Prime Minister of India Mr. Narendra Modiji at the time of launching, India’s biggest tax reform, Goods and Service Tax, introduced it as ‘Good and Simple Tax’, however with the passing of days and further completion of a year of its introduction, it has been proved that the same is not at all ‘Good and Simple Tax’.
Goods and service tax is based on self-assessment process, however, it is simply not at all easy to compute the total taxable turnover, exempted turnover, tax payable / paid, refund claimed and, over and above it, the correct input tax credit availed. In order to ensure effective compliance of all the GST provisions and the rules made thereunder, the concept of ‘GST audit’ has been introduced.
The present article helps to figure out the compulsory audit provisions as applicable to the registered person under the Goods and Service Tax.
The basic provisions of the compulsory audit are contained under sub-section (5) of section 35 of the Central Goods and Service Tax Act, 2017. The said section states as under –
Going through the above provisions of section 35 (5), the obvious question that would arise in anyone’s mind is that what is the prescribed limit exceeding which the audit becomes compulsory?
The answer to the above referred question lays within sub-rule (3) of rule 80 of the Central Goods and Service Tax Rules, 2017. The gist of said sub-rule (3) of rule 80 is summarized hereunder –
Referring to the above provisions of rule 80 (3) it is pretty clear that compulsory audit is required only in case the aggregate turnover of the registered person exceeds INR 2 Crore during a financial year.
Now it is very important to understand the term ‘aggregate turnover’ in order to correctly analyze the applicability of audit provisions under GST. The definition of term ‘aggregate turnover’ is provided under section 2 (6) of the Central Goods and Service Tax Act, 2017. In order to ease up the understanding of the term ‘aggregate turnover’, the formula of the same is provided hereunder –
|Value of all taxable supplies (A)||XXX|
|Add: Value of exempt supplies (B)||XXX|
|Add: Value of exports (C)||XXX|
|Add: Value of Inter-state supplies (D)||XXX|
|Sub.: Central Tax, State Tax, Union Territory tax, Integrated tax and cess (E)||(XXX)|
|Sub.: Value of inward supplies (F)||(XXX)|
|Sub.: Value of supplies on which tax is payable under reverse charge (G)||(XXX)|
|Sub. : Value of non-taxable supplies (H)||(XXX)|
|Aggregate turnover (A+B+C+D-E-F-G-H)||XXXX|
It must be taken care that the above turnover figures needs to be computed on all India basis. That means the value includes the value of all transaction of the person having same Permanent Account Number (PAN) across all his business entities in India.
Audit provisions as provided in section 35 (5) of the Central Goods and Service Tax Act, 2017 is applicable even in case the business has been undertaken only for the part of the year and the turnover of the said conducted business is more than INR 2 Crore.
The penalty for not conducting Goods and Service Tax audit is INR 100 per day, however, the maximum amount of penalty leviable cannot exceed 0.25% of the turnover.