GST Notice ADT-01: What Section 65 Audit Means, 12 Areas Officers Examine, and How to Prepare

A Section 65 GST audit is the most consequential compliance event most registered businesses will face: officers visit your premises, examine actual books of accounts, invoices, and contracts, and produce a formal audit report in Form ADT-02 that can directly trigger a tax demand under Section 73 or 74 of the CGST Act. Before any Section 65 audit can commence, the Proper Officer must issue Form GST ADT-01 under Section 65(3) of the CGST Act read with Rule 101(2) of the CGST Rules 2017, giving you at least 15 working days advance notice. The audit must be completed within 3 months of the commencement date under Section 65(4), extendable by a further 6 months on sufficient cause by the Commissioner (maximum 9 months total). ADT-01 is not a demand notice, a show cause notice, or an allegation of wrongdoing: it is an administrative notice of an impending examination. The 15-working-day window between receiving ADT-01 and the audit start date is your most valuable preparation time. This guide explains which taxpayers receive ADT-01, the 12 areas officers examine, what documents to organize, your rights and the officers’ limits during the audit, how ADT-02 findings translate into a Section 73/74 demand, and how a Section 65 audit differs from a Section 66 special audit or Section 67 search and inspection.

What Is Form GST ADT-01 and Why Did You Receive It?

Form GST ADT-01 is the statutory audit notice issued by the Commissioner or any officer authorized by the Commissioner under Section 65(1) of the CGST Act 2017. Rule 101(2) of the CGST Rules 2017 (available on the CBIC website) prescribes that this notice must be issued in Form ADT-01, specifying the period of audit, the place where the audit will be conducted, and the date and time of commencement. The notice period must be not less than 15 working days from the date of service of ADT-01 to the date of commencement of audit under Section 65(3). This 15-working-day requirement is not a courtesy: it is a mandatory right of the taxpayer, and courts have held that audits commenced without observing this notice period are procedurally flawed.

ADT-01 is not a demand, not a show cause notice, and not an allegation of evasion. It is an administrative notice informing you that your GST compliance for the specified period will be independently verified by government officers at your premises. The audit is a routine compliance tool: the CGST Act requires the Commissioner to audit registered persons “for such period, at such frequency and in such manner as may be prescribed.” Not every audit results in a demand: where the books are in order and returns correctly reflect the actual transactions, the audit concludes with a clean ADT-02 report and no further proceedings. The audit form sequence is:

Which Taxpayers Are Selected for a Section 65 GST Audit?

GST audits are conducted on a risk-based selection system coordinated by the GSTN Risk Management System (RMS) and the CBIC’s audit planning framework. Selection is not random: understanding the criteria for selection helps businesses assess their own audit risk and take corrective action before ADT-01 arrives.

Risk-Based Selection Triggers

• High ITC-to-output-tax ratio: Taxpayers whose ITC claims are disproportionately high relative to output tax, particularly for multiple consecutive periods, are flagged as high risk. The ratio is benchmarked against sector averages maintained in the RMS.
• GSTR-1 vs GSTR-3B mismatch: Persistent discrepancy between outward supply declared in GSTR-1 and tax paid in GSTR-3B triggers audit selection, especially where ASMT-10 scrutiny notices were issued but not satisfactorily resolved.
• Large IGST export refund claims: Exporters claiming significant IGST refunds under the shipping-bill-linked refund mechanism are routinely audited to verify export documentation, LUT compliance, ICEGATE shipping bill data, and foreign exchange receipt (BRC) accuracy. An RFD-08 refund rejection preceding ADT-01 is a common pattern.
• Sector-specific audit drives: CBIC periodically designates sectors for focused audit (real estate, pharma, IT services, gems and jewellery, restaurants). All taxpayers in the designated sector with turnover above a threshold receive ADT-01 in the same audit cycle.
• Intelligence input from other agencies: Referrals from DGGI (Directorate General of GST Intelligence), the Income Tax Department, Customs, SFIO, or Enforcement Directorate flag taxpayers for Section 65 audit as a preliminary step before more invasive action under Section 67.
• Large taxpayer routine audits: Taxpayers above a specified turnover threshold (typically Rs. 5 crore aggregate annual turnover) are in the “audit universe” and are selected for audit periodically regardless of specific risk flags.
• Composition scheme transition or cancellation: Taxpayers who recently transitioned from composition to regular scheme, or whose registration was cancelled and revoked, are audited to verify the transition compliance.

What Documents Does ADT-01 Require You to Produce?

ADT-01 typically contains a schedule of documents the taxpayer must make available at the commencement of audit. The schedule is tailored to the period under audit and the nature of the taxpayer’s business, but the following categories appear in virtually every Section 65 audit. Organizing these documents in advance of the audit date dramatically reduces the time officers spend at your premises and limits the scope of additional queries raised during the audit.

How Do You Prepare Your Business for a GST Audit?

The 15-working-day notice period is the most critical window in the entire audit process. A well-prepared response to ADT-01 not only reduces the audit’s disruptive impact on business operations but also limits the scope of findings by ensuring that known issues are addressed before the officers arrive.

1. Acknowledge receipt of ADT-01 and verify the notice period. From the date of service of ADT-01, count 15 working days (excluding Sundays and public holidays) to confirm that the notice period is legally compliant. If the audit start date falls within 15 working days of service, write to the officer immediately requesting a postponement to a date that complies with Section 65(3). A written request with the exact dates calculated is essential; an oral complaint is insufficient. Simultaneously, appoint a senior CA or tax advocate as the primary interface with the audit team. All communication with officers during the audit should be channeled through or supervised by this advisor.
2. Conduct an internal pre-audit review of all 12 audit areas. The most valuable use of the 15-day notice period is a CA-led internal audit of the same areas officers will examine: outward supply completeness, ITC eligibility and restrictions, RCM compliance, classification accuracy, valuation of special transactions, place of supply, export documentation, GSTR-9 reconciliation, credit and debit note treatment, and advance receipt GST. This internal review identifies issues before the officers do. Each identified issue can be assigned a resolution action: DRC-03 voluntary payment, GSTR-3B amendment, credit note issuance, or preparation of a documented explanation.
3. Pay any identified shortfalls via DRC-03 before the audit commences. Any tax shortfall identified during the internal pre-audit review should be voluntarily paid via Form DRC-03 before the audit start date. Under Section 73(5) of the CGST Act, where a person pays tax and interest before a show cause notice (DRC-01) is issued, no penalty is payable. This zero-penalty window applies to voluntary payments made at any time before DRC-01, including during the 15-day notice period after ADT-01. Compute the interest at 18% per annum from the original due date for each period’s shortfall. The DRC-03 payment reference should be preserved as evidence of voluntary compliance.
4. Organize documents in the order specified in the ADT-01 schedule. Create a physical or digital folder for each document category in the ADT-01 schedule. Within each folder, organize chronologically by tax period. Prepare an index of all documents produced, with folder references that correspond to the ADT-01 schedule items. This organized presentation reduces the time officers spend searching for documents and minimizes the risk of additional queries arising from apparent document gaps. Where any document in the ADT-01 schedule is unavailable (lost, destroyed, or never created), document this in writing with an explanation before the audit date.
5. Prepare written summaries of key reconciliations. Officers performing a Section 65 audit often request reconciliation statements during the audit that take days to prepare if not ready in advance. Pre-prepare: (a) GSTR-1 vs GSTR-3B reconciliation for each period; (b) GSTR-2B vs GSTR-3B ITC reconciliation for each period; (c) GSTR-9 annual turnover vs sum of GSTR-3B monthly turnover; (d) Rule 42/43 ITC reversal working with the formula applied; (e) ICEGATE IGST credit vs GSTR-3B import ITC claimed. Having these reconciliations ready prevents the audit from stalling while they are prepared, and demonstrates the thoroughness of your record-keeping.
6. Brief all staff who will interact with the audit team. Officers may speak directly to accounts staff, purchase managers, or operations personnel. All staff who might be present during the audit should understand: direct all substantive questions to the designated CA or advisor; provide only factual data when asked a factual question and refer any interpretive question to the advisor; do not make statements about the company’s GST positions, known issues, or internal disputes without the advisor present. Oral statements made during the audit can be recorded by officers and used in the ADT-02 report.

What Happens During the Audit: What Officers Examine at Your Premises?

A Section 65 audit team typically consists of 2 to 4 officers (Superintendent, Inspector, and sometimes an Additional Commissioner for large taxpayer cases). They work at your premises examining records, posing queries, and documenting their findings. Understanding the 12 areas of examination helps you anticipate audit queries and have responses ready.

The 12 Core Audit Examination Areas

What Officers Can and Cannot Do During the Audit

Section 65(5) specifies that during the audit, officers may require the registered person to: (a) afford them the necessary facility to verify books of account or other documents; and (b) furnish such information as required and render assistance for timely completion. These powers are narrower than Section 67 (search and inspection). Specifically:

• Can do: Examine books, accounts, invoices, registers, and documents at your premises; request physical demonstration of record-keeping systems; take notes and copies of documents (copies, not originals); raise verbal or written queries about transactions; request written explanations and reconciliation statements; extend the audit by revisiting premises within the 3-month (or extended) audit period.
• Cannot do: Seize original documents (requires Section 67 authorization from the Commissioner); arrest individuals (requires Section 69 authorization); conduct searches of locked premises, vehicles, or personal belongings without Section 67 authorization; demand access to records outside the stated audit period without an amended ADT-01; make statements or sign confessions on behalf of the taxpayer (officers cannot demand signatures on documents admitting liability).

What Is Form ADT-02 and What Follows the Audit Report?

Within 30 days of the date of completion of the audit, the Proper Officer must issue Form ADT-02 under Section 65(6) read with Rule 101(4) of the CGST Rules. ADT-02 is the official audit report: it communicates the audit findings, the taxpayer’s rights and obligations, and the officer’s reasons for the findings. This 30-day obligation on the officer is mandatory: if ADT-02 is not issued within 30 days of audit completion, write to the officer requesting the report.

Content of ADT-02

ADT-02 lists each discrepancy identified during the audit with: the audit area concerned, the quantum of tax not paid or short paid or ITC wrongly availed, the period to which it relates, the officer’s reasoning, and the taxpayer’s rights. ADT-02 is not a demand notice: it is a findings communication. The taxpayer has an opportunity to respond to ADT-02 findings before the officer initiates a formal demand under Section 73 or 74.

Responding to ADT-02

File a written response to every adverse finding in ADT-02 within the period specified or, if no period is specified, within 30 days. For each finding: either dispute it with documentary evidence and legal analysis, or concede it and file DRC-03 for the admitted tax and interest. DRC-03 payments made after ADT-02 but before the DRC-01 show cause notice is issued still attract a minimum 10% penalty (not zero penalty), because at this stage the officer has already communicated the finding. The zero-penalty window closed when the audit commenced. For findings you dispute, frame the ADT-02 response as carefully as a court submission: it may be referenced in the DRC-01 show cause notice and the eventual appeal record.

From ADT-02 to DRC-01 Demand

Where ADT-02 findings are not satisfactorily addressed, the officer initiates a demand under Section 73 (where no fraud or willful evasion is alleged) or Section 74 (where fraud, suppression, or wilful misrepresentation is alleged). The DRC-01 show cause notice sets out the tax demand, proposes a penalty, and gives the taxpayer a personal hearing opportunity. If you disagree with the DRC-01, respond via DRC-06 within the specified period. The demand is confirmed in DRC-07 and is appealable before the Appellate Authority under Section 107 (Form APL-01, 3 months, 10% pre-deposit). For periods from FY 2024-25, Section 74A applies a unified 2-year limitation and demand track for all cases regardless of fraud characterization.

For businesses that have received a refund rejection notice alongside audit proceedings, our RFD-08 guide explains the refund rejection response strategy, which often runs in parallel with the Section 65 audit on the same periods. Businesses operating through corporate structures should ensure their entity-level compliance is robust before and during audit: our Pvt Ltd company registration guide covers the structural compliance framework relevant to GST audit readiness.

How Is ADT-01 Different from a Section 66 Special Audit or Section 67 Search?

The GST Act provides three distinct audit and investigation instruments, each used at escalating levels of compliance risk. Receiving ADT-01 (Section 65) is a standard compliance event. Section 66 and Section 67 represent escalating levels of scrutiny that can follow a Section 65 audit or be initiated independently.

ASMT-10 scrutiny (desk review of return data) is the entry-level compliance check. ADT-01 audit (Section 65) is the next level: an on-premises book examination. A Section 65 audit that uncovers complex valuation or accounting issues may be followed by a Section 66 special audit. Where evidence of deliberate fraud is found during Section 65 or Section 66, a Section 67 search and seizure may be authorized by the Commissioner. The escalation ladder underscores why addressing ASMT-10 scrutiny notices thoroughly is so important: unresolved scrutiny findings are the most common pathway from ASMT-10 to ADT-01. Businesses that have also received ASMT-14 unregistered person assessment notices should resolve those before Section 65 audit proceedings begin, as overlapping proceedings significantly complicate the legal strategy. Similarly, businesses facing GSTR-3A return non-filing notices alongside ADT-01 must prioritize filing all pending returns: a non-filer status during an audit period allows the officer to proceed directly to a best judgement assessment alongside the audit findings.

Frequently Asked Questions on GST Notice ADT-01