While the GST regime focus on self-assessment processes for discharging tax liability by taxpayer but seeing the complexity involves and in order to ensure effective compliance with the various GST provisions, rules & regulations, Law has prescribed the manner in which audit under GST to be carried out

1. Meaning of Audit under CGST Act, 2017

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 the GST Acts or the rules made there under 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 the GST Acts or the rules made thereunder.

2. Types of GST Audit

3 types of audit under GST has been prescribed under CGST Act, 2017

S.no. Relevant Section of Law Description
1 Section 35 of the CGST Act By a chartered accountant or a cost accountant based on turnover of the assesse during Financial year
2 Section 65 of the CGST Act Audit by Tax Authorities if authority deems fit to conduct audit
3 Section 66 of CGST Act Special Audit by chartered accountant or a cost accountant during assessment proceedings and based on complexities involved in books of account of assesse

Lets take deep dive into all three types of audit

1) GST Audit based on Turnover by a CA or CMA u/s 35(5)

Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant.While submitting the audit report assesse shall also submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 of CGST Act 2017 and such other documents in such form and manner as may be prescribed.

As per Section 44(2) Reconciliation statement means, assesse has to reconcile the value of supply declared in the returnfiled for the financial year with the audited annual financial statement

Rule 80(3) of CGST Rules 2017 prescribed limit of 2 crore to conduct audit u/s 35.

It is to be noted that though in Section 35(5) the term “turnover” has been used, it shall mean “aggregate turnover”. Which is defined as under Section 2(6) of the CGST Act/SGST Act: Aggregate Turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

So it can be said that while calculating turnover under Rule 80(3) turnover of all units of taxpayer to be considered even though these units located in different states.(Until any clarity comes from department on calculation of turnover for audit purpose we can follow this approach).

Section 44 talks about the filling of annual return by assesse on or before 31 December of following the such financial year for which returns was filled, so its implied that audit report u/s 35 has to be submit along with annual return.

2) GST Audit by Tax Authorities U/s 65 of CGST Act, 2017

To ensure that assesse has paid off their liability, Commissioner or any officer authorized by commissioner may undertake audit of any registered person by passing general or specific order.

If officer passed general order then such order will prescribe the criteria and on that criteria basis audit will be conducted on such registered person or persons. If officer passed Specific order then audit will be conducted on such registered person. Criteria can be monitory limit of Input availed, no of defaults, Input output relationship & any Industry specific.

To Conduct audit under this section, registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct (start) of audit and audit shall be completed within a period of three months from the date of commencement of the audit. In some situations that period can be extend by a further period not exceeding six months.

On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

Where the audit conducted under this section results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74

3) Special GST Audit by CA or CMA u/s 66 of CGST Act, 2017

Those provisions will be useful in a situation where officer believe (During the course of assessment) that taxpayer didn’t discharge their liability and has manipulated the transactions to avoid taxes.

If at any stage of scrutiny, inquiry, investigation or any other proceedings before any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity (Various Related party transaction) of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits (Excess input claimed or didn’t reversed input credit if required), he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant (Auditor) as may be nominated by the Commissioner

such auditor will submit their report mentioning therein such other particulars as may be specified with in 90 days (Can be extend the said period by a further period of ninety days)

the provisions of this section shall have overriding effect above other provisions of this act pertains to audit.

the registered person shall be given an opportunity of being heard in respect of any material (Information/evidence) gathered on the basis of special audit under this section, which is proposed to be used in any proceedings against him under this Act or the rules made thereunder

the expenses of the examination and audit including the remuneration of such Auditor, shall be determined and paid by the Commissioner and such determination shall be final

where the special audit conducted under this section results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74 i.e. penalty proceedings can be initiated.

3. Conclusion:

Audit Provisions under GST are simple but required clarity on various aspects, which is expected to come in due course and we also expect some relaxation for small traders and in first year of GST implementation.

#An Article by CA Varun Chawla#

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