GST Audit and Scrutiny — Sections 65, 66 and 61 — How to Prepare and Respond

The GST department has multiple tools for examining taxpayer compliance beyond the self-filed returns — from automated scrutiny of return discrepancies to on-site departmental audits. Understanding what each type of GST audit involves and how to prepare for it can save businesses from unexpected demands and penalties. Here is the complete guide.

Section 61 — Scrutiny of Returns (Most Common)

This is the most routine form of GST examination. The proper officer scrutinises a registered person's GST returns for correctness — typically through automated system matching of GSTR-1 vs GSTR-3B, GSTR-2B vs ITC claimed, GSTR-9 vs annual accounts, etc. If discrepancies are found, a notice in Form ASMT-10 is issued calling for clarification. The taxpayer must respond within 30 days (extendable). If satisfied with the explanation, the officer issues an acceptance order. If not satisfied, the matter escalates to adjudication under Section 73/74.

Common Triggers for Section 61 Scrutiny

• ITC claimed in GSTR-3B exceeds ITC reflected in GSTR-2B
• Sales declared in GSTR-3B less than sales in GSTR-1
• Turnover in GST returns significantly lower than Income Tax/TDS data
• Excess ITC reversal not done on exempt supplies
• Mismatch in output tax rate vs applicable rate

Section 65 — Departmental Audit

The Commissioner of CGST/SGST may order an audit of any registered person. The audit officer arrives at the business premises with prior notice (minimum 15 working days) and examines books, accounts, returns, records and documents for up to 3 months (extendable by another 3 months). On completion, a Draft Audit Report is prepared and the taxpayer is given an opportunity to respond. If additional demand is confirmed, an adjudication order follows. Cooperation with audit officers and maintaining well-organized records significantly reduces audit risk.

Section 66 — Special Audit by CA/Cost Accountant

If the departmental audit officer believes that the case requires special expertise (complex valuation issues, complicated supply chains, technical assessments), a Special Audit can be ordered under Section 66. A CA or cost accountant nominated by the Commissioner conducts the audit. The audit must be completed within 90 days (extendable by 90 more days). The cost of the special audit is borne by the department — not the taxpayer. However, the audit can result in significant demands if discrepancies are found.

How to Prepare for GST Audit

• Maintain reconciled records — GST returns vs financial books, GSTR-2B vs purchase register
• Keep all invoices (purchase and sale) properly filed and accessible for 6 years
• Ensure ITC reversal for exempt supplies, personal use and blocked credits (Section 17(5)) is done monthly
• Cross-check GSTR-9/9C before filing to identify and rectify discrepancies
• Have all e-way bills, stock registers and delivery challans in order
• Ensure bank reconciliation statements are prepared monthly and match GST data

Conclusion

GST audits are increasingly common as the department uses data analytics to identify high-risk taxpayers. Proactive reconciliation and organised records are the best defence. SPOTON provides GST audit preparedness reviews, representation during departmental audits and adjudication support for businesses across Kerala. Contact us to ensure your GST compliance is audit-ready.