ADT-02 is issued under Section 65(6), Rule 101(5). This guide explains the legal basis, common grounds, procedural steps, and how GST Notice AI drafts your reply in under 60 seconds with relevant citations and defences.
Form GST ADT-02 is the Audit Report issued under Section 65(6) of the CGST Act read with Rule 101(5) within 30 days of completion of the departmental audit initiated via ADT-01. It documents the audit findings, observations, and any proposed demand. It is not itself a demand notice — but it usually precedes a DRC-01A (intimation) or DRC-01 (SCN).
Legal Section
Section 65(6), Rule 101(5)
Follow-Up Window
30 Days
Reply Deadline
30 Days to Respond to Findings
Risk Level
Medium — May Escalate to DRC-01
Likely Next Notice
DRC-01A / DRC-01
Issuing Authority
Audit Officer
Completion of Departmental Audit
Routine issuance following conclusion of every Section 65 audit, regardless of whether discrepancies were found.
Findings of Wrong ITC / Short Tax
Audit team identifies ITC taken without Section 16 conditions, short payment of tax, or classification errors during the audit period.
Reverse Charge / Valuation Discrepancies
Observations on non-discharge of RCM liability, incorrect application of rule 28/29/30 valuation methods, or HSN misclassification.
Procedural Violations
Non-maintenance of records under Section 35, non-issuance of invoices in prescribed format, or e-way bill non-compliance during the audit period.
Obtain ADT-02 with all annexures listing each observation, the amount involved, and the section/rule invoked. Study each observation individually.
For each observation, classify as: (a) agreed — pay tax + interest via DRC-03 before DRC-01A is issued to avoid penalty, (b) disputed — prepare defence paper for the next stage, (c) factual error — write to the audit officer requesting correction.
Compute the full exposure: principal tax + interest under Section 50 + potential penalty at 10% (Section 73) or 100% (Section 74). Decide on voluntary payment strategy accordingly.
Draft a formal response to the audit report within 30 days (though the law does not prescribe a reply, a written response of agreement / disagreement strengthens subsequent defence).
Maintain the working papers submitted during audit, the ADT-02 with annexures, and your response — these will be the foundation of any reply to DRC-01A or DRC-01 that may follow.
If a DRC-01A is issued, the liability can be paid with just interest (no penalty) before the SCN stage — biggest cost saving available. If DRC-01 is issued, full adjudication under Section 73/74 begins.
Observation Classification Matrix
Processes every ADT-02 observation and classifies by merit, quantum, and recommended action — agree-and-pay, contest, or seek clarification.
Voluntary DRC-03 Wizard
For agreed observations, generates the DRC-03 challan with correct tax + interest breakdown and attaches the link to the underlying observation.
DRC-01 Defence Precomputation
For disputed observations, pre-drafts the Section 73/74 defence so that when DRC-01A arrives, the reply is 80% ready.
Upload your ADT-02 notice. AI drafts the reply, computes deadlines, and cites every applicable section and rule.
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