AUDIT UNDER GOODS AND SERVICES TAX (GST)

“only auditors can save the world….through peace and reconciliations”…

The article explains about the requirements of CGST Act and corresponding CGST Rules with respect to GST audit provisions as laid down in the law.

Introduction

audit under GST

The Goods and Services Tax was introduced in July 2017 across nation. Various provisions of the law are still being revisited and modified by the Government as and when found required. After one year of its inception the assesses are now in a position to understand the law well and implement it fully across their business houses and trade lines. Now the time has come for the applicability of one of the most fundamental provision of the law i.e. “Audit under Goods and Services Tax”. The clock has started ticking and the assesses are getting prepared for the activity.

1. What is GST Audit as per Goods and Services Tax?

Sec 2(13) of the CGST Act 2017 defines the term audit as mentioned below.

It 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.

The above definition can be divided and studied in two different parts i.e. What is to be done in GST Audit and What is the Purpose of GST Audit.

What is to be done in GST Audit What is the Purpose of GST Audit
The examination of

– records,

– returns and

– other documents

to verify the correctness

and to assess his compliance with the provisions

Constituents for carrying out the GST Audit would be

√ Turnover declared,

√ Taxes paid,

√ Refund claimed and

√ Input tax credit availed

√ Provisions of the GST acts or the rules made thereunder

PURPOSE OF GST AUDIT

√ Whether duty(GST) has been rightly paid?

√ Whether credit(Input Tax Credit) has been correctly taken?

√ Whether records/ documents has been correctly maintained?

√ Whether returns have been accurately filed?

√ Whether exhaustive reconciliations of supplies and purchases are in place?

2. Types of Audits under the provisions of Goods and Services Tax

As per the provisions of law, there are two types of GST audits which are to be done, as explained below-

1. Sec 35 of the CGST Act requires the audit to be conducted by the taxable person himself

2. Sec 65 & 66 of the CGST Act requires the audit to be conducted by the authorities in respective circumstances

GST Audit

3. Eligibility Criteria For GST Audits

SECTION 35 of the CGST ACT- GST Audit by the Taxable Person

As per Sec 35 of the CGST Act 2017, every registered person whose aggregate turnover during a financial year exceeds Rs. 2 crores shall get his accounts audited.

(please note that the term aggregate turnover here includes the value of all exempt supplies and exports under the same PAN across India)

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

4. Procedure for Conducting GST Audits

♦ Who will conduct Audit as per Sec 35 of the CGST Act 2017

The law has given equal rights to the professionals , hence a Chartered Accountant or a Cost Accountant can do the GST audit of the eligible assesse.

♦ Records to be kept by the assesse who is required to get his accounts audited by a CA or CMA

– Account of Production or manufacture of goods

– Details of inward supplies and outwards supplies of goods and services

– Records of stock of goods

– Account of Input Tax Credit availed

– Details of Output Tax Payable and paid

The registered person shall submit a copy of the audited annual accounts along with the copy of reconciliation statement. The reconciliation statement here includes the statement reconciling the the value of supplies declared in the return furnished for the financial year with the audited annual financial statements , in terms of Sec 44(2) of the CGST Act 2017.

SEC 65 of the CGST ACT 2017- GST AUDIT BY TAX AUTHORITIES

Following detailed provisions have been laid done in the CGST Act regarding the GST Audit to be conducted by the Tax Authorities. This audit is exclusively done as per the orders of the commissioner in terms of the provisions stated below-

Sec 65(1) Audit by Tax Authorities
Sec 65(2) Place of Conduct of Audit
Sec 65(3) Intimation
Sec 65(4) Period of Completion
Sec 65(5) Obligation of Auditee
Sec 65(6) Audit Report
Sec 65(7) Consequences

Sec 65(1) Audit by Tax Authorities
Who can exercise the power – A commissioner

– Or any officer authorized by him

Sec 65(2) Place of Conduct of Audit
Place of conducting audit – at the place of business of the registered person or in their office.
Sec 65(3) Intimation
Information to the assessee – by way of a notice not less than fifteen working days prior to the conduct of audit
Sec 65(4) Period of Completion
Time period – within a period of three months from the date of commencement of the audit
Extension of the period by – Commissioner
Reasons of extension – Completion in 3 months not possible as per satisfaction of commissioner
Period of Extension – Further period not exceeding six months
Sec 65(5) Obligation of Auditee
Facilities to be provided to the auditor by the assessee – For verifying the books/ documents

– Furnishing information as required

– Rendering assistance for timely completion of audit

Sec 65(6) Audit Report
Information to assesse after completion of audit When – Within 30 days of the completion
Information about – Findings, rights, obligations & reasons for such findings
Sec 65(7) Consequences
Results based consequences – Where the audit conducted results in detection of

  • tax not paid or
  • such short paid or
  • erroneously refunded, or
  • input tax credit wrongly availed or utilized,

the proper officer may initiate action under Section 73* or 74**

SEC 66 of the CGST ACT 2017- GST AUDIT BY TAX AUTHORITIES- SPECIAL GST AUDIT BY CA/ CMA APPOINTED BY TAX AUTHORITIES

Following detailed provisions have been laid done in the CGST Act regarding the GST Audit to be conducted by the Tax Authorities under special circumstances. This audit is exclusively done by CA/ CMA appointed by the Tax authorities.

Sec 66(1) Audit by Tax Authorities
Sec 66(2) Period of Completion
Sec 66(3) Effective notwithstanding that the accounts of the registered person have been audited under any other provision of this Act or any other law for the time being in force.
Sec 66(4) Opportunity of Heard to Assessee
Sec 66(5) Expenses of the Audit & Submission of Audit Report
Sec 66(6) Consequences

When will be conducted???

During the course of any scru­tiny / investigation etc., if the Assistant Com­missioner (AC) feels that the Taxable 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.

Sec 66(1) Audit by Tax Authorities
Who can exercise the power – any officer not below the rank of Assistant Commissioner with prior permission of Commissioner
When can this be exercised – Depending upon the nature and complexity of the case

– the interest of revenue

Triggers – the value has not been correctly declared or

– the credit availed is not within the normal limits

Intimation to Assessee – a communication in writing to get his records including books of account examined and audited
Audited by whom – by a chartered accountant or a cost accountant as may be nominated by the Commissioner
Sec 66(2) Period of completion
Submission of report by CA/ CMA appointed – within the period of ninety days of start
Mode of report – duly signed and certified by CA/ CMA appointed
Report to whom – Assistant Commissioner
Extension in period by Assistant Commissioner – Further period of 90 days
Sec 66(3) Effective notwithstanding that the accounts of the registered person have been audited under any other provision of this Act or any other law for the time being in force.
Sec 66(4) Opportunity of heard to Assessee after completion of audit
Sec 66(5) Expenses of Audit and submission of Audit Report
Inclusions – All incidental expenses of conducting audit

– All direct expenses of conducting audit

– Remuneration of auditors

Determined & Paid by – Commissioner
Sec 66(6) Consequences
Results based consequences – Where the audit conducted results in detection of

  • tax not paid or
  • such short paid or
  • erroneously refunded, or
  • input tax credit wrongly availed or utilized,

the proper officer may initiate action under Section 73* or 74**

* Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts.

** Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

DOCUMENTATION USED IN GST AUDIT

Following formats are used during the respective audits being done under various sections as explained above

GST ADT 01 Form of notice to be issued by the officer while conducting audit of the assesse as per terms of Sec 65 of the CGST Act 2017
GST ADT 02 Informing the findings of audit to the registered person in as conducted as per provisions of Section 65
GST ADT 03 the direction to the registered person to get his records audited by a chartered accountant or a cost accountant specified in the said direction as per terms of Sec 66 of the CGST Act 2017
GST ADT 04 Information of the findings of the Special Audit to the registered person

5. Documentation/ Records To Be Reviewed While Conducting GST Audit

Records to be kept by the assesse who is required to get his accounts audited by a CA or CMA under Section 35/ 66 or under Section 65

  • Account of Production or manufacture of goods
  • Details of inward supplies and outwards supplies of goods and services
  • Records of stock of goods
  • Account of Input Tax Credit availed
  • Details of Output Tax Payable and paid

The registered person shall submit a copy of the audited annual accounts along with the copy of reconciliation statement. The reconciliation statement here includes the statement reconciling the the value of supplies declared in the return furnished for the financial year with the audited annual financial statements , in terms of Sec 44(2) of the CGST Act 2017.

Development of GST AUDIT formats by The Institute of Chartered Accountants of India

ICAI has issued sample formats for conducting GST Audits covered in the above laid done sections. Though the proposed formats are yet to be finalized but they have been circulated across various websites and are being studied by the various professional firms for their use. There are Form GSTR 9C & GSTR 9D Form GSTR 9C is like Form 3CA of Income Tax Audit and Form GSTR –9D is akin to Form 3CD of Income Tax.

6. Consequences Of Qualifications Found During GST Audit

A. In case of GST Audit conducted by Tax Authorities under Sec 65

Sec 65(7) Consequences
Results based consequences – Where the audit conducted results in detection of

§ tax not paid or

§ such short paid or

§ erroneously refunded, or

§ input tax credit wrongly availed or utilized,

the proper officer may initiate action under Section 73* or 74**

B. In case of Special Audit conducted by Tax Authorities under Sec 66

Sec 66(6) Consequences
Results based consequences – Where the audit conducted results in detection of

§ tax not paid or

§ such short paid or

§ erroneously refunded, or

§ input tax credit wrongly availed or utilized,

the proper officer may initiate action under Section 73* or 74**

7. Auditor’s Approach For Conducting GST Audit

As it is a well known fact that an auditor is a watchdog and not a bloodhound. Still keeping its skepticism and analytical approach well in place, an auditor has to look into every possibility of evasion of tax. The approach of the auditor has to be constructive throughout the audit and the basis parameters which can be visited during the review can be the following-

  • Whether duty(GST) has been rightly paid?
  • Whether credit(Input Tax Credit) has been correctly taken?
  • Whether records/ documents has been correctly maintained?
  • Whether returns have been accurately filed?
  • Whether exhaustive reconciliations of supplies and purchases are in place?

There can be various subdivision of the above categories i.e. an auditor might have to look into various provisions of the law for ensuring all the compliances. In fact the documentation proposed by ICAI(more than 50 page report) consists of all these provisions.

Needless to say that an auditor has to keep his eyes and ears always open and has to work diligently to in the interest of both parties i.e. assesse as well as revenue. In this way he has to complete his task in an exhaustive manner covering each single aspect of the provisions mentioned under Goods and Services Tax Act.

CONCLUSION

An audit has always been an integral part of any tax structure and so is the case with Goods and Services Tax. It is an irony indeed that despite of the provisions of GST Audit in place since last one year, there is a big ambiguity in the process of audit to be conducted by the professionals. There are no clear cut instructions issued by the Government of India in this regard, neither the formats have been finalised nor any official notification has been issued regarding the audit report. Its high time the Government should realise that for achieving the effective results of implementation of such a big tax reform, the effective preparations should have been done well before time.

Author Bio

Qualification: CA in Job / Business
Company: M/s SML Isuzu Ltd
Location: Chandigarh, Chandigarh, IN
Member Since: 10 May 2017 | Total Posts: 26
CA Rubneet Anand B.Com, M.Com(Finance& Taxation), MBA(Finance & International Business- IMT Ghaziabad) carubneetanand@gmail.com Deputy Manager (Internal Audit & Indirect Taxation)-M/s SML Isuzu Ltd Facebook Page- Corporate Prism-Consultation in Accounting & Corporate Managemen View Full Profile

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4 responses to “Audit Under Goods And Services Tax”

  1. CA Gurdeep Singh Arora says:

    Very nicely educative summarized compilation.
    Keep the zeal up.
    Regards
    CA Gurdeep Singh Arora

  2. Pushpadantha says:

    What is the Turnover for FY 2017-18? 2 Crore including April to June or excluding?

  3. vaman says:

    Very Good !!
    Detailed compilation

  4. CMA ANIL SHARMA says:

    Good and specific article on GST Audit which give overall view. One can take a note of it.

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