India’s top audit body has highlighted widespread GST violations totaling Rs 401 crore in the works contract and construction sector, exposing systemic enforcement weaknesses and audit challenges across multiple states and departments.
India’s top audit body has flagged widespread GST lapses in the works contract and construction sector, saying 1,334 cases involved potential non-compliance worth Rs 401.42 crore, according to a report tabled in Parliament on August 12, 2026. The Comptroller and Auditor General said the Central Board of Indirect Taxes and Customs has already accepted findings in 903 cases worth Rs 268.36 crore and recovered Rs 15.88 crore so far.
The audit, which examined GST returns and related records of 850 taxpayers and 71 tax offices, focused mainly on 2020-21 and 2021-22, though some checks ran as far as 2023-24 to see whether the same errors were persisting. According to the report, the most common problems included incorrect use of concessional rates or exemptions on road, bridge, railway and earthwork contracts, short payment of tax on work for government bodies, failures under the reverse-charge mechanism, irregular input tax credit claims and mismatches between tax credit claimed and tax paid.
In 123 cases, the audit said, the revenue impact alone came to Rs 190.98 crore, while another 1,057 deficiencies across 522 taxpayers were valued at Rs 188.98 crore. The report also said records were incomplete in 431 cases involving 392 taxpayers, leaving auditors unable to fully verify mismatches worth Rs 2,732.56 crore in tax liability, input tax credit and concessional claims. In 22 more cases, even basic returns and statements were missing from the department’s system, suggesting a possible mismatch of Rs 36.09 crore.
The audit findings fit a broader pattern of enforcement weaknesses seen in other state-level reviews. Earlier this year, a CAG report on Gujarat flagged Rs 2,606.62 crore in GST deviations, with Rs 1,234.71 crore tied to records that could not be verified because documents were missing. In Tamil Nadu, the auditor flagged Rs 1,721 crore in tax lapses for 2022-23, with recoveries still at only Rs 11.5 crore the following year. Separate CAG reviews have also pointed to weaknesses in GST e-way bill enforcement in Jammu and Kashmir, showing that compliance gaps are not limited to one sector or one state.
Beyond the works contract cases, the CAG said GST department oversight was weak in many of the 71 offices it reviewed, with 57 offices showing deficiencies. Scrutiny was delayed or not carried out properly in several places, and follow-up action on risk alerts from the Directorate General of Audit and Risk Management was often incomplete. The report also covered the third phase of the audit of GST Network’s IT systems, saying 38 of 56 pending issues from earlier reviews have been resolved, one has been partly resolved and three are under process, but problems remain in registration, returns processing, IGST settlement and monitoring under the composition scheme.
On the revenue side, indirect tax collections rose 8% to Rs 1.14 trillion in 2023-24, while central GST increased 13% to Rs 1.08 trillion. Even so, the indirect tax-to-GDP ratio slipped to 4.98% from 5.15%, largely because central excise revenue kept falling. The report said the tax department has accepted most of the IT-related observations and begun recovery in accepted works contract cases, while recommending tighter scrutiny of subcontractors, stronger system validations and better coordination with the Income-Tax Department to trace possible GST liabilities in cases where unaccounted income is found.
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