GST Assessment, Audit & Enforcement

GST Assessment, Audit & Enforcement

GST Assessment, Audit, and Enforcement form the backbone of tax administration under the Goods and Services Tax regime in India. These mechanisms ensure transparency, accuracy, and compliance. They also help the authorities detect evasion, verify claims, correct discrepancies, and maintain the integrity of the GST system. Under the GST law, assessment and audit procedures are guided primarily by Chapter XII of the CGST Act, while enforcement powers are derived from various provisions enabling inspection, search, seizure, and arrest. Over the years, courts have emphasized that although GST is a self-assessment system, it requires strong oversight to prevent misuse, as reaffirmed in Union of India v. Mohit Minerals Pvt. Ltd., where the Supreme Court highlighted the importance of accountability within the GST framework.

GST Assessment – Concept and Types

Assessment refers to the process of determining a taxpayer’s GST liability. GST is fundamentally a self-assessment tax system, meaning every registered person is responsible for computing their own tax liability and filing returns accordingly. However, the law provides for different types of assessments to address situations where the taxpayer fails to comply or where discrepancies arise.

Self-Assessment under Section 59

Self-assessment is the default rule, where taxpayers compute tax liability and file returns without interference. The Supreme Court, in Ecom Gill Coffee Trading Pvt. Ltd. v. CCE, emphasized that self-assessment is valid only when returns are accurate, and authorities can intervene if irregularities emerge. Taxpayers must ensure that outward and inward supplies, ITC claims, and tax payments are correctly reported in GSTR-1 and GSTR-3B.

Tip: “Always cross-verify GSTR-1, GSTR-3B, and books of accounts before filing returns to prevent mismatches during assessments.”

Provisional Assessment under Section 60

When a taxpayer faces difficulty in determining the value of goods/services or the applicable rate of tax, they may apply for provisional assessment. The proper officer may allow provisional assessment after securing a bond and security. This ensures business continuity while preventing revenue leakage. Courts have held that provisional assessments must be completed within time and cannot be used as an indefinite tool by authorities.

Scrutiny Assessment under Section 61

Scrutiny assessment involves examination of returns to detect irregularities such as mismatched ITC claims, under-reported sales, or delayed tax payments. If discrepancies are found, taxpayers are issued notice to provide explanations. Failure to offer satisfactory explanations may result in further action, including audit or demand proceedings.

Best Judgment Assessment under Sections 62 & 63

If a registered person fails to file returns even after reminders, Section 62 empowers authorities to assess tax liability based on available information. This is known as Best Judgment Assessment.
Similarly, Section 63 applies to unregistered persons who are liable to register but fail to do so. Courts have held that best judgment assessment must not be arbitrary and should rely on reasonable estimates, as interpreted in earlier indirect tax jurisprudence such as State of Kerala v. C. Velukutty.

Summary Assessment under Section 64

Summary assessment is used in exceptional cases where evidence suggests that delay may adversely affect revenue. The officer may issue an order without hearing the taxpayer, but only with prior approval of the Additional/Joint Commissioner. This provision is carefully circumscribed to prevent misuse, ensuring balance between revenue protection and taxpayer rights.

GST Audit – Ensuring Accuracy and Compliance

GST Audit involves a detailed examination of books, returns, and records to verify the correctness of declared turnover, ITC claims, and tax payments. Audit provisions aim to strengthen compliance in a system based on self-declaration.

Audit by Tax Authorities under Section 65

In this audit, the jurisdictional Commissioner or officer authorized by him may conduct an audit at the taxpayer’s place of business. The taxpayer must be given notice at least 15 working days before commencement. The audit must be completed within 3 months, extendable to 6 months.
Audit findings may result in additional tax demands, penalties, or recommendations for enforcement actions.

Tip: “Maintain organized invoices, ledgers, and ITC reconciliation statements to handle audits smoothly.”

Special Audit under Section 66

Special Audit is ordered when a tax officer believes that valuation is incorrect, classification is doubtful, or ITC claims appear excessive. Here, a Chartered Accountant or Cost Accountant examines the accounts in detail. The Supreme Court in earlier excise law cases such as Swadeshi Polytex Ltd. v. CCE upheld the legitimacy of special audits when used to protect public revenue.
The expenses of the special audit are borne by the government, ensuring fairness to the taxpayer.

Also Read: Income Tax Act, 1961 – Overview

GST Enforcement – Inspections, Search, Seizure & Arrest

Enforcement actions are taken when tax evasion, fraud, or willful misstatements are suspected. These powers must be exercised with procedural safeguards to protect taxpayer rights.

Inspection under Section 67(1)

Inspection is a preliminary step conducted when an officer believes that a taxpayer has suppressed transactions or wrongly claimed ITC. Inspection enables officers to access premises, records, and goods. However, inspection must be based on “reasons to believe,” a standard interpreted strictly by courts in various cases to prevent arbitrary actions.

Search & Seizure under Section 67(2)

If inspection reveals substantial irregularities, officers may conduct searches to seize documents, goods, or devices. The principles from State of Rajasthan v. Rehman and Pooran Mal v. Director of Inspection, though decided under earlier tax laws, continue to guide GST enforcement—searches must be reasonable, documented, and backed by valid authorization.

Arrest under Section 69

Arrest may be authorized in cases involving serious offences such as issuance of fake invoices, fraudulent ITC claims, and tax evasion exceeding statutory limits. The Supreme Court in P.V. Ramana Reddy v. Union of India upheld the constitutionality of arrest provisions under GST, holding that prosecution and arrest powers are essential for preventing large-scale fraud.

Tip: “Avoid ITC claims based on invalid, fake, or unverified invoices—this is the leading cause of GST arrests and prosecutions.”

Demand & Recovery Proceedings

Following assessment, audit, or enforcement proceedings, authorities may issue demand notices under Sections 73 or 74.

• Section 73 deals with cases not involving fraud.
• Section 74 applies when fraud, suppression, or willful misstatement is involved.

These sections provide timelines, penalty structures, and opportunities for voluntary payment. Courts have emphasized fairness in demand proceedings, holding that orders must be reasoned and follow natural justice principles.

Conclusion

GST Assessment, Audit, and Enforcement together create a comprehensive mechanism that ensures accuracy, prevents evasion, and strengthens India’s GST system. These procedures reinforce the self-assessment framework while providing authorities with sufficient tools to safeguard revenue. For law students, understanding these mechanisms is crucial, as GST continues to evolve through legislative amendments and judicial interpretations. Mastering these concepts is essential for future tax practitioners, litigators, and legal advisors navigating India’s dynamic indirect tax structure.

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