GST departmental audit under Section 65 notice Form GST ADT-01 procedure, records checklist, and findings ADT-02

Receiving an intimation for a departmental audit under Section 65 marks a comprehensive review of your business transactions rather than a single-point return discrepancy. Unlike desk scrutiny under Form GST ASMT-10, where an officer queries specific return mismatches, a departmental audit examines your underlying accounting ledgers, purchase registers, trial balances, inventory logs, and contract terms. Understanding the procedural rights, timeline requirements, and record preparation protocols ensures you manage the audit effectively. For related scrutiny processes, read our detailed guide on ASMT-10 scrutiny notice reply format, and review the consequences of unresolved tax demands in our analysis of DRC-01 notice meaning.

Statutory framework under Section 65 and Rule 101

The legal authority for a departmental audit originates in Section 65 of the Central Goods and Services Tax Act. The Commissioner, or any officer authorized by general or specific order, may undertake an audit of any registered person for a specified period, at such frequency, and in such manner as prescribed. The statutory text is published on the official repository at Section 65, CGST Act.

Rule 101 of the Central Goods and Services Tax Rules governs the procedural workflow. The audit can take place either at the business premises of the registered person or at the departmental office. Where the officer conducts the audit at the taxpayer premises, the taxpayer must provide the necessary verification facilities, access to accounting software, and books of account. The procedural portal guidelines are accessible on the GSTN Tutorial Portal and the main filing gateway at the GST Common Portal.

Form GST ADT-01 notice contents and initial response

Form GST ADT-01 specifies the financial years or tax periods covered by the audit, the proposed audit team members, the date and place of audit, and a list of records required for submission. Upon receiving the notice via the GST portal, the taxpayer has distinct procedural responsibilities:

1. Verification of jurisdiction and period: Check that the period under audit has not already undergone a completed Section 65 audit on identical issues without specific Commissioner authorization.
2. Document collation: Assemble electronic ledgers, reconciliations, invoice registers, and agreements listed in the annexure to Form GST ADT-01.
3. Request for adjournment: If key personnel are unavailable or books of account require additional time to retrieve, file a formal adjournment letter before the 15 working days lapse, citing genuine operational grounds.

Comprehensive records checklist for departmental audit

Audit officers examine both statutory GST returns and primary accounting records. Maintain the following documentation ready in indexed electronic folders:

1. Audited financial statements: Balance sheet, profit and loss account, director report, and statutory tax audit report under Section 44AB of the Income Tax Act with all schedules.
2. General ledgers and trial balance: Detailed monthly trial balance, revenue ledgers, freight expenses, scrap sales accounts, and other income ledgers.
3. Reconciliation statements: Turnover reconciliation between audited financial statements, Form GSTR-1, and Form GSTR-3B. Input tax credit reconciliation between purchase registers, financial ledgers, Form GSTR-2B, and Form GSTR-3B.
4. Tax invoice and delivery challan registers: Complete register of outward tax invoices, credit notes, debit notes, bill of supply, and delivery challans issued under Rule 55.
5. Inward supplies and ITC reversal records: Purchase register with tax breakdown, import documentation (Bills of Entry), reverse charge payment proofs under Section 9(3), and monthly reversal computations under Rule 37 (180 days non-payment), Rule 42, and Rule 43.
6. E-way bill logs: Complete e-way bill inward and outward reports exported from the NIC portal, mapped against delivery challans and tax invoices.
7. Stock registers: Physical stock statements, raw material inward logs, finished goods production registers, wastage or scrap reports, and write-off records under Section 17(5)(h).

Conduct, timeline, and duration of audit

The statutory clock for an audit begins on the date of commencement. Under the explanation to Section 65(4), commencement of audit means the date on which the records called for by the tax authorities are made available by the registered person, or the actual institution of audit at the place of business, whichever is later.

Key procedural constraints governing the audit duration include:

1. Base time limit: The audit must conclude within 3 months from the date of commencement.
2. Extension by Commissioner: Where the Commissioner is satisfied that the audit cannot be completed within 3 months, the Commissioner may extend the period by a further period not exceeding 6 months under Section 65(4), recording reasons in writing. The total audit duration cannot exceed 9 months.
3. Spot memos during audit: During the verification process, the audit team issues informal query sheets or spot memos highlighting preliminary discrepancies. The taxpayer can submit explanations and supporting invoices at this stage to resolve issues before final findings are drafted.

Audit findings, Form GST ADT-02, and subsequent actions

Upon conclusion of the audit, the proper officer synthesizes the findings:

1. Drafting and issue of Form GST ADT-02: Within 30 days from the conclusion of the audit, the proper officer must inform the registered person of the final audit findings, the reasons for such findings, and the taxpayer rights and obligations in Form GST ADT-02 under Section 65(6) and Rule 101(5).
2. Voluntary acceptance and payment: If the taxpayer agrees with any tax, interest, or penalty pointed out in Form GST ADT-02, the amount can be deposited voluntarily using Form GST DRC-03 under Section 73(5) or Section 74(5), which minimizes or eliminates discretionary penalties.
3. Adjudication upon disagreement: If the taxpayer disputes the findings and declines voluntary payment, the audit officer transfers the file to the adjudication wing to issue a formal show cause notice under Section 73 (non-fraud cases) or Section 74 (fraud or willful misstatement).

Worked case study: audit reconciliation of outward turnover and ITC

Consider Apex Heavy Engineering Private Limited, a manufacturing firm in Pune, Maharashtra. The company received Form GST ADT-01 on 10 August 2026 for the financial year 2024-25. The audit commenced on 1 September 2026 upon physical verification of documents. During verification, the audit officer flagged three specific variances across sales and input tax credit.

The company accepted the scrap sales omission and paid ₹3,24,000 along with applicable interest under Section 50 using Form GST DRC-03 during the audit. For the destroyed goods, the company proved that ₹2,00,000 related to normal processing loss rather than write-offs, while reversing the remaining ₹2,20,000. In Form GST ADT-02 issued on 25 October 2026, the officer recorded the accepted explanations and acknowledged the voluntary payments, avoiding show cause notices and higher litigation penalties.

Related guides

• Section 128A GST amnesty scheme waiver of interest and penalty: Rule 164 procedure and filing Form GST SPL-01 and SPL-02
• GST notice Form DRC-01D: recovery under Rule 142B and how to file reply
• GST notice form DRC-01C Part B reply format: reasons for difference

Frequently asked questions

Last checked: 18 October 2026. Sources: Section 65, CGST Act, GSTN Tutorial Portal, GST Common Portal.