Audit Notice (GST ADT-01)

Extract of Section 65 of the CGST Act, 2017

Section 65 of the Central Goods and Services Tax (CGST) Act 2017 deals with the audit of registered persons by tax authorities. This section empowers the Commissioner or any officer authorised by him to conduct an audit of the registered person’s records, returns, and other documents to ensure compliance with GST laws.

Section 65: Audit by Tax Authorities

(1) The Commissioner, who is the head of the tax department, or any officer authorised by him, by way of a general or a specific order, may undertake an audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

(2) The officers referred to in sub-section (1) may conduct an audit at the place of business of the registered person or in their office.

(3) The registered person shall be informed by way of a notice not less than fifteen working days before the conduct of the audit in such manner as may be prescribed.

(4) The audit under sub-section (1) shall be completed within three months from the date of commencement. Provided that where the Commissioner is satisfied that the audit in respect of such registered person cannot be completed within three months, he may, for reasons to be recorded in writing, extend the period by a further period not exceeding six months.

(5) During the 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) After the audit, the proper officer shall, within thirty days, inform the registered person whose records are audited about the findings, his rights and obligations, and the reasons for such conclusions.

(7) Where the audit detects tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.

Audit Notice (GST ADT-01)

GST ADT-01 is an audit notice issued by the GST authorities to a taxpayer when they decide to audit the taxpayer’s records. This notice is not just a formality, but an official communication that should be carefully understood by the taxpayer. It informs the taxpayer of the impending audit and provides necessary details regarding the audit process, which is crucial for the taxpayer to be well-prepared.

Example Scenario

Consider a scenario where the tax authorities identify discrepancies in the returns filed by a business, ABC Pvt Ltd, over a few financial periods. To ensure compliance and verify the correctness of the returns, the Commissioner issues a GST ADT-01 notice to ABC Pvt Ltd, informing them of the upcoming audit.

Legal Recourse and Proceedings

Legal Recourse

When a taxpayer receives a GST ADT-01 notice, they should:

1. Review the Notice: Carefully read the notice to understand the scope of the audit, the period to be audited, and the documents required.
2. Prepare Documentation: Gather all relevant records, returns, and documents requested in the notice.
3. Seek Professional Help: It is highly recommended to engage a GST practitioner or tax consultant to assist in the audit process. Their expertise can ensure that the audit is conducted smoothly and in compliance with the GST laws, providing the taxpayer with a sense of support and guidance.

Legal Proceedings

If the audit identifies discrepancies or non-compliance, the following proceedings may occur, which should be taken seriously by the taxpayer:

• Post-Audit Notice: The proper officer will inform the taxpayer of the audit findings within 30 days, detailing any discrepancies or tax liabilities discovered after the audit.
• Action Under Section 73 or 74: If the audit reveals unpaid taxes, short payment, erroneous refunds, or wrongly availed or utilised input tax credits, the tax authorities may initiate proceedings under Section 73 (for non-fraud cases) or Section 74 (for fraud cases).

Penalties and Prosecution

Penalties and prosecution depend on the nature of discrepancies found during the audit:

Non-Fraud Cases (Section 73)

• Monetary Penalty: A penalty of up to 10% of the tax due or Rs. 10,000, whichever is higher.
• Interest: Interest on the unpaid tax as per Section 50 of the CGST Act.

Fraud Cases (Section 74)

• Monetary Penalty: A penalty equal to the tax amount due.
• Interest: Interest on the unpaid tax as per Section 50 of the CGST Act.
• Prosecution: In cases involving fraud or willful misstatement, prosecution under GST laws may be initiated, including imprisonment and additional fines.

Do’s and Don’ts on Receiving a GST ADT-01 Notice

Do’s

1. Read Carefully: Understand the scope and requirements of the audit as mentioned in the notice.
2. Gather Documents: Collect all necessary records, returns, and documents requested for the audit.
3. Consult a Professional: Engage a GST practitioner or tax consultant to help you accurately prepare and present your documents.
4. Facilitate the Audit: Provide the necessary facilities and assistance to the audit officers to ensure a smooth audit process.
5. Maintain Records: Keep copies of all communications and documents related to the audit for future reference.

Don’ts

1. Ignore the Notice: Ignoring the notice can lead to adverse actions, including penalties and recovery proceedings.
2. Delay Response: Delaying your response or not cooperating with the audit officers can result in higher penalties.
3. Provide Incomplete Information: Ensure all the information and documents submitted are complete and accurate.
4. Disregard Professional Advice: Always consult with a professional if you are unsure about the content or implications of the audit notice.

Legal Remedy

If a taxpayer believes that the audit findings are unjust, they have the following remedies:

1. File an Objection: Respond to the audit findings with valid evidence and explanations within the stipulated time frame.
2. Appeal: If dissatisfied with the outcome, the taxpayer can file an appeal under Section 107 of the CGST Act within three months from the order date.
3. Seek Legal Advice: A Legal Expert in GST, such as a Chartered Accountant specializing in tax law, or a GST practitioner, who is a professional with in-depth knowledge of GST laws and regulations, to explore further legal remedies, including filing a writ petition if there is a violation of principles of natural justice.

Conclusion

Section 65 of the CGST Act 2017 provides the framework for tax authorities to audit registered persons to ensure compliance with GST laws. The GST ADT-01 notice is an official communication to inform taxpayers of an impending audit. Understanding how to respond to such notices, the potential penalties, and the available legal remedies ensures businesses manage the complexities of Notices and Penalties arise for GST non-compliance. Proper preparation and professional guidance are crucial to handling audits effectively and ensuring compliance with GST regulations.