Audits in GST

Brief:

As all we aware that audit is tool in itself which ensures compliance of provisions of law in term of discharge of entire tax liability, not claiming ineligible input tax credit, proper valuation of supplies of goods or services or both etc. Now the first financial year in the era of GST has been completed. Some of provisions become active on happening of such event. GST audit is one of them which is to be conducted in accordance with the provisions as prescribed in section 35 (5) and section 44(2) read with Rule 80(3) of CGST Act, 2017.

What is an ‘Audit’?

The term ‘audit’ has been defined in section 2(13) CGST Act to mean 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.

Types of Audit:

Under GST regime there are three categories of audit which are as under:

1. Annual Audit by CAs or CMAs (Turnover Based) – Section 35 of CGST Act read with Rule 80(3) of CGST Rules, 2017.
2. Audit by Tax Authorities – Section 65 of CGST Act read with Rule 101 of CGST Rules, 2017.
3. Special Audit – Section 66 of CGST Act read with Rule 102 of CGST Rules, 2017.

GST Audit Objectives:

The objective of GST audit may be as under:

1. It is to ensure that tax liability has been discharged on all taxable supplies.
2. It is to ensure that pre-GST credits have been taken as per VAT, Excise and Service Tax returns.
3. Ensure that correct valuation of supplies has been done.
4. Ensure that only eligible credit has been taken.
5. Ensure that correct disclosure have been done in the GST returns etc.

Audit by Professionals [Section 35(5) of CGST Act read with Rule 80(3) of CGST Rules, 2017]

• According to Section 35(5) of CGST Act, 2017 – ‘Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by the chartered accountant or cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.’
• Section 44(2) of CGST Act deals with the Annual Returns to be submitted along with the audit report as prescribed in section 35(5) of CGST Act, 2017.
• As per Rule 80(3) of the CGST Rules, 2017, every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.
• From the combined reading of the above provisions it can be concluded that every registered person whose turnover during the financial year exceeds Rs. 2 crore shall get his account audited by CAs or CMAs. He is also required to submit the following documents along with the Annual Return:

a) Copy of Annual Audited Accounts.

b) Reconciliation Statement under section 44(2) in Form GSTR 9C.

c) Such other documents in such form as may be prescribed.

Now the one more important term comes to our notice which is ‘Turnover’. It would play a critical role in assigning the GST Audit. The term ‘turnover’ will get its mean from the term ‘Aggregate Turnover’ defined in section 2(6) of CGST 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.

Simply speaking inclusion and exclusion under aggregate turnover is as follows:

Inclusions:

a) Value of taxable supplies

b) Value of exempt supplies (Nil rated and Wholly Exempted)

c) Value of export of goods or service or both

d) Inter state supplies of person having the same PAN.

Exclusions:

a) Value of inward supplies on which Reverse Charge Applicable

b) Central Tax, State Tax, Union Territory Tax, Integrated tax and Cess.

Audit by Tax Authorities [Section 65 of CGST Act read with Rule 101 of CGST Rule, 2017]

The concept of self-assessment of tax liability have also been maintained in GST regime therefore the assessee is require to self-assess the liabilities. Officer of Revenue would scrutinize the returns and record to check for correctness of tax payment, credit availment etc.

Objective of Audit by Tax Authorities:

1. To ensure the correctness of the turnover.
2. To ensure the correct exemptions and deductions have been claimed.
3. To ensure the correct rate of tax applied in respect of supply of goods or services or both.
4. To ensure that only eligible credit have been availed and utilized.
5. To ensure the refund claimed as per the provision of the Act, etc.

Section 65 of the CGST Act, 2017 read with Rule 101 of CGST Rule, 2017 deal with the procedure of audit by tax authorities which is as under:

a) The Commissioner or any authorised officer by him, by way of general or specific order, may conduct an audit of registered person for such period, at such frequency and in such manner as may be prescribed.

b) Audit may be conducted at a place of business or in their office.

c) Notice of audit shall be given to registered person at least 15 working days prior to audit [Form GST ADT-01].

d) Commencement of audit shall be later of followings:

i) The date on which the records/accounts called for by the audit authorities are made available to them;

ii) The actual institution of audit at the place of business.

e) Audit to be completed within 3 months (May be further extended by 6 months by the commissioner)

f) Discrepancies noticed shall be informed to the registered person. Said person shall file the reply and proper officer shall finalize the finding after considering the said reply.

g) Result of audit to be submitted to registered person within 30 days [Form ADT-02]

h) Where the audit results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, action may initiate under section 73 or 74 of the Act.

Special Audit [Section 66 of the CGST Act read with Rule 102 of CGST Rules, 2017]

Section 66 of CGST Act read with Rule 102 of CGST Rules, 2017 deals with the Special Audit for revenue by the Cost or Chartered Accountant.

a) During scrutiny, inquiry, investigation or any other proceedings, any officer not below the rank of Assistant Commissioner may give direction (with the prior approval of commissioner) for special audit if he is of the opinion that valuation is not correct or the credit availed is not within the normal limits.

b) Where special audit is required to be conducted under section 66, the proper officer shall issue a direction in Form GST ADT-03 to the registered person to get his record audited by chartered accountant or a cost accountant specified in the said direction.

c) Audit report will be submitted within 90 days (can be further extended by 90 days)

d) Opportunity of being heard shall be given to registered person.

e) Remuneration and expenses of audit shall be determined and paid by the commissioner.

f) On conclusion of special audit, the registered person shall be informed of the findings of the special audit in Form GST ADT-04.

g) Where the audit results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, action may initiate under section 73 or 74 of the Act.

Conclusion:

Every registered person whose turnover exceeds Rs. 2 Crores in the financial year shall get his accounts audited and shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9B, electronically through the common portal.

Note: One issue to be clarified by the department that whether the turnover of Rs. 2 Crore shall be calculated for the period from 1^st July 2017 to 31^st March 2018 or 1^st April 2017 to 31^st March 2018.