Articles discusses Provisions related to Annual GST Audit, meaning of word ‘Audit’ used in GST Law, Class of registered persons liable for GST Audit, Timelines for concluding GST Audit and requirement for furnishing GST Audit report along with audited annual accounts and a reconciliation statement, Consequence of failure to submit Annual GST return and Issues associated with GST Audit.

Government mandates the upkeep and maintenance of records, at the place(s) of business, in electronic or other forms. Furnishing of an audited statement of accounts and reconciliation statement is also contemplated for persons having turnovers exceeding the 2 crores on or before the thirty-first day of December following the end of such financial year. There is no relaxation provided to persons who have voluntarily obtained registration. Section 35 (5) read with Section 44(2) and relevant rules thereof provides for the manner of Audit of records and class of registered persons which are required to get his accounts audited from CA/CMA.

The concept of audit by a Chartered Accountant in the area of Indirect Taxes was confined to State Value Added Tax and Central Sales Tax laws of certain States. In Central Excise and Service tax only in case of suspicion of undervaluation or excessive credit special audits were prescribed (not much used) which continue in GST. Therefore, Chartered Accountants engaged in rendering professional services in the areas of State taxes would be familiar with those provisions.

In this write-up we will discuss the below mention points related to Annual Audit under GST Act

  • What is meaning of word ‘Audit’ used in GST Law and its types in GST Act?
  • Class of registered persons liable for GST Audit.
  • Timelines for concluding GST Audit and requirement for furnishing GST Audit report along with audited annual accounts and a reconciliation statement.
  • Consequence of failure to submit the annual return:
  • Issues associated with GST Audit.

Now we are going to start our discussion on each above mentioned aspects as per the provisions of GST law read with rules issued thereunder on one to one Basis.

What is meaning of word ‘Audit’ used in GST Law?

In terms of Section 2(13) of the CGST Act, 2017, “audit” means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder.

The following three types of GST  audits are envisaged under the GST laws:

  • The first type of GST audit is to be done by a chartered accountant or a cost accountant;
  • Second type of GST audit is to be done by the commissioner or any officer authorised by him in terms of Section 65 and 66 of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 and Section 2 of UTGST Act, 2017.
  • The third type of GST audit is called the Special Audit and is to be conducted under the mandate of Section 66 of CGST Act, 2017 read with Rule 102 of CGST Rules, 2017.

This write-up has not taken into consideration an audit in terms of Section 65 / 66 of the CGST Act, 2017

Class of registered persons liable for GST Audit

Every registered person whose aggregate turnover during a financial year exceeds the prescribed limit of Rs. 2 Crore is liable to get his accounts audited by a Chartered Accountant or a cost accountant. The phrase ‘aggregate turnover’, as defined in Section 2(6) would mean the all-India PAN-based turnover for the financial year (inclusive of exports, inter-State supplies, exempt supplies, stock transfers, etc. but exclusive of GST and compensation Cess).

Timelines for concluding GST Audit and requirement for furnishing GST Audit report along with audited annual accounts and a reconciliation statement.

The registered person shall submit a copy of the audited annual accounts, the reconciliation statement (reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement), in FORM GSTR-9C and other documents as may be prescribed, on the GST Common Portal on or before the thirty-first day of December following the end of such financial year. In simple words for the FY 2017-18 last shall be 31st December 2018.

 List of documents is summarized below for your kind perusal.

  • Annual return in GSTR-9A
  • Audited financial Statements
  • Reconciliation Statement under Section 44(2) of the CGST Act/SGST Act i.e. a Statement reconciling the value of supplies declared in the Return furnished for the financial year with the audited Annual Financial Statements. Further, the aforesaid Reconciliation Statement shall be duly certified in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner. GST Audit reports
  • other documents as may be prescribed.

Consequence of failure to submit the annual return:

Section 47(2) provides that in case of failure to submit the annual return within the specified time, a late fee shall be leviable – Computation: Rs. 100 per day during which such failure continues subject to a maximum of a quarter percent of the turnover in the State/UT. There is no specific penalty prescribed in the GST Law for not getting the accounts audited by a Chartered Accountant or a Cost Accountant. Therefore, in terms of Section 125 of CGST Act, 2017 he shall be subjected to penalty up to 25,000/-. This section deals with general penalty and gets attracted where any person, who contravenes any of the provisions this Act or any rules made thereunder for which no penalty is separately provided.

Issues associated with GST Audit?

1. Applicability of Turnover Limit for the period 01.07.2017 to 31.03.2018

2. Separate audits would have to be carried out for each of the distinct registrations under the same PAN if aggregate turnover for the same PAN is more than 2 Crores.

3. Audit is to be carried out for each of the distinct registrations under the same PAN even if only one distinct person is engaged in supply of taxable goods or goods and rest of distinct registrations are engaged in supply of exempted goods.

4. Extraction of state wise financial from consolidated trial balance and financial statements.

5. Reconciliation of unearned sale and deferred sale reflecting in financial statements as on 31th March with GST returns.

6. Reconciliation of prepaid expenses reflecting in financial statements as on 31th March with GST returns.

7. Reconciliation of Inward supply invoices received in next financial year with GST Return. And continuing

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