Time limit for issuance of audit observations in form ADT-02

[Ramanathan Seshan]

Dear Experts,

We received ADT-01 on 03-01-2024, intimating us about the conduct of a departmental audit for FY 2021–22, with a request to submit the relevant details by 23-01-2024. We submitted the required information on 23-01-2024.

Subsequently, we received the audit observations in Form ADT-02 on 25-07-2025.

In this context, would the issuance of ADT-02 be considered time-barred under Section 65 of the CGST Act read with Rule 101 of the CGST Rules? As per my understanding, the audit should be completed within 3 months from the date of commencement (extendable to 6 months with approval). In our case, the gap between submission and issuance of ADT-02 is over 18 months.

Would appreciate views or experiences from others on similar timelines.

Regards,

S Ram

[KASTURI SETHI]

Such audit report (Form GST-ADT-02) can be challenged on time-bar issue. Go through the following case law :--

2022 (11) TMI 552 - ORISSA HIGH COURT - SIMON INDIA LTD. Versus CT AND GST OFFICER, CUTTACK-II

 

[Ramanathan Seshan]

Thanks sir 

Can the officer issue SCN under 73/74 if we do not respond or respond saying that it is time barred? 

[KASTURI SETHI]

Once Audit Report is issued and short levy/non-levy is pointed out, SCN will be issued. Reply to Audit Report is a must. Youn must contest on merits and time limitation both. If Audit Report (ADT-2) is invalid, SCN will be invalid. The party will have to face adjudicating proceedings. 

[Ramanathan Seshan]

Thanks sir

In case SCN is issued, I can directly challange to the FAA? Correct me if my understanding is wrong sir 

[KASTURI SETHI]

NO. First SCN will be adjudicated, if demand is confirmed, you can challenge the O-i-O before the First Appellate Authority. You should contest Audit Report and SCN both before the Adjudicating Authority. You can hope to get fair justice at the hands of the Adjudicating Authority. 

[Ramanathan Seshan]

Thanks sir 

[VENU K]

Commencement of Audit is defined as date on which records and other documents called by the tax authorities are made available by the registered person or the actual institution of audit at the place of business whichever is later.

So it is always possible for the department to claim late receipt of records and other documents to justify delay.

If you had objected to time barring at time of giving reply to notice of discrepancies issued before ADT 2 they would have already got sanction from commissioner .

In my opinion you can use this as a ground in appeal. In the case of the quoted judgement by Sethi sir also the court judgment was "Hence, Commissioner was to be directed to extend time for completion of audit; same was to be done within further period of 6 months" the taxpayer did not get any relief as another opportunity was given to reissue ADT 2 is what I understand. 

Gujarat High Court in Vadilal Gases Ltd. vs. Union of India (2015 (10) TMI 1845 - GUJARAT HIGH COURT)

When an order is set aside for breach of principles of natural justice, the authority may proceed afresh without issuing a fresh SCN if the original SCN was valid.

So here essentially the officer gets one more shot to issue another order by curing all earlier defects. One of the perils of approaching courts directly by by passing the Appeal route.

[Ramanathan Seshan]

Dear Venu-sir,

Thanks for your reply. 

It is to be noted that audit discrepancy was issued a month prior to ADT-02, which according to me is time barred 

Sir, any response to the audit discrepancy doesn't it make it party to proceedings, and wouldn't appeal be dismissed when we raise time barred issue, be because we have. Cooperated to the audit discrepancies?

Regards,

S Ram

[KASTURI SETHI]

Audit Memo (discrepancy) and Audit Report (Form-GST-ADT-02) both are different. Audit memo is an opportunity to defend yourself in order to avoid ADT-2 so that objection may settled without laying the background for litigation. Audit Memo is meant for on the spot solution, if you agree with the audit objections. Audit-02 is the next step and is issued after approval from the Committee in the meeting where all Audit Officers and Commissioner/Chief Commissioner, Additional Commissioner, Joint Commissioner, Deputy/Assistant Commissioner/Superintendents/Inspectors of (Audit) etc. participate. Their view is sought  on the para raised by the Audit team. After approval of the Audit Para in the meeting by the Head of the department, Audit-02 is issued. Thereafter, the legal  proceedings for recovery are initiated. In other words, litigation commences. Real legal base is Audit-02. 

You can contest while filing compliance report to ADT-02 on the following grounds :-

1. Audit Report is time barred. (without jurisdiction)

2. On merits, if you are legally strong. Otherwise deposit tax, interest and penalty as demanded in the For-GST-Audit-02.

[Ramanathan Seshan]

Thanks sir

[KASTURI SETHI]

W.r.t. serial no.1.1 above, answer is YES.

[Amit Agrawal]

In the context of the query raised, explanation given under Section 65(4) is worth noting:

Explanation.––For the purposes of this sub-section, the expression “commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

This explanation, in my view, gives lot of leverage to Depts audit party to counter the claims made by you about validity of audit objections. 

You have also said that audit discrepancy was issued a month prior to ADT-02. That issuance audit-memo itself, will be argued by Revenue, as tax-authorities seeking the records and other documents from the tax-payer under audit. And hereby, there was non-commencement of audit by Dept. till that very moment as per Section 65(4) & hence, there was no delay in completion of audit. 

It would be better, IMHO, if you defend each & every objection with detailed reply with supporting data & documents, instead of merely challenging the validity of audit objections on time limitations.

You may challenge the audit-objections as time-barred, but it would be very risky to solely rely on such challenge, IMHO. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Ramanathan Seshan]

Thanks sir

[KALLESHAMURTHY MURTHY K.N.]

Sri Ramanathan Sesan Sir,

I agree with Amith Agrawal, Sir. 

However, the Query is not clear with respect to the date of Audit Observations or Audit Memo issued after submission of all the books of accounts and the date of Audit Report in Form ADT-02 issued.  As per the query, the ADT-02 was issued on 25-07-2025, which means the Audit report was concluded on that date. Before that, the Audit Authority usually called for filing replies after noticing discrepancies between the books of accounts and the returns. After submission of Replies, if any, the process will be continued to complete the audit report.  The Report must be completed within 3 months from the effective date of audit, that is, examination of the replies with the observations. If replies are not submitted, the Audit Report - ADT-02- will be concluded by confirming the observations. Thus, the gap between the commencement of verification of reply and the conclusion date would be  3 months, as per the explanation provided u/s 16(4). Within this period, review of observations and findings may be carried out with the Committee of Joint Commissioner, Deputy/Assistant Commissioner/Superintendents/Inspectors of (Audit) etc., as Sri Kasturi Sethi Ji explained in Sl. No. (5). 

Under such circumstances, challenging the time barring may be viewed. 

This is my view on understanding the 3 months time. 

AI Summary

Audit report issued after 18 months may be time-barred under Section 65 CGST Act and Rule 101 CGST Rules A registered person received a departmental audit notice and submitted required details within the stipulated time. However, the audit observations in Form ADT-02 were issued over 18 months later, raising concerns about time-bar under Section 65 of the CGST Act and Rule 101 of the CGST Rules, which prescribe audit completion within three months, extendable to six months. Legal opinions indicate that the audit report can be challenged as time-barred, but once the audit report is issued, a show-cause notice (SCN) may follow, necessitating contesting both on merits and limitation grounds before the adjudicating authority. The audit memo and audit report are distinct; the former offers an opportunity to settle objections pre-litigation, while the latter initiates legal proceedings. Courts have allowed extensions for audit completion, and departments may argue delays due to late receipt of records. Sole reliance on time-bar challenges is risky; detailed responses to objections are advisable. Appeals against confirmed demands follow adjudication, not direct to appellate authorities.