Can GST Authorities Demand Full ERP/Tally Backup During Audit u/s 65 ?

[SRINVASAN TR]

When the GST Department initiates an audit under Section 65 of the CGST Act, 2017, can the audit team legally require the taxpayer to provide a complete backup of the ERP/accounting software (e.g., Tally backup) ?

Or is the Department's authority restricted to seeking relevant records/data required for the audit, such as sales, purchases, ITC, ledgers, stock records, etc., which can be provided in PDF/Excel or other readable formats ?

I would also appreciate views on any judicial precedent, circular, or departmental instruction specifically dealing with the power to demand a complete Tally/ERP backup during a Section 65 audit.

[Sadanand Bulbule]

The department cannot compel to share complete back-up of ERP/Accontiing software. You can ask the specific authority for such addtional data once again when all the required detailed books of account are already furnished. This is clear overreach of the administration.

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

The Audit team cannot demand a complete unrestricted raw data back-up of the accounting software. Their mandate ends with verifying tax compliance. Period.

There are, to the best of my knowledge, no specific precedent u/s.65. Nonetheless, there a plethora of judgements that even in 'search' cases that department cannot insist on commercial data like payroll, cost structure, trade secrets, etc.

This is just a threat by the audit team and can be construed to be on account of 'other motives'. Thanks

[Sanjeev Agarwal]

I would not accept the proposition that Section 65 itself creates an automatic right to demand a complete Tally/ERP backup. The statutory scheme is more nuanced.

Section 71(1) unquestionably permits inspection of computers/software, and Rule 57(3) permits the Department to obtain access-related information, including passwords where necessary.

But Section 71(2) and Rule 57 repeatedly qualify production by reference to records/information that are relevant or required for the audit. Rule 101 similarly defines the substantive audit exercise around verification of books, returns, turnover, tax, ITC, refunds and other relevant issues.

Accordingly, a demand for a complete unrestricted ERP backup should, in my opinion, be tested against necessity, relevance, audit period and the particular audit issues, rather than treated as an automatic statutory entitlement.

There is no specific Section 65 judicial precedent or CBIC circular I have identified that expressly authorises a blanket compulsory "complete Tally backup" demand. The stronger legal position for the taxpayer is therefore not "the Department has no power over Tally", but rather "the Department has statutory access to electronic accounting systems and relevant records, but an unrestricted complete database demand must have a demonstrable nexus with the audit and should not be treated as an automatic consequence of Section 65."

AI Summary

Electronic accounting access in GST audits permits relevant record verification, not automatic demands for unrestricted ERP or Tally backups.
GST audit powers permit examination of electronic accounting systems and access-related information where necessary, but are limited to records and information relevant or required for audit verification. A complete unrestricted ERP or Tally backup is not an automatic consequence of audit powers. Any such demand should show necessity, relevance to identified audit issues and nexus with the audit period. Statutory access to electronic systems and relevant records is distinct from unrestricted acquisition of an entire accounting database, especially where detailed books and records have already been furnished.