The Comptroller and Auditor General’s report uncovers widespread GST rule violations in the works contract and construction industry, highlighting significant revenue losses and systemic weaknesses in scrutiny and enforcement.
The Comptroller and Auditor General has found 1,334 cases of GST non-compliance in the works contract and construction sector worth Rs 401.42 crore, according to a report tabled in Parliament. The audit, which examined returns and records from 850 taxpayers and 71 GST offices, suggests that persistent rule-breaches and weak scrutiny continue to create revenue risks even as indirect tax collections rise.
According to the report, the Central Board of Indirect Taxes and Customs has accepted 903 of the audit objections, involving Rs 268.36 crore, and has recovered Rs 15.88 crore so far. The review covered mostly FY2020-21 and FY2021-22, although some checks ran into FY2023-24, and it flagged the misuse of concessional GST rates and exemptions on road, bridge, railway and earthwork contracts, as well as short payment of tax on work for government bodies and weak compliance with the reverse-charge system.
The audit also identified irregular input tax credit claims on live and completed projects, incorrect service-code declarations, discrepancies between ITC claimed and tax actually paid, and short payment of interest. In 123 cases, the revenue impact was Rs 190.98 crore, while another 1,057 deficiencies involving 522 taxpayers accounted for Rs 188.98 crore. The CAG also said it struggled to obtain complete records in 431 cases, where mismatches totalling Rs 2,732.56 crore were found in tax liabilities, ITC and concessional-rate claims.
Beyond the sector-specific findings, the report said 57 of the 71 GST offices examined had deficiencies, with scrutiny either delayed or poorly carried out in several instances and follow-up on risk alerts left incomplete. It also said the GST Network’s systems still have gaps in registration, return filing, interest calculation, ITC reversal and settlement processes, although most older audit issues have now been resolved or partly addressed. The CAG urged tighter scrutiny of subcontractors claiming concessions, stronger checks in reverse-charge cases and better coordination between indirect tax and income tax authorities so income flagged by the Central Board of Direct Taxes can also be examined for GST liability. It noted that indirect tax collections rose 8% in FY2023-24, but the taxes-to-GDP ratio slipped to 4.98% from 5.15%, underlining the challenge of sustaining revenue gains.
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