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A GST audit is a review of a registered business’s records and compliance; a show cause notice (SCN) proposes a tax demand or other consequence and gives the business a chance to respond. An audit finding is not, by itself, a final demand. But specified discrepancies found during an audit can lead to separate demand proceedings.
How an audit differs from a show cause notice
Under Indian GST, the key difference is the procedural stage: an audit checks compliance, while an SCN sets out allegations and asks the recipient to explain why a proposed amount or consequence should not be imposed. The comparison below concerns the Central Goods and Services Tax Act (CGST Act); parallel State or Union Territory GST rules and the Integrated GST framework may also be relevant.
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| Question | GST audit | Show cause notice |
|---|---|---|
| Purpose | Examine records, returns, and compliance, including declared turnover, tax paid, refunds, and input tax credit (ITC). | State a proposed case—such as tax not paid or short paid, an erroneous refund, or wrongly availed or utilized ITC—and call for a response. |
| Typical CGST Act provision | Section 65 for an ordinary department audit. Section 66 covers a distinct special-audit procedure. | The notice cites the demand provision relied on. The sections 73 and 74 text reviewed distinguishes cases without the specified fraud-related allegations from cases alleging fraud, wilful misstatement, or suppression to evade tax. |
| Document and stage | Section 65 audit notice: Form GST ADT-01. Audit findings: Form GST ADT-02. | A demand notice setting out allegations and proposed amounts; it is not the same document as an audit notice or findings communication. |
| What the business does | Provides or explains relevant books, returns, and supporting records, and responds to audit observations. | Answers the specific allegations and supports its position with facts and documents by the deadline in the notice. |
| Possible consequence | Findings may result in further action under an applicable demand provision; the audit finding itself is not automatically a final demand. | After the proceeding, an adjudication order may determine tax, interest, and penalty, subject to the Act and the case. |
The statutory framework and forms are set out in the CBIC CGST Act text and the CBIC Assessment-Audit Rules.
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What happens during a section 65 audit?
A section 65 audit is a structured examination of records maintained or furnished by a registered person. The officer may conduct it at the business premises or at the tax office. The review can cover records supporting accounts and returns, including turnover, exemptions and deductions, tax rates, ITC, refund claims, and other relevant matters.
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Notice, examination, and findings
- Advance notice: The registered person must be informed at least 15 working days before the audit, under the statutory text cited above.
- Records and observations: The officer examines relevant records and may communicate discrepancies as audit observations. The business may reply, and the officer is to consider that reply before finalizing findings.
- Completion: The ordinary statutory completion period is three months from commencement. The Commissioner may extend it by up to a further six months, with reasons recorded in writing. The Act defines commencement by reference to the later of records being made available or the audit actually beginning at the business premises.
- Findings: Within 30 days after the audit concludes, the proper officer must inform the person of the findings, rights and obligations, and reasons for the findings. The findings are communicated in Form GST ADT-02.
These are the statutory time periods in the cited CGST Act text, not a substitute for checking the notice, applicable amendments, or the law governing the relevant tax period. The rules provide that an audit period is a financial year or multiples thereof.
Special audit is a different process
A section 66 special audit is not the ordinary section 65 department audit. In specified circumstances, an officer not below Assistant Commissioner rank may, with prior Commissioner approval, direct an audit by a nominated chartered accountant or cost accountant. The direction is made in Form GST ADT-03 and the findings are reported in Form GST ADT-04. See the CBIC Assessment-Audit Rules for the relevant forms and rules.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What a show cause notice means
An SCN is the department’s formal statement of the case the recipient is being asked to answer. Under the sections 73 and 74 text reviewed, the proposed demand may concern tax not paid or short paid, an erroneous refund, or ITC wrongly availed or utilized, with applicable interest and penalty provisions.
Read the provision as an allegation, not a finding
The cited sections 73 and 74 distinguish the non-fraud route from a route alleging fraud, wilful misstatement, or suppression to evade tax. If a notice cites section 74, describe fraud or suppression as the department’s allegation; the citation alone does not establish that the allegation is true.
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Do not assume that the older sections 73 and 74 framework or its timelines apply to every tax period. The available CBIC Act text includes sections 73 and 74 but does not establish the exact current rules for every later period, including the operation of section 74A. Check the current consolidated Act, commencement notifications, and applicable rules for the period and provision named in the notice. The CBIC PDF dated 1 August 2021 is an older Act text, so it should not be treated as a current consolidated version.
Procedural protections matter
In circumstances specified in the Act, the recipient must be given an opportunity of hearing. An adjudication order must set out relevant facts and its basis; it cannot confirm tax, interest, or penalty beyond the amounts specified in the notice or on grounds outside those stated in it. Those protections do not replace the need to answer the actual allegations by the deadline. The relevant provisions appear in the CBIC CGST Act text.
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What to do when a GST audit notice or SCN arrives
- Identify the document and stage. Check whether it is Form GST ADT-01 (section 65 audit notice), Form GST ADT-02 (audit findings), a special-audit form, or a demand SCN. Note the issuing authority and provision cited. The CBIC rules and forms distinguish audit documents from one another; demand provisions are in the CGST Act text.
- Record the period and every deadline. Read the notice itself, check how and when it was served, and retain proof of delivery. Audit timelines and the response deadline in a demand notice are different; do not apply one in place of the other.
- Preserve records for the period and issues raised. Depending on the matter, gather returns, ledgers, invoices, reconciliations, ITC support, refund documents, and relevant correspondence. Keep the complete set and organize it against each issue.
- Reconcile each point separately. Compare the department’s proposed treatment with the books, returns, and source documents. Prepare a point-by-point explanation and identify the evidence supporting each answer.
- For an SCN, assess the actual case. Review the cited section, tax period, proposed tax, interest and penalty, factual allegations, and any hearing rights. Where appropriate, request a hearing in writing. Consider qualified GST professional advice where the amount, legal interpretation, or factual dispute warrants it.
- Keep a procedural file. Retain filed replies, acknowledgments, hearing records, and any order. If an order is issued, check its appeal rights and deadlines under the law applicable to that case rather than relying on audit timelines.
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