BACKGROUND

Audit under indirect tax laws is not a new concept. This concept of audit was also existing in the erstwhile Central Excise laws, State level VAT laws and Service tax laws. Audit is a tool available to the tax department to review and verify transactions entered into by a taxpayer to ensure tax compliance under a self-assessment based taxation concept and prevent revenue leakage. Provisions relating to audit were contained under Section 14A and Section 14AA of the Central Excise Act, 1944, whereas in case of Service tax laws, such provisions were contained under Rule 5A(2) of Service Tax Rules, 1994 and Section 72A of the Finance Act 1994 (inserted with effect from May 28, 2012).

The concept of audit, prevailing in the erstwhile indirect tax regime, has also been continued under GST laws. Such provisions are contained under Section 35(5), Section 65 and Section 66 of the CGST Act, 2017 read with corresponding provision under IGST Act, 2017 and CGST Rules, 2017, as amended from time to time.

In this article, discussion shall be limited to the type of audit as envisaged under Section 65 of the CGST Act.

Audit word under magnifying glass

LEGAL PROVISIONS

Audit under Section 65 is done by the Commissioner or any other officer, as he may authorize to conduct such audit, whereas audit under Section 66 is called ‘special audit’ and is to be conducted, by a chartered accountant or a cost accountant, as mandated by the said Section 66.

Audit’ defined

Section 2(13) of the CGST Act, 2017 defines audit to mean, ‘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’

From the above definition, it can be seen that the audit under GST can be done for a registered person only. These provisions are not attracted to an unregistered person, even if he is liable to be registered. Provisions relating to assessment of unregistered persons are provided separately under Section 63 of the CGST Act.

Further, an audit is aimed to verify; (i) correctness of the turnover declared, (ii) taxes paid, (iii) refund claimed, (iv) ITC availed and (v) assessment of compliance with the provisions of the Act and the rules made thereunder.

Section 65- Audit by tax authorities

1. Audit under Section 65 can be conducted by the Commissioner or an officer authorized by the Commissioner to conduct such audit. The authorization in this regard shall be given by a general order or a specific order. Audit shall be conducted for a financial year or part thereof or multiples thereof, as may be specifically provided in the notice to be issued for such audit.

2. Such audit may be conducted at the place of business of the registered person or at the office of the concerned officer conducting the audit.

3. The officer shall be required to issue a notice in Form GST ADT-1 to the registered person informing him about the audit. Such notice shall be required to be issued for at least 15 working days before the commencement of the audit. The notice issued shall also contain the time period for which such audit is to be conducted, in the absence of which, the it may not be treated as a valid notice.

4. The proper office authorized to conduct the audit, along with the team of officers and officials accompanying him, shall verify;

  • The documents based on which books of accounts have been maintained by the registered person,
  • Returns and statements furnished under the provisions of the Act,
  • Correctness of the turnover declared,
  • Exemptions and deductions claimed,
  • Tax rates applied in respect of supply of goods or services or both,
  • Input tax credit availed and utilized,
  • Refund claimed etc.

The officer shall be at his liberty to verify such other details, information and records, which he may think necessary for the purposes of audit. In addition to internal evidences, the officer may also verify the external evidences. External evidences here mean such documents or records of other parties which the registered person has business dealings with.

5. The audit under this section shall be completed within a period of 3 months from the date of commencement. The period of 3 months, as envisaged, may be extended by the Commissioner, for the reasons to be recorded in writing for such extension. However, the period of extension shall not exceed months.

6. For the purposes of limitation period of 3 months or 6 months, as the case may be, commencement of audit shall be considered to be the later of the following two dates;

  • Date on which, records and other documents, as called for by the Department are made available by the registered person; or
  • The actual date of initiation of audit at the registered place of business of the taxpayer.

7. Within 30 days of conclusion of the audit, the officer shall inform the registered person about the findings or discrepancies, as the case may be, made during the course of audit. Such findings etc., shall be intimated to the registered person in Form GST ADT-02, which the registered person shall be entitled to make a reply on, either accepting such findings or otherwise. After the receipt of reply from the registered person, officer shall proceed to finalize the audit findings.

8. Where on the conclusion of the audit, it is found by the officer that any tax has not been paid, or short paid, or erroneously refunded, or input tax credit has been wrongly availed or utilized, the officer shall proceed to initiate proceedings under Section 73 or 74, as he may deem fit. Hence, an audit cannot be treated as concluded automatically giving rise to a demand and to a spot recovery. Where the taxpayer does not agree with the audit findings and the amount of tax due is not paid, the officer has to initiate proceedings under Section 73 or 74 and issue show cause notice.

To Summarize; 

1. Audit can be conducted by the Commissioner or other officer on an authorization given by the Commissioner.

2. Audit may be conducted at the registered place of business of the taxpayer or at the office of the Officer conducting audit. Audit may be conducted for a financial year or part/multiple thereof.

3. Notice for audit shall be issued at least 15 working days prior to the commencement of audit in Form GST ADT-01.

4. The audit shall be completed within 3 months from the date of commencement. This period can be further extended by the Commissioner, for the reasons to be recorded in writing, for a period not more than 6 months.

5. On conclusion of audit, within a period of 30 days, Officer shall intimate findings made during the audit to registered person in Form GST ADT-02.

6. Registered person shall reply to the audit findings and based on the reply filed by the registered person, the officer shall proceed to finalize his audit findings.

7. In case of tax not paid, short paid, erroneously refunded, input tax credit wrongly availed or utilized, the Officer has to initiate proceedings under Section 73 or 74, as he may think fit, to get the demand entertained.

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Disclaimer : Views expressed in this article are personal views of the author and are for guidance purposes only. Although care has been taken in compiling and checking the information contained herein, however, we make no representations or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability or completeness of any information. It is further advised that the information above should not be treated as legal advice and should not be acted upon in business scenarios. An appropriate legal/professional advice should be taken prior to acting upon the above while undertaking business transactions.

Author Bio

Qualification: CA in Practice
Company: Tanwar Atul & Associates
Location: Delhi, New Delhi, IN
Member Since: 30 Mar 2020 | Total Posts: 10
Chartered Accountant in Practice, having wide experience in diverse business environment especially Indirect Taxes like service tax, VAT and GST View Full Profile

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