Various measures have been taken by the government to ensure compliance of GST law and audit is one them. Audit conducted under GST law is the examination of records maintained by a taxable person to verify the correctness of information furnished, taxes discharged, refund claimed and input tax credit availed. It is a way to analyse the compliance of taxpayer with the provisions of the GST Act. The meaning of audit is given under section 2(13) of Central Goods and Services Tax Act, 2017. There are three types of audit as prescribed under GST.
When GST Audit is required to be conducted?
GST Audit is required under following 3 circumstances
1) Audit by Chartered Accountant mandatory if Turnover exceeds Rs. 2 Corers.
2) Normal Audit by the Commissioner (Tax Authority).
3) Special Audit by Chartered Accountant.
What is the audit limit under GST for a financial year?
Audit limit for audit under GST is Rs. 2 crore (20,000,000), every registered person whose turnover exceeds prescribed limit should get his accounts audited by a Chartered Accountant (CA) or a Cost Accountant. And furnish a copy of the audited annual accounts and reconciliation statement, duly certified in Form GSTR 9C
What are the documents to be maintained or kept under GST by a registered person?
Section 35 of CGST Act 2017 specifies the documents to be maintained by a registered person. Every registered person shall keep and maintain at his principal place of business a true and correct account of:
(a) Production or manufacture of goods;
(b) Inward and outward supply of goods or services or both;
(c) Stock of goods;
(d) Input tax credit availed;
(e) Output tax payable and paid.
These records can be kept in electronic form. Further if tax payer makes supplies from different business place, then each business place should have its accounting records.
Every owner or operator of warehouse or godown or any other place used for storage of goods and every transporter, irrespective of whether he is a registered person or not, shall maintain records of the consigner, consignee and other relevant details of the goods in such manner as may be prescribed.
If accounting records as specified above are not maintained or where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.
For how many year the accounting records should be maintained and kept under GST?
Every registered person is required to keep accounting books up to 72 months the due date of filing annual return for a particular year.
For example, for the financial year 2017-18, accounting records must be kept up to December, 2024. Reason being 72 months from due date of filing the annual returns (December 31, 2018 in this example) will end on December 2024.
Chapter VIII of CGST Act, 2017 containing section 35 and section 36 specifies the requirements of Accounts and other records as well as retention of these documents.
In case of any dispute such as appeal or revision or any other proceeding or the matter is under investigation (consider court and all other proceedings, check section for complete list), accounting records should be retained for a period of one year after final disposal of such appeal or revision or proceedings or investigation, or for the period specified above, whichever is later.
In case, more than one place of business is specified in the certificate of registration, can the assesses choose to maintain records at a single place for all the places within that State?
No, in such cases, the accounts and records relating to each place of business shall be kept at such places of business concerned.
Audit of accounts by Chartered Accountant
Every registered person, whose turnover during the financial year exceeds the prescribed “GST audit turnover limit” i.e., 2 crore rupees, shall get the accounts audited by a Chartered Accountant (CA) or a Cost and Management Accountant (CMA). Registered person who is required to get his accounts audited in accordance with section 35(5) shall submit electronically the Annual Return as per section 44 along with a copy of the audited statement of accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year. He shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in Form GSTR-9C along with annual return.
Please consider that the scope of this audit report (to be revised and notified under GSTR-9B) will be such that all information as required to make a proper determination of the tax compliance of the registered taxable person. It is expected that every inward and outward supply, whether taxable or not, along with the treatment of input tax paid thereof, whether creditable or not, will need to be explained. Please consider this suggestion by some experts as a five step approach:
(a) Every inward supply would be required to appear in the GSTR-1 of one or other supplier (to the auditee-taxable person) or
(b) Every inward supply would need to appear in the GSTR-2 of the taxable person (being audited) or
(c) It must be excluded under schedule III or
(d) Exempt under 2/2017 (for goods) or 12/2017 (for services) and
(e) Every outward supply would need to appear in the GSTR-1 of the taxable person (being audited)
Another view that is considered by experts is that only taxable and exempt supplies – inward and outward can be called into examination. Accordingly, the audit will need to confine itself to these transactions only. Transactions that are imputed to be taxable by operation of law would be a very onerous for the auditor to uncover and report as this is not an investigation but an audit of contemporaneous transactions. Considering the minimal governance that industry has been seeking, one would need to await the final GSTR audit requirements to assess the extent of responsibility in this audit exercise.
Audit by Tax Authorities
The Commissioner or any officer authorised by him, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed in a general or a specific order (Section 65 of CGST Act). The officers may conduct audit at the place of business of the registered person or in their office. The registered person shall be informed by way of a notice of not less than fifteen working days before the conduct of audit in Form GST ADT-01. The audit shall be completed within a period of three months from the date of commencement of the audit and can be further extended by a period not exceeding six months, by the Commissioner if he has a reason to believe that the audit cannot be completed in the given duration.
During the course of audit, the authorised officer may require the registered person,—
- to provide him the necessary facility to verify the books of account or other documents as he may require
- to furnish such information as he may require and render assistance for timely completion of the audit
On conclusion of audit, the proper officer will inform, the registered person, within 30 days, about the findings, his rights and obligations and the reasons for such findings in Form ADT-02.
The officer along with his team will verify:
- Documents on the basis of which the books of account are maintained and the returns and statements furnished under the provisions of the Act and the rules made there under
- Correctness of the turnover
- Exemptions and deductions claimed
- Rate of tax applied in respect of the supply of goods or services or both
- Input tax credit availed and utilised
- Refund claimed
- Other relevant issues
Special Audit – Audit by CA or CMA on the Directions of the GST Officer
If at any stage of scrutiny, inquiry, investigation or any other proceedings, any officer not below the rank of Assistant Commissioner, is of the opinion that
- the value has not been correctly declared or
- the credit availed is not within the normal limits,
He may, with the prior approval of the Commissioner, direct such registered person to get his records including books of account examined and audited by a Chartered Accountant or a cost accountant as may be nominated by the Commissioner. The officer will issue direction in Form GST ADT-03 to the registered person in this regard. The Chartered Accountant or Cost Accountant so nominated shall submit a report of such audit duly signed and certified by him to the said Assistant Commissioner, within the period of ninety days, which can be further extended by ninety days. Special audit can be conducted even if accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force. The expenses of the examination and audit of records, including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner. On conclusion of the special audit, the registered person shall be informed of the findings of the special audit in FORM GST ADT-04.
Accounts & Records to be maintained by registered person in GST
Rule 56. Maintenance of accounts by registered persons- {Rule (1) to (18)}
Rule 57. Generation and maintenance of electronic records- {Rule (1) to (3)}
Rule 58. Records to be maintained by owner or operator of godown or warehouse and transporters- {Rule (1) to (5)}
Rule 56. Maintenance of accounts by registered persons:-
Rule 56 (1) Every registered person shall keep and maintain, in addition to the particulars mentioned in sub-section (1) of section 35,
a) A true and correct account of the goods or services imported or exported or
b) Supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers and refund vouchers.
Rule 56 (2) Every registered person, other than a person paying tax under section 10 (Tax paid under Composition scheme), shall maintain the
a) Accounts of stock in respect of goods received and supplied by him, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample
AND
b) The balance of closing stock including raw materials, finished goods, scrap and wastage thereof.
Rule 56 (3) Every registered person shall keep and maintain a separate account of advances received, paid and adjustments made thereto.
Rule 56 (4) Every registered person, other than a person paying tax under section 10 (Tax paid under Composition, shall keep and maintain an account)
a) Containing the details of tax payable {including tax payable in accordance with the provisions of sub-section (3) and sub-section (4) of section 9},
i) Tax collected and paid,
ii) Input tax,
iii) Input tax credit claimed,
iv) Together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.
Rule 56 (5) Every registered person shall keep the particulars of –
(a) Names and complete addresses of suppliers from whom he has received the goods or services chargeable to tax under the Act; (Purchase Register)
(b) Names and complete addresses of the persons to whom he has supplied goods or services, where required under the provisions of this Chapter; (Sales Register)
(c) The complete address of the premises where goods are stored by him, including goods stored during transit along with the particulars of the stock stored therein. (Inventory Register)
Rule 56 (6) If any taxable goods are found to be stored at any place(s) other than those declared under sub-rule (5) without the cover of any valid documents, the proper officer shall determine the amount of tax payable on such goods as if such goods have been supplied by the registered person.
Rule 56 (7) Every registered person shall keep the books of account at the principal place of business and books of account relating to additional place of business mentioned in his certificate of registration and such books of account shall include any electronic form of data stored on any electronic device.
Rule 56 (8) Any entry in registers, accounts and documents shall not be erased, effaced or overwritten, and all incorrect entries, otherwise than those of clerical nature, shall be scored out under attestation and thereafter, the correct entry shall be recorded and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained.
Rule 56 (9) Each volume of books of account maintained manually by the registered person shall be serially numbered.
Rule 56 (10) Unless proved otherwise, if any documents, registers, or any books of account belonging to a registered person are found at any premises other than those mentioned in the certificate of registration, they shall be presumed to be maintained by the said registered person.
Rule 56 (11) Every agent referred to in clause (5) of section 2 shall maintain accounts depicting the,-
(a) Particulars of authorization received by him from each principal to receive or supply goods or services on behalf of such principal separately;
(b) Particulars including description, value and quantity (wherever applicable) of goods or services received on behalf of every principal;
(c) Particulars including description, value and quantity (wherever applicable) of goods or services supplied on behalf of every principal;
(d) Details of accounts furnished to every principal; and
(e) Tax paid on receipts or on supply of goods or services effected on behalf of every principal.
Rule 56 (12) Every registered person manufacturing goods shall maintain monthly production accounts showing quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof. (For Manufacture)
Rule 56 (13) Every registered person supplying services shall maintain the accounts showing quantitative details of goods used in the provision of services, details of input services utilized and the services supplied. (For Supply of Services)
Rule 56 (14) Every registered person executing works contract shall keep separate accounts for works contract showing –
(For Work Contract)
(a) The names and addresses of the persons on whose behalf the works contract is executed;
(b) Description, value and quantity (wherever applicable) of goods or services received for the execution of works contract;
(c) Description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract;
(d) The details of payment received in respect of each works contract; and
(e) The names and addresses of suppliers from whom he received goods or services
Rule 56 (15) The records under the provisions of this Chapter may be maintained in electronic form and the record so maintained shall be authenticated by means of a digital signature.
Rule 56 (16) Accounts maintained by the registered person together with all the invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for the period (6 years) as provided in section 36 and shall,
where such accounts and documents are maintained manually, be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.
Rule 56 (17) Any person having custody over the goods in the capacity of a carrier or a clearing and forwarding agent for delivery or dispatch thereof to a recipient on behalf of any registered person shall maintain true and correct records in respect of such goods handled by him on behalf of such registered person and shall produce the details thereof as and when required by the proper officer. (For Clearing and Forwarding Agent)
Rule 56 (18) Every registered person shall, on demand, produce the books of accounts which he is required to maintain under any law for the time being in force.
Rule 57. Generation and maintenance of electronic records.-
Rule 57 (1) Proper electronic back-up of records shall be maintained and preserved in such manner that, in the event of destruction of such records due to accidents or natural causes, the information can be restored within a reasonable period of time.
Rule 57 (2) The registered person maintaining electronic records shall produce, on demand, the relevant records or documents, duly authenticated by him, in hard copy or in any electronically readable format.
Rule 57 (3) Where the accounts and records are stored electronically by any registered person, he shall, on demand, provide the details of such files, passwords of such files and explanation for codes used, where necessary, for access and any other information which is required for such access along with a sample copy in print form of the information stored in such files.
Rule 58. Records to be maintained by owner or operator of godown or warehouse and transporters.-
Rule 58 (1) Every person required to maintain records and accounts in accordance with the provisions of sub-section (2) of section 35, if not already registered under the Act, shall submit the details regarding his business electronically on the common portal in FORM GST ENR-01, either directly or through a Facilitation Centre notified by the Commissioner and, upon validation of the details furnished, a unique enrolment number shall be generated and communicated to the said person.
Rule 58 (2)The person enrolled under sub-rule (1) as aforesaid in any other State or Union territory shall be deemed to be enrolled in the State or Union territory.
Rule 58 (3) Every person who is enrolled under sub-rule (1) shall, where required, amend the details furnished in FORM GST ENR-01 electronically on the common portal either directly or through a Facilitation Centre notified by the Commissioner.
Rule 58 (4) Subject to the provisions of rule 56,-
a) Any person engaged in the business of transporting goods shall maintain records of goods transported, delivered and goods stored in transit by him along with the Goods and Services Tax Identification Number of the registered consigner and consignee for each of his branches.
b) Every owner or operator of a warehouse or godown shall maintain books of accounts with respect to the period for which particular goods remain in the warehouse, including the particulars relating to dispatch, movement, receipt and disposal of such goods.
Rule 58 (5) The owner or the operator of the godown shall store the goods in such manner that they can be identified item-wise and owner-wise and shall facilitate any physical verification or inspection by the proper officer on demand.
Disclaimer : The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.
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