CAG flags ₹401 cr GST lapses in works contracts; revenue dept accepts
New Delhi, Aug 12, 2026
The CBIC accepted observations in 903 of the 1,334 cases detected by the auditor, involving Rs 268.36 crore, and has recovered Rs 15.88 crore so far.
The Comptroller and Auditor General (CAG) has detected 1,334 cases of goods and services tax (GST) non-compliance in the works contract and construction sector involving ₹401.42 crore. The Central Board of Indirect Taxes and Customs (CBIC) has accepted observations in 903 of these cases worth ₹268.36 crore and recovered ₹15.88 crore so far. The CAG in its report on the Department of Revenue (for the period ended March 2024), which was tabled in Parliament on Wednesday, has highlighted these findings.
CAG auditors checked the GST returns and related records of 850 taxpayers and 71 GST department offices. The main period covered in this check was 2020-21 and 2021-22.
However, in some of these departments, the auditors also looked at later years — up to 2023-24 — to see if the same problems continued.
The main problems included incorrect claims of concessional rates or exemptions on contracts for roads, bridges, railways and earthwork, short payment of tax on works done for government bodies, short payment under reverse charge by builders and developers, irregular input tax credit (ITC) claims on ongoing and completed projects, failure to declare correct service codes and additional places of business, and mismatches between ITC claimed and tax paid along with short levy of interest. In 123 cases alone, these issues had a revenue impact of ₹190.98 crore, while another set of 1,057 deficiencies involving 522 taxpayers added ₹188.98 crore.
Audit also faced difficulties in getting complete records. In 431 cases involving 392 taxpayers, detailed documents were not fully produced, and these showed mismatches of ₹2,732.56 crore in tax liability, ITC and concessional rates. In 22 more cases, basic returns and statements were missing from the department’s system, pointing to a potential mismatch of ₹36.09 crore. Oversight by GST department offices was weak. Out of 71 offices checked, 57 showed deficiencies. Scrutiny was either not done properly or delayed in several places, and follow-up on risk alerts from the Directorate General of Audit and Risk Management was incomplete in many cases.
The report also covers the third phase of the CAG’s audit of the GST Network IT systems. Out of 56 pending issues from earlier audits, GSTN has fixed 38. One has been partly fixed and three are under process, while the rest remain unresolved or only partially addressed.
Problems continue in the registration module, with weak validations and delays in approval or cancellation, in the returns module, with incomplete checks for eligibility, interest calculation, ITC reversal and sequential filing, and in integrated goods and services tax (IGST) settlement, where some reports were not generated and apportionment errors were noticed. Monitoring of taxpayers under the Composition Levy Scheme also remains inadequate. GSTN was largely compliant on IT governance and security, but gaps remain in planning for higher portal capacity and more resilient data centres.
On the revenue front, indirect tax collections grew by 8 per cent (₹1.14 trillion) year-on-year in 2023-24, driven by a 13 per cent (₹1.08 trillion) surge in Central GST. However, the overall indirect taxes-to-GDP (gross domestic product) ratio slipped to 4.98 per cent from 5.15 per cent, mainly because central excise revenue continued to fall.
The CAG has recommended that the department expand scrutiny and internal audit of sub-contractors claiming concessions on road, bridge, railways and earthwork contracts, put validation controls in the system to check such claims, focus more on reverse-charge cases where works contractors buy from unregistered suppliers or receive services from the government, and improve coordination with the income tax (I-T) department, so that unaccounted income detected by the Central Board of Direct Taxes (CBDT) is also checked for GST liability.
The finance ministry and GSTN have accepted most of the IT-related findings. On the works contract observations, the revenue department has already started recovery in accepted cases. The report underlines that while GST collections are growing, gaps in compliance by construction sector taxpayers and remaining system weaknesses continue to put revenue at risk.
Compliance check
• Department accepted 903 cases worth ₹268.36 crore; ₹15.88 crore recovered so far
• 123 cases accounted for ₹190.98 crore impact
• Incomplete records in 431 cases involving 392 taxpayers
• 57 of 71 GST offices had gaps in scrutiny, risk-alert follow-up and internal controls
• GSTN has resolved 38 of 56 issues flagged in earlier audits
[The Business Standard]
