Introduction to GST Enforcement Mechanisms
GST authorities employ audits and inspections to ensure compliance, but differ fundamentally in purpose, scope, and powers. Audit verifies records accuracy (Sections 35(5)/65); inspection detects evasion (Section 67).
2026 sees no mandatory turnover-based audit (>5Cr voluntary GSTR-9C), but special audits persist. CBIC Circular 254/11/2025 clarifies officer authority. Understanding distinctions aids effective response.
GST Audit: Detailed Record Verification
Definition: Examination of books/returns to confirm correctness of turnover, ITC, tax paid (u/s 35(5) voluntary, 65 special).
Types:
- Turnover-Based (Sec 35(5)): >INR 5Cr TO—CA/CMA certifies GSTR-9C (reconciliation). Due Dec 31.
- Normal Audit (Sec 65): PO initiates (desk/on-site). Notice ADT-01 (15 days prior). Covers 3 FY backward.
- Special Audit (Sec 66): Commissioner orders CA/CMA for complex cases (evasion suspicion). Concurrent with inquiry.
Process:
- ADT-01 notice (15 days docs).
- Audit (3 months max, extend 6).
- Findings: DRC-01 (intimation) or order.
- Appeal u/s 107.
Scope: ITC eligibility, classification, valuation, exemptions.
GST Inspection: Immediate Evidence Gathering
Definition: Verification of goods/documents at premises/transit for evasion (Sec 67(1)). Proper Officer (not below Asst).
Forms:
- ASMT-10: Inspection notice (no prior).
- ASMT-11: Reply (inspection report).
- INS-01/02: Search/seizure (JC auth, reason to believe).
Triggers: E-way discrepancies, intel, random transit checks.
Powers:
- Inspect premises/goods (67(1)).
- Search/seizure if secreted (67(2), INS-02).
- Summon (174); arrest (69). Seizure limited 50% stock (provisional).
Process:
- ASMT-10 (inform PO).
- Inspection (panchnama).
- Release/panchanama goods; samples.
- Follow-up DRC-01/SCN.
Key Differences: Audit vs Inspection Table
| Aspect | GST Audit (Sec 65) | GST Inspection (Sec 67) |
|---|---|---|
| Purpose | Record accuracy | Evasion detection |
| Notice | ADT-01 (15 days) | ASMT-10 (Immediate) |
| Officer | Any Proper Officer | Asst. Commissioner+ |
| Scope | Books & Returns (3 FY) | Goods & Documents |
| Powers | Verify documents | Search & Seizure |
| Duration | 3–6 months | Hours / Days |
| Output | Audit Memo / DRC | ASMT-11 / Panchanama |
| Appeal | Against DRC Order | Against SCN / Order |
Pre-Audit Scrutiny: DRC-01 Role
Automated/mis match → DRC-01 (Sec 61/73). Reply DRC-06. Bridge between routine and audit/inspection.
Response Strategies: Audit vs Inspection
For Audit (ADT-01)
- Reply docs (ledgers, invoices, GSTR).
- Point-wise reconciliation.
- Request extension/hearing.
- Professional assistance >complex.
For Inspection (ASMT-10)
- Cooperate; provide access.
- Panchnama sign (objections note).
- Inventory goods seized.
- Legal representation. Bond/release (Sec 67(6)).
Common Post-Action: DRC-01/SCN → DRC-07 demand.
Penalties and Consequences
Audit Non-Cooperation: 0.5% TO penalty + prosecution.
Inspection Obstruction: Goods confiscation (100% value), imprisonment 6 months.
2025 CBIC: Circular 254 limits notices; old penalties questioned.
Recent Developments 2026
- No Mandatory 5Cr Audit: GSTR-9C voluntary.
- GSTAT: Appeals faster.
- Desk Audits: Portal-based rising.
Case Studies
Audit: Firm >5Cr TO—GSTR-9C mismatch → Rs 2L demand; appealed.
Inspection: Transit truck—e-way lapse → 50% seizure; bonded release.
Preventive Compliance Tips
- Monthly 2A/3B reconcile.
- Digital records (72 months).
- E-invoice compliance.
- CA quarterly review.
Checklist: Audit/Inspection Preparedness
| Item | Audit | Inspection |
|---|---|---|
| Records | Ledgers / GSTR | Invoices / Goods |
| Timeline | 15 Days | Immediate |
| Response | DRC-06 | ASMT-11 |
Knowledge distinguishes routine checks from enforcement.
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