Audit Under GST- Let’s Gear Up

Let us all welcome ourselves to the great month of July, the month in which the biggest tax reform was introduced in our country one year ago.

Post implementation of GST, the concept of Audit under GST can be considered to be the next vast and enormous concept that is going to change the way business organisations will work in the process of finalisation of their books of accounts.

Digging forward; let’s point out why GST Audit is so important from the point of view of business organisations. GST (being an indirect tax) is sup­posed to be collected from the purchaser and paid to the government. However, if later on the department demands any tax which is short paid or not paid, then the entire GST tax burden is on the business which cannot be passed on to any purchaser later on. This leads to huge cash flow impact for the organisation.

Let us understand the concept of GST Audit by the following FAQ’s.

1. What is audit of records under GST?

Audit conducted under GST law is the examination of records to verify the correctness of information furnished, taxes dis-charged, refund claimed and input tax credit availed. It is a way to analyse the correctness of compliance by tax­payer with the provisions of the GST Act.

2. Why is GST Audit important?

GST in its very nature is a trust based taxation system wherein the taxpayers are ex­pected to pay indirect taxes on the basis of self-assessment, without any day-to-day intervention by the tax officers. Therefore in order to make sure there are no miss-appropriations in the self-assessed GST returns, it becomes necessary for the govt. to put in place a robust audit mecha­nism and ensure compliance of all the provisions of the GST law by the tax payers.

3. How many types of audit are there in GST?

There are 3 types of audit under GST, one by the taxpayers themselves and two by the GST au­thorities (department).

4. What are the types of audit by tax authori­ties?

> General Audit – The Commissioner of CGST/SGST (or any officer authorized by him) may conduct an audit at the place of business of the registered person or in their office. The officer has to give at least 15 days notice be­fore conducting the audit.

> Special Audit – During the course of any scru­tiny / investigation etc., if the Assistant Com­missioner (AC) feels that the nature of busi­ness of the assessee is complex to under­stand and decipher (because of which the value has not been correctly declared or wrong credit has been availed), then the AC may direct a Special Audit to be carried out by a chartered accountant or a cost accountant nominated by the Commissioner.

5. In case of Audit by the taxpayer themselves, who conducts the GST audit?

GST Audit shall be conducted by a Chartered Ac­countant (CA) or a Cost Accountant if the turnover of the taxable person crosses the threshold limit.

6. What is the threshold limit to get the books Audited?

As per the present law, every registered person whose aggregate turnover during a financial year exceeds INR 2 crore shall get his accounts audited.

[Rule 80 (3) of GST Rules]

For the purpose of calculation of threshold, ag­gregate turnover is considered which includes value of all exempt supplies and exports under the same PAN, on all India basis.

Example: A company has 3 branches in different states, each having and separate GST number and with a turnover of Rs. 1.5 crore (exempt supply), Rs. 25 lakh (taxable supply) and Rs. 50 lakh (tax­able supply) respectively. Such company will be liable for GST audit since its aggregate turnover exceeds INR 2 crore.

7. What documents are required to be submit­ted in respect of GST audit?

Every taxable person getting its accounts audited shall be required to furnish

√ Copy of the annual return in Form GSTR-9, along with

√ Audited copy of annual accounts;

√ A reconciliation statement, reconciling the value of supplies declared in the return fur­nished for the year with the audited annual financial statement in Form GSTR-9C.

8. What is time limit for GST Audit by a CA/CMA?

The due date for GST Audit is same as the due date for Annual return under GST i.e. 31^st day of December following the end of the FY.

For example, GST Audit and Annual Return for FY 2017-18 needs to be filed by 31^st December, 2018.

9. WHY IS IT IMPORTANT TO GEAR UP FOR THE GST AUDIT NOW?

Two major reasons to get the GST audit done be­fore September 2018 are :-

i. Input tax credit (ITC)

ITC on inputs, input services or capital goods that were earlier not availed (by way of proper disclosure in GST returns) for various reasons (like credit not available in 2A or entry omitted by ignorance) can only be claimed before the due date of furnishing of return for the month of September following the FY to which the invoice pertains (for ex­ample: for FY 2017-18, due date shall be 20th October, 2018). After the expiry of the due date the ITC cannot be claimed, even if the same was inadvertently skipped earlier.

ii. Credit Notes:

Credit notes can be issued under GST only by the supplier of goods or services. The same is issued in case of any sales return, reduction of quantity, reduction in sale value because of reduction in prices due to quality claim, deficiency of services, etc.

By issuing credit notes, the supplier can re­duce its Output Tax Liability and accordingly pay lesser amount of tax. However, the credit note has to be accepted and re­corded by the receiver of goods or services as well and the benefit of tax reduction cannot be taken, if the action is unilateral on the part of the supplier only.

The details of such credit notes issued in respect of a tax invoice has to be ported not later than the due date of fur­nishing of return for the month of Septem­ber following the FY to which the original  invoice pertains. Also the receiver has to af­fect the same in its GST returns within the said period. Hence, credit note manage­ment becomes an important checking point.

10. CITE FEW EXAMPLES OF ERRORS IN GST COMPLIANCE WHICH CAN BE DETECTED THROUGH GST AUDIT.

a) ITC of capital goods:

Under GST, Input tax credit of capital goods can be availed in the first month of receiving the capital goods and the in­voice. The said capital goods may be either actually put to use or may be put to use in future. The ITC can be claimed in the month of purchase itself.

b) E-way Bill reconciliation:

E-way bill is required to be generated for movement of goods of consignment value greater than Rs. 50,000 (inter-state movement) or Rs. 100,000 (local move­ment in West Bengal). Such invoice level sale details are also furnished in GSTR-01 (on GST portal) and it needs to be recon­ciled with the actual number of e-way bills generated (in the e-way bill portal) either by the assessee himself or by the other party. Any mismatch, if not supported with valid reasons, may attract a penalty of Rs. 10,000.

c) ITC on Blocked Credits:

If any ITC has been claimed which is blocked u/s. 17(5) (like, ITC in respect of motor vehicles, food bills, rent-a-cab for employees, membership of clubs, ITC on goods or services in respect of purchase or construction of immovable property, goods given free of cost, goods lost or de­stroyed or stolen, etc,) then the same has to be reversed along with 24% interest for the default period.

If any ITC is not matching with the GSTR-2A or the ICEGATE portal (in case of im-port of goods) then the same has to be ei-ther reconciled or reversed with 18% in-terest.

d) Change in registration:

Any change or addition in registration par-ticulars (like, change in legal or trade name, inclusion of additional place of business, change in directors / partners/ trustees etc., any bank account opened or closed, any addition of new goods or ser-vices dealt in, etc.) needs to be intimated within 15 days of such change. Otherwise it attracts penalty upto Rs. 25,000.

e) Creditors with age more than 6 months:

ITC availed in respect of those purchase / expense bills which have remained unpaid for more than 6 months have to be re­versed along with interest. The re-credit can be taken upon payment later on.

If such reversal is detected by the tax au­thorities, then interest @ 18% shall be ap­plicable.

f) Reversal of ITC in case of supply of both taxable and exempt supply.

In case a person is supplying both taxable as well as exempt goods / services, then the ITC availed has to be reversed in a cer­tain manner and the same is required to be disclosed in the monthly returns.

It is pertinent to note here that any item which attracts GST at a lower rate with the condition that ITC cannot be availed, are deemed to be an Exempt Supply. Example: A person having a restaurant (taxable @ 5% without ITC) and also pro­viding banquet services (taxable @ 18% with full ITC), has to reverse partial ITC on common inputs such as common AC, kitchen utensils etc.

Conclusion:

The above are just few examples of errors or mistakes that may remain overlooked while preparing the books of accounts and a proper GST Audit helps to identify such instances and helps to take precautionary measures well in advance and immunise the organisation from penal exposure.

GST Explained with Example