Key taxpayer records were not produced for 392 of the 735 construction-sector taxpayers examined in detail by the Comptroller and Auditor General, leaving identified goods and services tax mismatches of Rs 2,732.56 crore beyond full verification.
The amount is not a confirmed tax loss. It covers mismatches in tax liabilities, input tax credit and concessional-rate claims that the CAG could not examine fully without supporting financial ledgers, invoices and agreements, according to a Business Standard report.
Separately, the national auditor observed 1,334 GST compliance deficiencies carrying a revenue implication of Rs 401.42 crore in the works-contract and construction sector.
The findings are contained in CAG Report No. 20 of 2026, which was tabled in Parliament on August 12.
The Central Board of Indirect Taxes and Customs accepted 903 of the deficiencies, involving Rs 268.36 crore. The department reported recovering Rs 15.88 crore in 399 cases following the audit.
Key records unavailable in over half the sample
The subject-specific audit selected 850 taxpayers and 71 GST field ranges. Its principal review covered financial years 2020-21 and 2021-22, while the examination of field offices extended through 2023-24.
In its detailed sample of 735 taxpayers, granular records were not forthcoming for 392 taxpayers, or 53.33 percent of the sample. The limitation affected 431 cases carrying identified mismatches of Rs 2,732.56 crore.
In another 22 cases, GST returns, reconciliation statements or financial records were unavailable on the tax department’s backend system. These cases carried potential mismatches of Rs 36.09 crore.
Where the CAG found GST lapses
The auditor identified 123 sector-specific compliance deficiencies with a revenue implication of Rs 190.98 crore.
These included incorrect claims of concessional tax rates or exemptions on contracts involving roads, bridges, railways and earthwork.
The CAG also found short payment of tax on works-contract services supplied to government authorities, shortcomings in reverse-charge payments by builders and developers, and irregular ITC claims involving ongoing or completed projects.
Other findings related to residential real-estate projects, metro contracts and failure to discharge GST on unaccounted “on-money” income detected by income-tax authorities.
The report separately recorded 1,057 general compliance deficiencies involving 522 taxpayers and Rs 188.98 crore.
These included failures to declare service codes and additional places of business, discrepancies in ITC claims, and short payment of tax and interest.
GST scrutiny weak in 57 field ranges
The CAG also found deficiencies in the oversight functions of 57 of the 71 GST ranges examined.
Nineteen ranges did not provide details of their scrutiny of GST returns, while four did not conduct the required scrutiny. Inadequate scrutiny in 11 ranges resulted in gaps in assessed tax and interest involving Rs 3.18 crore.
Auditors also found delays in issuing or closing scrutiny notices in 73 cases across 12 ranges.
Follow-up was deficient in 76 cases flagged as high risk by the Directorate General of Audit and Risk Management. In 20 ranges, assessment had not been completed in 5,652 cases involving taxpayers who had filed their returns late or not filed them at all.
GSTN fixes 38 earlier issues
The report also examined how the Goods and Services Tax Network had responded to findings from two earlier information-technology audits.
Of 56 pending issues, GSTN had rectified 38. One had been partly rectified and work was underway on three others. In the remaining cases, corrective action had either not begun, was inadequate or was no longer required because the rules had changed.
The CAG continued to find validation and monitoring gaps in GST registration, returns and integrated GST settlement.
These included deficiencies in verifying taxpayer eligibility, calculating interest, reversing ITC, enforcing sequential return filing and monitoring taxpayers under the composition scheme.
The auditor said GSTN was largely compliant with IT governance and security requirements. It nevertheless identified gaps in planning for greater portal capacity and shifting to more resilient data centres.
What the CAG recommended
The CAG asked the tax department to widen scrutiny of subcontractors claiming concessions on road, bridge, railway and earthwork contracts.
It recommended introducing system controls to test such claims and increasing scrutiny of reverse-charge cases involving unregistered suppliers or services received from governments.
The auditor also called for better coordination between the CBIC and Central Board of Direct Taxes so that unaccounted income detected by income-tax authorities can be checked for any corresponding GST liability.
Indirect tax collections increased by 8 percent, or Rs 1.15 lakh crore, in 2023-24, aided by a 13 percent rise in Central GST revenue.
However, the indirect tax-to-GDP ratio declined to 4.98 percent from 5.15 percent, mainly because central excise collections fell during the year.
