GST Department Audit Under Section 65 of CGST Act: Legal Framework, Judicial Precedents & Practical Compliance Guide
Overview of Department Audit Under GST
The GST audit framework empowers the department to examine the financial affairs of registered persons through a structured mechanism. Section 65 of the Central Goods and Services Tax Act, 2017 (CGST Act) vests authority in the Commissioner — or any officer duly authorized by the Commissioner — to conduct audits of registered persons. The selection of registrants for audit is typically driven by multiple parameters, including risk profiling, aggregate tax payment history, annual turnover, and the nature of the business segment under scrutiny.
Understanding the contours of this audit process is essential for every assessee engaged in GST-compliant operations. From the initiation of audit proceedings to the issuance of final findings, each stage carries specific legal obligations and procedural safeguards that must be carefully navigated.
Legal Authority and Authorization for Audit
Who Can Conduct the Audit?
Section 65 of the CGST Act specifically authorizes the Commissioner or any officer acting under the Commissioner's authorization to audit the transactions of any registered person. The Commissioner may exercise this power either through a general order applicable across a class of officers or through a specific order directed at a particular auditee for a defined tax period.
Important: Any deficiency, error, or absence in the authorization order — whether general or specific — has the potential to invalidate the proceedings initiated thereunder. Both the identity of the auditee and the relevant tax period must be clearly specified in such an order.
As per Rule 101(1) of the CGST Rules, 2017, the audit period under Section 65(1) shall cover a financial year, a part thereof, or multiples of financial years.
Key Judicial Pronouncements on the Scope of Section 65
Audit After Cancellation of GST Registration
One of the most contested questions surrounding Section 65 is whether a department audit can validly be conducted after a registered person's GST registration has been cancelled.
Madras High Court — Tvl Raja Store Vs Asst Commr [W.P.(MD). NO.15291 OF 2023]
The single judge bench of the Madras High Court ruled that an audit under Section 65 of the CGST Act cannot be conducted once a person's GST registration has been cancelled. The High Court quashed the notice issued for conducting such an audit. However, the court clarified that this ruling would not bar the department from initiating assessment proceedings under Sections 73 and 74 of the CGST Act against such persons.
Bombay High Court — Victoria Properties Private Limited v. Union of India [WP L.No.34267 of 2024]
Taking a contrary position, the Bombay High Court held that the provisions of Section 65 of the SGST Act remain applicable for conducting an audit of a financial year during which a person was registered, even if such person has subsequently ceased to be a registered entity — whether through voluntary cancellation or otherwise.
Rajasthan High Court — Ashoka Fabricast Pvt Ltd vs UOI [WP no. 2859 of 2024]
The Rajasthan High Court arrived at a similar conclusion as the Bombay High Court, affirming that cessation of registration does not extinguish the department's audit authority under Section 65 for periods during which the person was duly registered.
Note: There is currently a judicial conflict between High Courts on this question. Assessees facing such notices should evaluate the applicable jurisdictional position and consider appropriate legal remedies accordingly.
Audit by CGST Authorities for Periods Already Adjudicated by State GST Authorities
Calcutta High Court — ABDUR ROUF KHAN V. SUPERIENTENDENT OF CENTRAL TAX & ORS. [WPA 3987 of 2025 dated 09.07.2025]
The Calcutta High Court held that an audit under Section 65 of the CGST Act initiated by Central GST authorities was not legally sustainable for tax periods that had already been adjudicated by the State GST authorities under Section 73. This ruling has significant implications for assessees who may face duplicative audit proceedings from both Central and State authorities for overlapping periods.