The Nine Findings That Recur in Almost Every GST Audit

Nine Findings That Recur explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Departmental audits are more standardised than they look. The same nine paragraphs appear again and again, because they are the nine places where the department's data and the taxpayer's return can diverge without anyone doing anything wrong.

The recurring findings are: GSTR-2A/2B versus 3B credit, turnover in books versus GSTR-1 versus GSTR-3B, Rule 42/43 reversal not done, s.17(5) blocked credit availed, reverse charge not paid, cross charge and s.25(4) distinct persons, Rule 37 non-payment within 180 days, e-way bill and financial-statement turnover differences, and classification or rate. Each has a documentary answer. The difference between a paragraph that is dropped and one that becomes a demand is almost always whether the reconciliation exists.

1. GSTR-2A/2B versus GSTR-3B

The finding: credit availed in GSTR-3B exceeds the auto-populated figure.

The answer: a line-by-line reconciliation attributing every difference to a cause — invoices reported by the supplier in a later period, credit deferred and taken in a later period within the s.16(4) window, credit taken on import IGST or reverse charge which does not sit in the counterparty stream, and genuinely ineligible credit already reversed.

The version that is payable: credit against invoices the supplier never reported, where s.16(2)(aa) is not satisfied.

2. Turnover: books versus GSTR-1 versus GSTR-3B

The finding: the profit and loss account shows a higher revenue than the returns.

The answer: a bridge from financial-statement revenue to taxable outward supply, removing items that are not supplies at all — other income, forex gain, interest, insurance claims, profit on asset sale, provisions written back — and adding items that are supplies but not revenue: Schedule I transactions, cross charge, scrap sales netted in expenses, and recoveries from employees.

The version that is payable: unbilled revenue recognised in the books where the time of supply under s.13(2) had already arrived.

3. Rule 42 and Rule 43 reversal

The finding: exempt turnover exists but no common-credit reversal was made.

The answer: the Rule 42 working for each period, with the annual Rule 42(2) recomputation by the September following the year end, and the Rule 43 working for capital goods over sixty months.

The version that is payable: the reversal genuinely omitted, plus interest — and note that the annual true-up under Rule 42(2) carries interest under s.50(1) where the annual figure exceeds the monthly reversals.

4. Section 17(5) blocked credit

The finding: credit on motor vehicles, food and beverages, works contract, construction, employee benefits, or CSR.

The answer: the specific clause and its exception. Motor vehicles above thirteen seats, or used for the exceptions in s.17(5)(a)(A)–(C); food and beverages where the supply is an obligation under any law for the time being in force; works contract where it is an input service for further supply of works contract service.

The version that is payable: construction of immovable property on own account — and here note that s.17(5)(d) as substituted operates retrospectively from 01.07.2017, so the "plant or machinery" reading applies throughout. Section 17(5)(d) →

5. Reverse charge not discharged

The finding: RCM not paid on legal services, GTA, director's remuneration, sponsorship, import of services, or renting of motor vehicles.

The answer: whichever applies — the service was not covered by the notification entry, the supplier was in fact registered where the entry requires an unregistered supplier, or the payment was made and the self-invoice and challan evidence it.

The version that is payable: RCM genuinely not paid. Note that the tax is payable with interest, and the corresponding credit is available only subject to the s.16(4) timeline read with the self-invoice date under s.31(3)(f) — so the cost is rarely revenue-neutral once interest is added.

6. Cross charge between distinct persons

The finding: common corporate functions — management, HR, IT, finance — performed at head office for branches in other States, with no cross charge.

The answer: the distinction between cross charge under s.25(4) read with Schedule I entry 2, and ISD under s.20 for third-party input services. Where the internally generated service is genuinely nil, or where Circular No. 199/11/2023-GST applies and the recipient is entitled to full credit so the value declared in the invoice is deemed to be the open market value, the exposure collapses.

The version that is payable: where the recipient branch is not fully eligible for credit — an exempt output, or a blocked-credit sector.

Cross charge between distinct persons →

7. Rule 37: payment not made within 180 days

The finding: creditors outstanding beyond 180 days at year end, credit not reversed.

The answer: the ageing of trade payables mapped to invoice dates, showing which balances relate to invoices whose 180 days had not expired, which were settled by set-off or book adjustment — which counts as payment — and which relate to Schedule I supplies without consideration, to which the proviso to s.16(2) does not apply.

The version that is payable: genuine non-payment beyond 180 days, reversed with interest and re-availed on payment.

8. E-way bill and third-party data differences

The finding: the value of e-way bills generated exceeds the turnover declared.

The answer: e-way bills are generated for movements, not supplies — job work despatches, branch transfers, returns, sale-or-return, exhibition movements, and cancelled invoices. A reconciliation by document type usually eliminates the difference entirely.

The version that is payable: invoices with e-way bills and no corresponding entry in GSTR-1.

9. Classification and rate

The finding: a lower rate applied than the department considers correct.

The answer: the HSN or SAC, the tariff heading and its notes, the rate notification entry, any circular, and any advance ruling. Where the supply is a composite supply, the principal supply analysis under s.2(30) and s.8(a); where it is mixed, the highest-rate rule under s.8(b).

The version that is payable: a genuinely wrong classification — and here the exposure includes periods before and after the GST 2.0 rate reset, which must be split at the effective date. GST 2.0 rate structure →

The pattern

Eight of the nine are reconciliation findings. They arise because two datasets differ, and they close when the difference is explained line by line.

Which means the work that answers an audit is the same work that prevents one, and it is far cheaper done monthly than reconstructed under a fifteen-working-day demand. The eight reconciliations →

Key takeaways

• Audit findings are standardised; the same nine paragraphs recur.
• Most are data differences, not legal disputes, and close on a line-by-line reconciliation.
• Section 17(5)(d) operates retrospectively from 01.07.2017 as substituted.
• Circular No. 199/11/2023-GST largely neutralises cross charge where the recipient has full credit.
• E-way bill differences are almost always explained by document type.
• The reconciliation that answers an audit is the one that would have prevented it.

Read next

• Rule 101: How a GST Audit Is Actually Conducted
• ADT-02: Reading the Audit Findings and What to Do Next
• The Eight Reconciliations That Prevent GST Notices
• The Records an Officer Asks For First in a GST Audit

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and Circular No. 199/11/2023-GST.