What Happens After GST Audit: Reporting, Communication & Statutory Follow-Up Explained

A GST audit does not end with verification of records. It concludes only after proper reporting and follow-up action. Post-audit reporting converts audit findings into enforceable outcomes under law. This stage determines whether the audit results in closure, recovery, or further proceedings.

Post-audit action must follow statutory provisions. GST officers must record findings clearly. Taxpayers must receive proper communication. Any further action must follow due process.

Drafting the Audit Report

Drafting of the audit report is the first step after completion of audit verification. The audit report records the outcome of the audit exercise. It reflects issues examined, discrepancies found, and conclusions reached.

The audit report must rely on records verified during audit. It must link findings to documents and data. Each observation must connect to a specific provision of law. The report must avoid assumption.

The audit report must cover:

• Period of audit
• Scope of verification
• Issues examined
• Discrepancies noticed
• Tax impact, if any

The report must distinguish between factual findings and legal interpretation. It must not propose demand by itself. The audit report forms the base for further action.

Communication of Audit Findings

Communication of audit findings is mandatory under GST law. Findings must be communicated within 30 days from the date of completion of audit.

The communication must:

• State audit observations clearly
• Mention the basis of each observation
• Specify the provisions involved
• Indicate the amount involved, where applicable

The purpose of communication is transparency. The taxpayer must understand the issues identified. This step gives the taxpayer an opportunity to respond or clarify.

Audit findings cannot remain internal. Non-communication violates principles of natural justice.

Issuing Show Cause Notices (SCNs)

A show cause notice is not automatic after every audit. An SCN is issued only where tax short payment, non-payment, or wrongful credit is identified.

The SCN must:

• Arise from audit findings
• Cite statutory provisions
• Quantify tax, interest, and penalty
• Grant opportunity to reply

The SCN initiates adjudication proceedings. It must not travel beyond audit findings without supporting material. The SCN must follow the correct section of the CGST Act based on facts.

Audit findings alone do not create liability. Liability arises only after adjudication.

Time Limits for SCN and Orders under Section 73

Section 73 applies where fraud, wilful misstatement, or suppression does not exist.

Statutory timelines are:

• SCN must be issued at least 3 months before the time limit for passing the order
• Adjudication order must be passed within 3 years from the due date of filing the annual return for the relevant financial year

If these limits are crossed, proceedings become time-barred.

Time Limits for SCN and Orders under Section 74

Section 74 applies where tax short payment arises due to fraud, wilful misstatement, or suppression of facts.

Statutory timelines are:

• SCN must be issued at least 6 months before the time limit for passing the order
• Adjudication order must be passed within 5 years from the due date of filing the annual return for the relevant financial year. Invocation of Section 74 requires proof of intent.

Follow-Up on Audit Recommendations

Audit recommendations require follow-up action. Officers must track whether issues identified have been addressed.

Follow-up may include:

• Closure where explanation is accepted
• Recovery through voluntary payment
• Issue of SCN where required

Follow-up ensures audit effectiveness. It also ensures consistency in enforcement. Delayed follow-up weakens audit outcomes.

Officers must record reasons for closure or further action. Follow-up must align with statutory timelines.

Voluntary Payment After Audit

The CGST Act allows voluntary payment after audit.

• Section 73(5) allows payment before SCN with no penalty
• Section 74(5) allows payment before SCN with 15% penalty

Payment must be made before issuance of SCN. Payment after SCN attracts higher penalty.

Voluntary payment does not eliminate the need for proper recording of closure.

Grounds for Invoking Section 74 of the CGST Act

Section 74 applies where tax short payment arises due to fraud, wilful misstatement, or suppression of facts. This provision carries higher penalty.

Section 74 cannot apply by default. Its invocation requires:

• Clear evidence of intent
• Positive act of suppression or misstatement
• Link between conduct and tax evasion

Audit findings must support invocation of Section 74. Mere difference of opinion does not justify this section. Classification disputes or interpretational issues do not attract Section 74.

Wrong invocation of Section 74 weakens proceedings and invites judicial intervention.

Distinction between Section 73 and Section 74

Section 73 applies to cases without fraud or intent to evade tax. Section 74 applies only where intent exists.

Audit officers must examine facts carefully. The choice of section determines penalty and limitation period. Incorrect selection leads to litigation.

Post-audit review must confirm the correct legal provision before issuing SCN.

Closure of Audit Proceedings

Not every audit ends in demand. Audit proceedings may close where:

• No discrepancy exists
• Explanation is satisfactory
• Tax impact is nil

Closure must be recorded in writing. Closure communication gives certainty to the taxpayer. It also completes the audit cycle.

Conclusion

Post-audit reporting and follow-up form the enforcement stage of a GST audit. Drafting of audit reports, communication of findings within 30 days, issuance of SCN within limitation periods, and passing of orders within 3 years or 5 years must follow the CGST Act.

A GST audit is a compliance verification process. It is not punitive by default. Post-audit action must respect statutory timelines and taxpayer rights.

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