CAG Compliance Review on GST: Key Findings on GSTN and Works Contract Services
The Comptroller and Auditor General of India has tabled Compliance Audit Report No. 20 of 2026 on Goods and Services Tax for the period up to March 2024. The report, presented in Parliament on 12 August 2026, focuses on two central aspects of the GST framework administered by the Central Board of Indirect Taxes and Customs (CBIC):
- The robustness and effectiveness of the GSTN IT system, and
- Compliance in Works Contract and Construction Services, including departmental oversight.
The audit captures critical gaps in system design, process implementation, and field-level monitoring which have direct implications for revenue protection and compliance under the Goods and Services Tax regime.
Overview of Indirect Tax Performance
Trends in Revenue Collection
The report records a continued upward trajectory in indirect tax collections during FY24:
- Overall indirect tax receipts rose by ₹1,14,847 crore, representing an 8 per cent increase over FY23.
- Central GST collections alone went up by 13 per cent, translating into an incremental revenue of ₹1,08,804 crore over the previous financial year.
These figures indicate expansion in the indirect tax base and enforcement, but the audit underscores that systemic and compliance weaknesses still pose significant risks to sustained revenue growth.
Structure of the Audit Report
The CAG’s GST report is organised into four chapters:
- Chapter I: Provides a snapshot of the indirect tax framework, the CBIC’s organizational structure, revenue trends, and comparative growth of different indirect tax components.
- Chapter II: Explains the CAG’s audit mandate, the audit universe, sampling methodology, and overall audit coverage of GST-related receipts.
- Chapter III: Presents findings from the third phase of the IT audit of GSTN, including assessment of earlier recommendations and new functionalities introduced.
- Chapter IV: Deals with systemic and compliance-related issues flagged during the Subject Specific Compliance Audit (SSCA) on Works Contract and Construction Services.
Third Phase IT Audit of GSTN
Scope and Objectives
The third phase of the IT system audit of the GSTN was undertaken to:
- Examine whether earlier audit recommendations from the previous two phases had been effectively implemented;
- Review newly deployed functionalities in:
- Registration module,
- Returns module, and
- IGST settlement reports; and
- Evaluate the underlying framework for IT Governance and IT Security.
This phase therefore combined both a follow-up review and a fresh technical evaluation of new and modified GSTN capabilities.
Deficiencies in Front-End Registration Module
Audit scrutiny of the front-end registration module revealed weaknesses in eight distinct features. These were largely attributed to either inadequate validations or improper configuration of business rules, causing potential risks such as:
- Acceptance of applications with insufficient or inconsistent data;
- Gaps in validating critical fields like business details, place of business or PAN-linked information;
- Scope for misuse or abuse where weak validations fail to filter out non-genuine assessees.
Such issues in the registration workflow undermine the integrity of the GST ecosystem and increase challenges for enforcement and risk assessment.
Gaps in Tax Officers’ Registration Functionalities
In the back-end module for tax officers, audit observed deficiencies in seven functionalities, prominently relating to:
Approval and cancellation of registrations:
- Delays in processing,
- Incorrect or incomplete mapping of rules governing cancellations,
- Inadequate documentation of officer actions.
Alert mechanisms:
- Absence or weakness of system-generated alerts to flag potential breaches,
- Limited support for officers in monitoring ageing of cases and process delays, especially in approval or cancellation queues.
These issues restrict officers from performing timely, informed decisions regarding grant and continuation of registrations.