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Start with the communication, not with a generic checklist
Read every page of the departmental communication and create a one-page scope sheet before exporting files or calling staff. Record the legal section, issuing officer and office, reference number, date of service, tax periods, transaction categories, response deadline, hearing or visit date, and the exact production format requested. Note whether the department wants records, explanations, attendance for evidence, access to premises or systems, or a response to discrepancies already identified.
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The period and wording in the communication control your preparation. Do not volunteer unrelated years or business units merely because the same files are easy to export. If the notice is unclear, seek written clarification while preserving the original deadline and obtain advice from a qualified GST professional where the matter could lead to tax, interest, penalty or prosecution exposure.
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- Proceeding and statutory section cited.
- Authority, officer name and contact details shown on the communication.
- Financial years, return periods and GST registrations covered.
- Issues named, such as turnover, exemptions, rates, input tax credit, refunds or specific transactions.
- Documents, data fields, people or premises requested.
- Due date, appearance date, submission channel and file-size or format limits.
- Names of the person coordinating the response and the professional adviser, if any.
Use this sheet as the control document for the rest of the response. Assign an index number to each document or data export and state which request it answers.
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Assemble a defensible record set
The audit rules require verification of the documents on which books are maintained and the returns and statements furnished under the CGST Act and rules. The stated verification topics include correctness of turnover, exemptions and deductions, rates applied to supplies, input tax credit availed and utilised, refunds claimed and other relevant issues. Organise your files so an officer can move from a return figure to the relevant ledger and then to the underlying transaction evidence.
Core accounting and return records
- Filed GST returns and amendments for every period in scope, with filing acknowledgements.
- General ledger, sales and purchase ledgers, tax accounts, trial balances and period-end journals.
- Electronic liability, cash and credit-ledger extracts and payment challans.
- Financial statements and the trial-balance-to-return reconciliation used for the relevant years.
- Working papers for turnover, exempt or nil-rated supplies, deductions, tax-rate mapping and tax payable.
- Input-tax-credit workings, including reversals, blocked credits, credit-note adjustments and annual-reconciliation explanations.
- Refund applications, statements, sanction or rejection orders and evidence supporting exports or other eligible supplies, where relevant.
Source and commercial documents
Match the list to the transactions and questions in the notice; it is an illustrative working set, not an exhaustive statutory checklist.
- Tax invoices, bills of supply, debit notes, credit notes and cancelled-document registers.
- Purchase orders, contracts, statements of work, delivery records and correspondence that establish what was supplied and when.
- Bank statements, payment confirmations, payment-gateway reports and outstanding-receivable or payable schedules where consideration or recipient identity is relevant.
- E-way bills, transport documents, warehouse or stock records and goods-receipt or dispatch evidence for movement-related questions.
- Import documents, bills of entry, export evidence and foreign-remittance records when cross-border supplies or credits are in scope.
- Vendor and customer master data, registration-status checks and related-party or branch records when place of supply or eligibility is an issue.
Make the index usable
A practical index can have columns for index number, file name, period, topic, source system, document date, transaction or ledger reference, and the notice paragraph answered. For large populations, add a transaction-ID range and a short description of the selection method for any sample. Preserve a read-only copy of the index with the submission package and a working copy for internal tracking.
Reconcile returns to books and source documents
Do not rely on a total that merely agrees to a filed return. Prepare a reconciliation that explains timing differences, amendments, credit or debit notes, advances, reverse-charge entries, branch or registration allocations, exports, exempt supplies and rounding. Every reconciling item should have an owner, calculation and supporting document reference.
Turnover and tax liability
- Extract period-wise taxable, exempt, nil-rated, non-GST and zero-rated turnover from the sales ledger.
- Map each tax code to the applicable rate, place-of-supply treatment and return table.
- Compare the ledger totals with the relevant outward-supply return figures and the tax liability reported in the payment return.
- List differences by cause and period, rather than netting unrelated items into one unexplained number.
- Trace material or unusual items to invoices, contracts, delivery evidence and payment records.
Exemptions, deductions and rates
For each exemption or deduction, retain the legal or factual basis used by the business, the calculation and the transactions to which it was applied. For rate disputes, show the product or service description, classification used, rate decision, effective date and any subsequent correction. Keep the version of the rate or classification table that was used at the time; a current rate cannot by itself prove that an earlier treatment was correct.
Input tax credit
Reconcile purchase ledgers and supplier data to credit claimed in returns. Separate eligible credit, credit not availed, reversals, reclaims and blocked or restricted credit. Link each adjustment to the invoice, receipt or service evidence, supplier details and the calculation used. If the notice concerns a particular supplier or period, produce a targeted schedule rather than only an annual total.
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Refunds and special flows
For each refund in scope, tie the application to the underlying return, payment or export evidence, statement of invoices, calculation of the claimed amount and the department’s order. Explain subsequent adjustments, rejected amounts and re-credit entries. Maintain a separate reconciliation for reverse-charge, imports, job work, stock transfers or other flows that do not follow the ordinary sales-ledger pattern.
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Prepare electronic records that can be understood and restored
Electronic records must be more than a folder of unexplained spreadsheets. Preserve the original exports and create a working copy for filtering or annotation. Do not overwrite source books, alter transaction dates or replace a file after production without retaining the earlier version and documenting the reason.
Document the system and data structure
The Accounts and Records Rules allow the registered person to be required to provide an account of the audit trail and interlinkages, including source documents in paper or electronic form and financial accounts; record layout; data dictionary; explanations of codes; total record counts in each field; and sample documents. Prepare a short system note covering:
- Accounting, enterprise-resource-planning, billing, payroll, inventory and document-management systems used during the period.
- Export date, reporting filters, time zone, currency and whether the file is a complete population or a sample.
- Field names, data types, unique keys, tax codes, branch codes, user codes and status codes.
- How an invoice or source document links to the sales or purchase ledger, tax account, return row and payment entry.
- How corrections, cancellations, credit notes and back-dated entries are shown in the audit trail.
- Total record counts for important extracts and the method used to verify that no rows were omitted.
Use a repeatable sample walk-through
Select representative transactions from each material category and demonstrate the complete chain: source order or contract, invoice, dispatch or receipt, ledger posting, tax calculation, return entry and payment or settlement. Include an unusual item, a credit note and an adjustment when those exist in the population. Label the sample as an explanation of the system, not as a substitute for a complete extract where the notice requests the full data set.
Back up and control access
- Keep a restorable backup of the original database or exports in a controlled location.
- Record who extracted, reviewed, copied and delivered each file.
- Use file names that include registration, period, subject and version, without changing the underlying contents.
- Check that spreadsheets open correctly, formulas are visible or accompanied by values, and scanned documents are legible.
- Protect sensitive information during transfer, but do not make the files inaccessible to the authorised officer.
The rules’ requirement to explain audit trails and interlinkages is different from a request for a particular software format. If a notice specifies a format, follow it; otherwise provide commonly readable files together with the system note and an offer to demonstrate the data.
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A department communication is not automatically a routine audit. The following comparison determines which preparation and timing statements apply.
| Route | What it is for | Key statutory features | Preparation emphasis |
|---|---|---|---|
| Section 65 departmental audit | Audit of the registered person’s books and returns by the department. | May occur at the place of business or in the officer’s office. The person must be informed at least 15 working days before the audit. The audit should be completed within three months from commencement; the Commissioner may extend it by up to six months for reasons recorded in writing. Findings, rights, obligations and reasons are to be communicated within 30 days after conclusion. The rules identify FORM GST ADT-01 for the notice and FORM GST ADT-02 for findings. | Build the indexed reconciliation and arrange access to records, staff and systems for the stated financial year or years. |
| Section 66 special audit | An audit by a nominated chartered accountant or cost accountant during scrutiny, inquiry, investigation or another proceeding when the statutory conditions are met. | An Assistant Commissioner or higher-ranking officer, with prior Commissioner approval and the specified opinion about value or credit, may direct the audit in writing. The report period is 90 days, with a possible further extension of up to 90 days for sufficient reasons. The rules identify FORM GST ADT-03 for the direction and FORM GST ADT-04 for findings. | Confirm the written direction, nominated professional, records and questions in scope; prepare explanations that an independent auditor can follow. |
| Section 70 summons or inquiry | Compels a person to give evidence or produce documents or other things in an inquiry. | The proper officer may summon a person under the statutory power. The routine section 65 notice timetable does not automatically govern a summons. | Answer the named questions, attend as required, produce only responsive records and preserve a complete attendance and submission log. |
| Section 67 inspection, search or seizure | Inspection, search or seizure of books, documents, computers or software under the statutory conditions and authorisations. | The scope and powers arise from the statutory authorisation and circumstances, not from the section 65 audit schedule. | Preserve systems and records, identify authorised officials, document what is accessed or taken, and obtain qualified advice promptly where the action is contentious. |
“The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit.” This sentence is from section 65(3) of the Central Goods and Services Tax Act, 2017. It describes the statutory section 65 audit notice; it should not be used to assume that every summons, inquiry or search has the same lead time.
Follow the section 65 audit timeline carefully
Before commencement
The cited Act defines commencement as the later of the date on which the records called for are made available and the actual start of the audit at the business premises. Record both events and retain proof of when requested files were supplied. If the department begins at its office, document the handover or secure transmission that made the records available.
During the audit
Nominate one coordinator, keep a question log and answer with indexed documents. Ask that broad or changing requests be confirmed in writing. Keep contemporaneous notes of meetings, demonstrations, explanations and files handed over. Do not destroy, edit or back-date records while the audit is open.
After completion
The Act states that the officer must inform the registered person of findings, rights and obligations, and reasons within 30 days after the audit concludes. Compare the communication with the actual documents and preserve it with your response file. The rules allow discrepancies to be communicated for reply before findings are finalised; a response should address each issue specifically.
Respond to discrepancies with a row-by-row matrix
A persuasive response is auditable itself. Create one row for every discrepancy or question and keep the same numbering in the covering letter and attachments.
| Column | What to enter |
|---|---|
| Issue reference | Notice paragraph, meeting question or finding number. |
| Department’s position | Short quotation or accurate description without changing its meaning. |
| Factual position | What happened, which period and which registration or transaction population is involved. |
| Calculation or reconciliation | Formula, ledger totals, return figures and explanation of each reconciling item. |
| Evidence | Index numbers for invoices, contracts, ledgers, data extracts, payment proof or other records. |
| Action or qualification | Correction made, correction proposed, disagreement with reasons, or unresolved fact requiring clarification. |
Use plain language, distinguish a factual correction from a legal submission, and do not claim that an issue is closed merely because a reply was delivered. The Act provides for further proceedings in specified circumstances, so preserve the final reply, attachments and proof of delivery.
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Common preparation failures and how to correct them
Sending totals without traceability
A return summary without ledger and invoice references forces the officer to recreate the evidence. Add transaction-level extracts, a reconciliation and a sample walk-through.
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Mixing periods or registrations
Separate folders and schedules by GSTIN and financial year. Show inter-registration or branch transfers explicitly instead of combining them into one turnover figure.
Providing unexplained software exports
Add a data dictionary, code explanation, record counts, filters, export date and linkage example. Keep the native export as well as any converted spreadsheet.
Overwriting originals
Lock the original copy, make a working copy and record every transformation. Never “clean” a ledger by deleting a cancelled invoice or changing an entry without preserving the audit trail.
Assuming a section 65 deadline applies to an investigation
Check the section and authority named in the communication. A summons or search has a different legal basis and may require an immediate, controlled response.
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Test that files open, arrange a secure transfer, provide a suitable room or system demonstration where required, and limit internal access to staff who need it. Keep a duplicate of everything delivered.
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A practical production checklist
- Scope sheet completed and approved by the response coordinator.
- Notice, summons or authorisation preserved in its original form.
- Return, ledger and financial-account reconciliations completed for every period in scope.
- Turnover, exemption, deduction, rate, input-credit and refund schedules tied to index numbers.
- Invoices, notes, contracts, movement records, payment evidence and other source documents assembled according to the issues.
- Electronic exports tested, described and backed up; original records preserved.
- Data dictionary, code explanations, record counts and sample interlinkages prepared where electronic records are requested.
- Submission index, file manifest and delivery log completed.
- Question and discrepancy matrix reviewed for arithmetic, dates, GSTINs and attachment references.
- Copies of every submission, acknowledgement, meeting note and delivery proof retained.
When to obtain professional help
Consider qualified GST, accounting or legal advice when the communication alleges fraud or suppression, challenges classification or place of supply, questions large input-tax-credit amounts, involves search or seizure, asks for a personal statement, or could affect several registrations or years. An adviser can help preserve privilege where applicable, separate factual evidence from legal submissions and manage a special-audit or investigation timetable. Professional assistance does not replace the business’s responsibility to preserve complete records and identify how its systems generated the figures.
Frequently Asked Questions
What records should I send first for a GST audit?
Start with the notice-defined period and issues: filed returns, general ledger, sales and purchase ledgers, tax invoices and notes, and reconciliations for turnover, exemptions, rates, input tax credit and refunds. Add contracts, payment, movement, stock or export records when they explain a questioned transaction.
Does every GST investigation require 15 working days’ notice?
No. The 15-working-day notice quoted in section 65(3) applies to a departmental audit under section 65. A section 70 summons or a section 67 inspection, search or seizure follows its own statutory power and communication.
How should electronic GST records be presented?
Provide readable, authenticated exports with the original records preserved, a restorable backup, and a short explanation of the system, fields, codes, record counts and links from source documents to ledgers and returns. Follow any file format specified in the communication.
Can I correct books after receiving a notice?
Do not overwrite or back-date original books. Preserve the original, make a clearly labelled working copy, document any lawful correction and explain its effect in the discrepancy matrix. Obtain professional advice before making substantive accounting or tax adjustments.
What is the difference between a routine audit and a special audit?
A section 65 audit is conducted by the department under the audit provisions. A section 66 special audit may be directed during scrutiny, inquiry, investigation or another proceeding and is performed by a nominated chartered accountant or cost accountant subject to the statutory approval and timing rules.
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