GST Regulations on Audit, Assessment and Adjudication – What’s the Ground Reality?

We’re seeing a broad adoption of the Goods and Services Tax in India as it enters its ninth year. Among the most debated areas remain GST Audit & Adjudication, both for businesses and tax authorities.

Due to the complex nature of its GST regulations, taxpayers often encounter issues in their daily business that require immediate attention. For example, a GST audit, adjudication notice under the GST, and GST assessments typically make a company feel incredibly uneasy, akin to a raid. However, let’s examine how manageable these situations actually are.

This article aims to give a general overview of the assessment, adjudication, and recovery framework described in the Central Goods and Services Tax Act, 2017 (CGST Act), as well as to outline potential problems that taxpayers may encounter.

Adjudication Notice under GST

An adjudication notice under GST regulations represents a formal communication from the GST department directed at a registered individual who has breached or failed to comply with GST regulations. The GST department issues adjudication notices under Sections 73 and 74 of the CGST Act, 2017. These notices allow registered persons to present their side and respond to the adjudicating authority’s accusations.

From FY 2024–25 onwards, Section 74A applies to fresh demands. This section introduces a uniform framework for timelines and prescribes reduced penalties if tax and interest are paid within 60 days of the notice. Sections 73 and 74 continue to govern demands up to FY 2023–24.

Under Section 61 of the CGST Act (not Section 60), officers scrutinize filed returns to identify discrepancies. If mismatches are found, they issue a notice in Form ASMT-10. Provisional assessment is governed separately under Section 60 when taxpayers are uncertain about rate or value.

Common Reasons For Receiving an Adjudication Notice under GST

• Discrepancies in tax liabilities reported between GSTR-1 and GSTR-3B.
• Variances in Input Tax Credit between GSTR-3B and GSTR-2B.
• Imposition of interest due to delayed filing of GSTR-3B returns, resulting in delayed tax payment. The interest is confined to the net tax liability settled in cash.
• Discrepancies in E-way Bills related to outward supplies concerning GSTR-1.
• Inconsistencies in E-way Bills associated with inward supplies in contrast to GSTR-3B.

GST Audit & Adjudication: Role of Tax Authority Audit

The tax authority’s audit, as per Section 65 of the CGST Act, is a key part of GST Audit & Adjudication and often leads to further proceedings. Under Section 65 of the CGST Act/State Act, the tax authority begins an audit by issuing a notice in Form GST ADT-01. The audit usually covers the financial years open under limitation and may also be conducted by authorities outside the jurisdictional circle. Initial documents requested include:

• Audited financial statements
• Tax audit reports
• Cost audit reports
• Independent auditors’ reports
• Other registers
• Returns
• Supporting documentation

For manufacturing industries, a questionnaire focusing on internal controls and procedures is also gathered.

The initial phase of the Department’s audit targets exporters claiming refunds and suppliers dealing with risky exporters. Notices continued from late 2020 into 2021, coinciding with the government’s efforts to identify and address legal loopholes. In our vast economy, the emergence and disappearance of fraudulent entities are not uncommon. However, genuine taxpayers have borne the burden of revenue disparities in the pursuit of eliminating these entities.

Crucial aspects in demand provisions

Understanding how Sections 73, 74, and 74A interact is central to navigating GST Audit & Adjudication without unnecessary disputes. The GST law showcases an initial divergence from its predecessor, the service tax law, by segregating cases involving fraud and normal cases into distinct sections. Unlike the service tax laws, which had a single section covering these scenarios, the GST regulations separate these issues into Section 73 and Section 74, respectively.

In the service tax laws, Section 73 focused solely on issuing Show Cause Notices (SCN) related to service tax, while matters concerning input tax credit were governed by Rule 14 of the CENVAT Credit Rules, 2004. However, under GST, Section 73 encompasses instances of wrongly availed or utilized input tax credits as well.

Additionally, Section 75 (10) of the CGST Act 2017 stipulates a deemed conclusion of adjudication proceedings if an order isn’t issued within 3 or 5 years. Though similar provisions existed in service tax laws, the language was more open-ended, using the phrase ‘where it is possible to do so.’

The GST regulations rely on the annual return GSTR-9 to set time limits for issuing orders. This creates ambiguity for casual taxable persons and non-residents, since they do not file annual returns. In such cases, the timeline for issuing orders remains unclear

Regarding cases where amounts are collected but remain unpaid, unlike the service tax regime, Section 76 of the CGST Act 2017 doesn’t specify any time limit for SCN issuance.

Furthermore, when authorities reject an SCN under Section 74 for fraud, they shift the liability to Section 73. This shift reduces the demand period from five years to three years automatically. In 2025, the Gujarat High Court reinforced this position. The court ruled that once the Section 73 limitation expires, the department cannot invoke Section 74 without clear proof of fraud, suppression, or willful misstatement (Zodiac Energy Ltd v. Assistant Commissioner).

Timeline for Show Cause Notice (SCN) and Concluding Adjudication

The CGST Act of 2017 covers a range of audits and assessments. However, only some evaluations or audits result in the CGST Act, 2017’s Sections 73 and 74, which require issuing a show cause notice (SCN). For instance, in assessments of non-filers of returns or unregistered persons, the assessment can conclude without the necessity of an SCN under Section 73/74. The provisions for issuing notices and concluding assessments are separately addressed in the respective sections for such cases.

Under the CGST Act 2017, the issuance of SCN under Section 73/74 typically occurs in cases involving return scrutiny, summary assessment, tax authority audits, or special audits. Regardless, it’s crucial to note that tax officers can conduct assessments or audits within a maximum period of 5 years from the date of filing annual returns for a specific year. From FY 2024–25, Section 74A now applies to all new demands, prescribing uniform timelines and reduced penalties for taxpayers who settle early.

In contrast, under service tax laws, officers had to issue SCNs within 2.5 or 5 years from the ST-3 return due date. For example, if the due date for the ST-3 period from April 2017 to June 2017 were August 15, 2017, the SCN’s maximum issuance period would be:

• Normal cases: Within 2.5 years, i.e., on or before February 15, 2020
• Cases involving fraud, etc.: Within 5 years, i.e., on or before August 15, 2022

Moreover, the service tax law lacked clear timelines for adjudication, though higher courts urged completion within five years from the SCN date. In 2025, courts added clarity: the Andhra Pradesh High Court ruled an SCN issued two days late is invalid. Conflicting views also emerged on clubbing SCNs across years; the Madras High Court disallowed it, while the Delhi High Court upheld it in fraud and ITC misuse cases. The Supreme Court will resolve this conflict.

Limitation Periods under GST Law for GST Audit

Under the GST regulations, the limitation periods are as follows for the financial year 2017-18

From July 2025, GST returns become time-barred three years after their original due date. After this period, taxpayers cannot file or revise returns, which makes timely filing essential.

GST regulations after adjudication notice under GST

The CGST Act covers assessment, adjudication, appeals, and also allows direct recovery of unpaid amounts. Under Section 78, officers may start recovery if taxpayers fail to pay within three months of an order.

This period matches the three-month limit for filing an appeal. Section 78 also lets officers demand earlier payment in the ‘interest of revenue. Section 83 permits provisional property attachment for the same reason. The Act does not define ‘interest of revenue’ or ‘expedient needs.’ This gap highlights the need for guidelines.

GST adjudicating authorities recover dues through various means. These include bank attachment, asset sales, encashment of bonds, detention of goods, refund adjustments, and debiting electronic ledgers.

These mechanisms apply not only to confirmed demands. Officers also use them for self-assessed liabilities, unpaid interest, and late fees from delayed returns.

In 2025, the Supreme Court allowed taxpayers to use credit ledger balances for the mandatory 10% pre-deposit in appeals. The decision eased cash flow pressure for many businesses.

In summary, GST adjudicating authorities use several tools to recover dues they consider ‘expedient in the interest of revenue.’

Way Ahead For Businesses and Taxpayers

To sum up, GST Audit & Adjudication under the CGST Act requires careful compliance. Businesses that reconcile timely and respond quickly avoid penalties and litigation. Disregarding an adjudication notice can result in severe repercussions like penalties, interest charges, and potential legal action.

Section 74A is now in place. With courts strictly enforcing timelines, taxpayers have stronger grounds to challenge delayed or defective notices. Businesses that act promptly can also benefit from reduced penalties and greater certainty in dispute resolution.

To avoid such notices, businesses must keep reconciliations tight and respond promptly to discrepancies. They must also stay aware of evolving court interpretations.

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