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Article Dated 26th February, 2024

Audit by Tax Authorities (Section 65) & Special Audit (Section 66)

Section 65: Audit By Tax Authorities:

Understanding the intricate process of GST audits, as outlined in Section 65, is crucial for businesses. This section empowers tax authorities, led by the Commissioner or authorized officers, to undertake audits of registered persons. Audits may span one or more financial years, requiring a meticulous examination of records and compliance aspects. This comprehensive overview delves into the initiation, timeline, and methodology of GST audits, shedding light on practical considerations.

Who can conduct the Audit:

Audit of a registered person under the GST regime can be initiated by the Commissioner or any officer authorized by him through a general or specific order. The audit may take place at the registered person`s Place of business or office, covering a Financial Year or multiple Financial Years or a part thereof,.

Where it is decided to undertake the audit of a registered person, the Proper officer shall issue a notice not less than 15 working days prior to the conduct of audit.

Commencement of audit:

The audit commences on the later date of :

  • either making records available to audit authorities or

  • the actual institution of the audit at the taxpayer`s business premises.

The commencement date is important because the audit has to be completed within a given time frame in reference to this date of commencement. The audit must conclude within three months from the audit`s commencement. The Commissioner can extend this period by an additional six months if needed.

Conducting the Audit:

During conducting the audit, the authorized officer, accompanied by a team, examines different aspects of a registered person`s records and books of account. They look at the documents that form the basis for maintaining the books of account, as well as the returns and statements submitted under the GST Act and its rules. The audit specifically checks the accuracy of turnover, verifies exemptions and deductions, applied tax rates for the supply of goods or services, utilization of Input tax credit, refund claims, and other important issues. All their observations are documented in the officer`s audit notes for proper record-keeping and reference.

During the course of the audit, the authorized officer may require the registered person, -

  • to afford him the necessary facility to verify the books of account or other documents as he may require;

  • to furnish such information as he may require and render assistance for the timely completion of the audit.

Finalization of Audit:

After identifying discrepancies, the Proper officer informs the registered person, who can respond to the audit observations. The officer finalizes the findings considering the reply and, within 30 days, communicates the audit findings, reasons, and the rights and obligations of the registered person.

Where the audit results in the detection of tax not paid or short paid or erroneously refunded, or Input tax credit wrongly availed or utilized, the Proper officer may initiate action under section 73 or section 74.

Section 66: Special Audit:

In the complex realm of Goods and Services Tax (GST), the provision of special audits emerges as a crucial mechanism for ensuring compliance and safeguarding the interests of revenue. This section of the article delves into the intricacies of special audits, exploring procedures, timeframes, and implications for registered entities.

When a Special Audit is conducted:

When discrepancies in the declared value of goods or services, or the availed credits beyond normal limits, are identified at any stage of scrutiny, inquiry, or investigation by an officer not below the rank of Assistant Commissioner, a special audit may be directed.

This directive requires prior approval from the Commissioner, issued to the registered person 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 and specified in the said direction.

The special audit may be conducted if the specified officer is of the opinion that –

  • the value (of goods and/or services) has not been correctly declared; or

  • the credit availed is not within the normal limits

Time Limit for Completion of Audit & Audit Expenses

The nominated auditor must submit a comprehensive report to the specified officer within 90 days, including specified particulars. The Assistant Commissioner may extend this period by an additional 90 days, either upon application by the registered person or the auditor, or for substantial and justifiable reasons. This stringent timeframe ensures a timely and efficient audit process.

One critical aspect of the special audit process is the allocation of expenses. The Commissioner determines and bears the costs, including the remuneration of the appointed Chartered Accountant or Cost accountant.

Dealing with special audit report:

Following the conclusion of the special audit, the registered person is granted an opportunity to be heard regarding any material gathered during the audit. On conclusion of special audit, the registered person shall be informed of the findings of special audit.

If the special audit reveals instances of unpaid or short-paid taxes, erroneously refunded amounts, or wrongly availed or utilized Input tax credits, the subsequent steps involve initiating demand and recovery processes under Section 73 or Section 74.


In conclusion, Sections 65 and 66 of the GST framework establish crucial mechanisms for tax authorities to conduct audits and special audits, respectively. These sections ensure comprehensive examinations of registered persons` records, promoting compliance and safeguarding revenue interests. The timely completion of audits, response opportunities for businesses, and subsequent actions under Sections 73 or 74 underscore the significance of these provisions in maintaining the integrity of the GST system.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at

CA Pranay Jain
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