GST Audit & Assessment: Sections 65, 66, 73 & 74 Explained

Key Takeaways

• Self-assessment (Section 59) is the default -- every registered person assesses their own liability through return filing.
• Section 65 empowers the Commissioner to order a general audit by CAs or Cost Accountants for any registered person.
• Section 66 provides for special audit directed by the Commissioner during investigation if complexity warrants it.
• Section 73 covers demand proceedings for non-fraud cases (limitation: 3 years); Section 74 applies to fraud, suppression or wilful misstatement cases (limitation: 5 years).
• The 2024 amendments merged Sections 73 and 74 into a unified assessment framework effective from a date yet to be notified.

Types of Assessment Under GST

Self-Assessment -- Section 59

Every registered person self-assesses tax liability and files returns. This is the primary mode of assessment under GST.

Provisional Assessment -- Section 60

When a taxpayer is unable to determine the value or rate of tax, they may request provisional assessment. The proper officer passes a provisional order, and final assessment is completed within 6 months (extendable by a further 6 months, up to 4 times).

Scrutiny Assessment -- Section 61

The proper officer examines returns and may issue a notice if discrepancies are found. The taxpayer must respond within 30 days explaining the discrepancy or paying the differential tax with interest.

Best Judgement Assessment -- Section 62

If a registered person fails to file returns, the proper officer can assess liability to the best of their judgement. This order is automatically withdrawn if the return is filed within 60 days (extended from 30 days by the 2023 amendment).

GST Audit Framework

Section 65 -- Audit by Tax Authorities

The Commissioner can authorise officers to conduct audit of any registered person for a specified period. Key provisions:

• Notice period: 15 days before the audit
• Completion timeline: Within 3 months from the date of commencement (extendable by 6 months)
• Taxpayer obligations: Provide access to books, records, documents and furnish information

Section 66 -- Special Audit

If during scrutiny, investigation or any proceedings, the officer believes the case requires specialised examination:

• The officer may direct the taxpayer to get accounts audited by a nominated CA or Cost Accountant
• Audit must be completed within 90 days (extendable by a further 90 days)
• The auditor's report is submitted to the proper officer
• Cost of special audit is borne by the Government, not the taxpayer

Demand Proceedings -- Sections 73 and 74

| Aspect | Section 73 (Non-Fraud) | Section 74 (Fraud/Suppression) | |--------|----------------------|-------------------------------| | Grounds | Tax not paid, short paid, erroneously refunded, ITC wrongly availed | Same, but involving fraud, wilful misstatement or suppression of facts | | Time limit for SCN | At least 3 months before the order deadline | At least 6 months before the order deadline | | Order deadline | 3 years from the due date of annual return | 5 years from the due date of annual return | | Penalty | 10% of tax or Rs. 10,000 (whichever is higher) | 100% of tax | | Voluntary payment | If paid before SCN, no penalty; only interest | If paid with 15% penalty + interest before SCN, proceedings conclude |

Worked Example -- Section 73 Demand

Scenario: During scrutiny, the officer discovers that a taxpayer wrongly claimed ITC of Rs. 5,00,000 in FY 2022-23 due to ITC on blocked items under Section 17(5). No fraud is alleged.

| Stage | Particulars | Amount | |-------|-------------|--------| | ITC wrongly claimed | Blocked credit claimed on motor vehicle | Rs. 5,00,000 | | Interest (Section 50) | 18% p.a. for 24 months (approx.) | Rs. 1,80,000 | | Penalty (Section 73) | 10% of tax or Rs. 10,000, whichever higher | Rs. 50,000 | | Total demand | | Rs. 7,30,000 |

If the taxpayer pays Rs. 5,00,000 + interest before issuance of SCN, no penalty applies under Section 73(5).

Landmark Judgement

Case: Godavari Commodities Ltd. v. Union of India Court: Allahabad High Court Year: 2023 Ruling: The Court held that a demand order under Section 73 must be preceded by a proper Show Cause Notice specifying the grounds clearly, and the taxpayer must be given adequate opportunity of being heard. A vague or omnibus SCN violates principles of natural justice and renders the order void. Impact: Reinforced that GST adjudication must follow due process. Tax authorities cannot pass cryptic orders without detailed SCNs, protecting taxpayers' right to a fair hearing.

Expert Tip

If you receive a Section 73 demand notice, evaluate whether paying tax + interest before the order deadline (under Section 73(8)) can eliminate the penalty entirely. For disputed amounts, always file a detailed written reply within the stipulated time and request a personal hearing. Our qualified CAs have extensive experience representing clients in GST adjudication proceedings.

Section Interconnect

• Previous: Chapter 4 -- GST Returns covers the returns that form the basis of assessment.
• Next: Chapter 6 -- E-Invoicing & E-Way Bill discusses compliance mechanisms that feed into audit trails.
• Related: Chapter 8 -- Penalties & Offences details the penalty framework that applies post-assessment.

Frequently Asked Questions

Q1: Can the department audit a taxpayer for any financial year? Yes, under Section 65, the Commissioner may order an audit for any period. However, demand proceedings arising from the audit are subject to the limitation periods under Sections 73 (3 years) and 74 (5 years) from the due date of the annual return for the relevant financial year.

Q2: What is the difference between Section 65 audit and Section 66 special audit? Section 65 audit is conducted by departmental officers (or authorised CAs). Section 66 special audit is directed when the case involves complexity that requires examination by a nominated CA or Cost Accountant, with the cost borne by the government.

Q3: Can a best judgement assessment order under Section 62 be revoked? Yes. If the registered person files the pending return within 60 days of the assessment order, the order is deemed withdrawn. After 60 days, the taxpayer must appeal the order or seek remedy through adjudication.

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Disclaimer: This article is for educational purposes only and does not constitute legal or professional advice. GST laws are subject to frequent amendments. Readers should consult qualified CAs or tax professionals before acting on any information provided here.