.

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Above content is only the views & opinion of authors about referred subject.

You can reach me at [email protected] Or Ph No: 8792082575