GST Audit involves verification various GST compliances w.r.t. books and other records maintained by the entity. As the title suggests, GST Audit involves not only verification of Statement of Profit and Loss for ensuring compliances w.r.t. Outward Supplies & Reverse Charge Mechanism etc., but also involves study of Balance Sheet in depth to ensure complete compliance in accordance with GST Laws.
This article provides birds eye view of audit procedures to be carried out w.r.t. Balance Sheet while performing GST Audit. These procedures can be followed not only while performing GST / Internal / Statutory Audit, but also for ensuring timely compliance by entity.
Balance Sheet – Liabilities:
Since Shares are covered under Securities under CGST Act and the same is excluded from the definition of goods / services and hence issue / buyback of Shares is outside the purview of GST
Interest on Loan is exempted from GST as per Notification No 12/2017 CTR. But Penal Interest is chargeable to GST as per Circular No. 102/21/2019-GST. This can be verified after checking SOA with books. If GST on the same is charged by the lender, claiming of the same should be ensured.
It is a good practice to ensure matching of closing balance with E GST Ledgers (Cash & Credit Ledgers) to ensure complete compliance. Following the same will ensure timely discovering of non-compliances.
In case any amount paid under wrong major / minor head and the same is unutilized, filing of Form PMT-09 and utilization of the same should be ensured.
In case, ITC is accumulated in books, we should ensure
– Whether application for refund can be made for the same (since accumulated ITC is not available as refund in all scenarios
– Whether refund application filed is in order with CGST Act & Rules thereon (like filing of application in time & all required documents are filed etc.)
As per Rule 37 of CGST Rules, Payment (along with tax) should be made to supplier within 180 days from date of invoice failing which warrants reversal of ITC along with interest. In this regard, following points should be kept in mind:
– Payment outstanding to supplier includes TDS portion (if deducted) and hence it will gain importance if the entity is not making TDS payments regularly. This may warrant reversal of ITC for TDS portion alone.
– In contracts involving heavy amounts / long period to complete, it is a practice of retaining some percentage of bill till contract term / warranty period. Such practice also may require proportionate reversal of ITC
– Party-wise reconciliation of invoices with Form GSTR-2A may disclose existence of unaccounted / disputed bills
– Some of the invoices may be accounted late in books owing to approvals / delay in receiving invoice. If invoice date & accounting date falls in different months, this may have impact of delay in claiming ITC. Though this is not a violation of the provisions, delay in claiming ITC which will increase net tax payment and interest thereon (This will have two types of interest payment – Interest to be paid for delay in payment of GST till date of payment & Interest to be paid to banks for OD availed for payment of GST)
Advances will get importance more for services availed / provided since Notification 66/2017 CT exempts payment of tax on advances received for goods. In this regard following procedures (for services availed / provided alone) gains importance:
– For advances received from customers, timely payment of GST to be ensured as time of supply shall be earliest of [date of receipt or date of invoice (if raised in time) or date of provision of service (if invoice is not raised in time)] to avoid interest for delay in payment
– Any amount received / paid as deposit will not be treated as advance for the purpose of levy of GST till the same is adjusted with invoice
– For advances given (for services taxable under reverse charge), timely payment of RCM to be ensured as time of supply is earliest of date of payment or 61st day from date of invoice
– For any outstanding advances (for goods / services), verify if conditions for raising invoice are fulfilled.
Balance Sheet – Assets:
– If there is any addition of Fixed Assets, ITC Availment on the same is to be ensured. If ITC portion is capitalized and the same is depreciated, ITC will not be available on the same. Depreciation as per Income Tax Act should be verified here.
– Capitalization of ITC on purchase of assets like cars (on which ITC not available except for some kind of businesses) should be ensured.
– In case any fixed asset if sold / scrapped / otherwise transferred, levy & payment of the same should be verified since the same may not be given effect while performing turnover reconciliation with GSTR (since only gain / loss on the same will be transferred to P&L).
– GST on transfer of Fixed Assets on which ITC is availed is covered under Schedule I of CGST Act (and hence even if the same made without consideration, will be termed as supply).
– Maximum GST on transfer of Fixed Assets on which ITC is availed shall be GST to be paid on sale consideration or ITC actually availed as reduced by 5% per quarter or part thereof.
Various procedures to be verified in ensuring GST Law compliance w.r.t. Stock as listed below:
– Inter-state movement of the stock to distinct person is treated as supply and GST is leviable on the same.
– Ensure ITC Availment on the same. In case there is any change in taxability of any goods supplied / change in form of payment of tax by registered person (like regular tax payer to composite taxable person etc.), special care should be taken for compliance.
– In case, any stock is written-off in books, GST reversal on the same should be ensured.
– ITC on stock issued as free samples should be reversed. Supply made without consideration is covered in Schedule I. Levy & payment of GST (as specified in Schedule I) on the same should be ensured.
– Cross-verification of stock lying with Job-workers to verify reasons for difference in stock and if that constitutes supply under GST, payment of the same should be ensured.
– Registers pertaining to goods sent on approval basis should be verified on periodical basis to verify if any transfer has come into purview of supply.
Reconciliation of turnover with Form 26AS & external confirmations obtained (if any) should be done to verify any unaccounted / under-accounted sales.
Transactions with Intra-group entities (distinct persons) and agreements should be verified if any services are provided to them to verify levy of GST on the same.
Date of payment is one of the pre-requisites in verification of time of supply. Date of payment is earliest of date of accounting in books / credit in bank account. In this regard following procedures to be verified:
– If there is a change in GST tariff on goods / services provided by the entity, then date of receipt of payment shall change if receipt is entered in books before change of tariff and amount is not credited into bank within 4 working days from date of change in tariff
– For every dishonor of payment made by the entity to its suppliers, verification of amount outstanding should be done to ensure if amount is outstanding for more than 180 days for ITC reversal
Above procedures are not exhaustive and they just provide glimpse of procedures to be performed for ensuring compliance. Any constructive criticisms / corrections is always welcome.