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Section 66 of GST – Special audit as per GST Act
(1) If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.
(2) The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified:
Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further period of ninety days.
(3) The provision of sub-Section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provision of this Act or any other law for the time being in force.
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(4) The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-Section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.
(5) The expenses of the examination and audit of records under sub-Section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.
(6) Where the special audit conducted under sub-Section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under Section 73 or 74.
Related provisions of the Statute
| Section or Rule | Description |
| Section 65 | Audit by tax authorities |
| Section 73 | Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful misstatement or suppression of facts. |
| Section 74 | Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts. |
Introduction
Availing the services of experts is an age-old practice and a due process of law. These experts have done yeoman service to the process of delivering justice. One such facility extended by the Act is in Section 66 where an officer not below the rank of an Assistant Commissioner, duly approved, may avail the services of a Chartered Accountant or Cost Accountant to conduct a detailed examination of specific areas of operations of a registered person. Similar provisions exist under the Income Tax Law as well.
Analysis
(a) Availing the services of the expert be it a Chartered Accountant or Cost Accountant is permitted by this section only when the officer (considering the nature & complexity of the business and in the interest of revenue) is of the opinion that:
- Value has not been correctly declared; or
- Credit availed is not within the normal limits.
It would be interesting to know how these ‘subjective’ conclusions will be drawn and how the proper officers determine what is the normal limit of input credit availed.
(b) An Assistant Commissioner who nurses an opinion on the above two aspects, after commencement and before completion of any scrutiny, enquiry, investigation or any other proceedings under the Act, may direct a registered person to get his books of accounts audited by an expert. Such direction is to be issued in accordance with the provision of Rule 102 (1) FORM GST ADT-03
(c) The Assistant Commissioner needs to obtain prior permission of the Commissioner to issue such direction to the taxable person
(d) Identifying that the expert is not left to be appointed by the registered person whose audit is to be conducted but the expert is to be nominated by the Commissioner.
(e) The Chartered Accountant or the Cost Accountant so appointed shall submit the audit report, mentioning the specified particulars therein, within a period of 90 days, to the Assistant Commissioner in accordance with provision of Rule 102(2) FORM GST ADT-04.
(f) In the event of an application to the Assistant Commissioner by Chartered Accountant or the Cost Accountant or the registered person seeking an extension, or for any material or sufficient reason, the due date of submission of audit report may be extended by another 90 days.
(g) Section 66(3) states that special audit may be initiated notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.While the report in respect of the special audit under this section is to be submitted directly to the Assistant Commissioner, the registered person is to be provided an opportunity of being heard in respect of any material gathered in the special audit which is proposed to be used in any proceedings under this Act. This provision does not appear to clearly state whether the registered person is entitled to receive a copy of the entire audit report or only extracts or merely inferences from the audit. However, the observance of the principles of natural justice in the proceedings arising from this audit would not fail the taxable person on this aspect.
(h) The remuneration to the expert is to be determined and paid by the Commissioner whose decision will be final.
(i) As in the case of audit under section 65, no demand of tax, even ad interim, is permitted on completion of the special audit under this section. In case any possible tax liability is identified during the audit, procedure under section 73 or 74 as the case may be is to be followed.
Comparative Review
Law relating to Central Excise
- (a) Similar provision existed under the Central Excise law. Unduly large proportion of credit availment considering the industry is a reason for audit. This could also be a reason for special audit under GST also. The availing or utilization of CENVAT credit by reason of fraud, collusion or any willful mis-statement or suppression of facts can also be the reason for issuing notice for special audit. Under GST law, no special audit will be directed for wrong utilization of the credit, but wrong availment alone without any reason of fraud, collusion or any willful mis-statement or suppression of facts is sufficient to issue notice for special audit.
- (b) Under Central Excise law, the permission is given by the Principal Chief Commissioner or the Chief Commissioner of Central Excise. Under GST Act, the said permission is to be given by the Commissioner.
- (c) Under Central Excise law, the period within which the Chartered Accountant or the Cost Accountant should submit the audit report is not specified but the maximum extended period within which the audit report should be submitted remains to be 180 days. Under CGST Act, the audit report shall normally be submitted within 90 days and the maximum further extension could be another 90 days.
Law relating to Service Tax
- The authority to direct the special audit rests with the Principal Commissioner or the Commissioner.
- The special audit may be initiated where person liable to pay service tax;
- has failed to declare or determine the value of taxable service correctly; or
- has availed and utilized the CENVAT credit which is not within the normal limits or by means of fraud, collusion or any willful mis-statement or suppression of facts; or
- has operations at multiple locations and true and complete picture of his accounts are not possible to get at his registered premises.
- The special audit report shall be submitted within the period as may be specified by the Commissioner. The time limit of maximum 180 days is not applicable.
- No provision exists regarding remuneration payable for the special audit, however, the same shall be paid by the Central Government
Frequently Asked Questions
Who can serve the notice for special audit?
An officer not below the rank of an Assistant Commissioner with prior approval of the Commissioner may serve notice for special audit, having regard to the nature and complexity of the case and the interest of revenue.
Under what circumstances notice for special audit shall be issued?
If the proper officer (not below the rank of Assistant Commissioner) is of the opinion that the value has not been correctly declared or credit availed is not within the normal limits, a special audit may be ordered.
Who will conduct the special audit?
A Chartered Accountant or a Cost Accountant as may be nominated by the Commissioner may undertake the audit.
What is the time limit to submit the audit report?
The auditor will have to submit the report within 90 days or the further extended period of 90 days.
Who will bear the cost of special audit?
The expenses for examination and audit including the remuneration payable to the auditor will be determined and borne by the Commissioner.
What action the tax authorities may take after the special audit?
Based on the findings / observations of the special audit, action can be initiated under Section 73 or 74 as the case may be of the CGST Act.
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