Goods and Services Tax was introduced to consolidate most of the indirect taxes and also to increase the tax base with emphasis on compliance. At the same time, thrust was given to self-assessment processes whereby the tax payers are required to assess their tax liability and pay taxes. Audit under GST by a Chartered Accountant or a Cost Accountant under Sec. 35(5) is another milestone in self-assessment of GST Compliance.
In terms of Section 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 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”.
In terms of section 44(2) “every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of Section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed”.
In terms of Rule 80(3) of the CGST Rules “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 the audited annual accounts and a reconciliation statement, duly certified, in GSTR 9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner”.
Section 35(5) begins with the expression “every registered person whose turnover during a financial year exceeds the prescribed limit” whereas the relevant Rule 80(3) uses the expression “every registered person whose aggregate turnover during a financial year exceeds two crore rupees”. It must be noted that the word turnover has not been defined whereas the expression aggregate turnover has been defined. One may note that the expression turnover in State or turnover in the Union territory is defined.
In this backdrop the following understanding is relevant:
(a) Aggregate turnover is PAN based while turnover in a State / UT, though similarly worded, is limited to turnover in a State / UT, which is limited to a State;
(b) It is therefore, reasonable to interpret that the word turnover used in Section 35(5) ought to be understood as aggregate turnover.
(c) For the financial year 2017-18, the GST period consists of 9 months whereas the relevant Section 35(5) uses the expression financial year; Therefore, in the absence of clarification from the government, and to avoid any cases of default, it is reasonable to understand that to reckon the turnover limits prescribed for audit i.e., Rs. 2 crores one has to reckon the turnovers for the whole of the financial year which would also include the first quarter of the financial year 2017-18.
Combined reading of the Section 35(5), 44(2) along with the notified forms, give rise to two situations|: the first one is about, entities not required to be audited under any other statute in which case audit has to be carried out in terms of Section 35(5) and reconciliation statement to be drawn under Section 44(2) duly certified. The second is about entities that are required to be audited under any other statutes like the Companies Act, the Income-tax Act, the Cooperative Societies Act, etc., When the records of the entity are audited under any other statute, the reconciliation statement can be drawn up by the same auditor, who will also certify the same if he happens to be a Chartered Accountant.
Alternatively, the reconciliation statement can be drawn up and certified by another Chartered Accountant or Cost Accountant. As discussed earlier, when the GSTR 9C is drawn up by a professional who is different from the one who has carried out the audit, there is no requirement of audit of financial statements, the only requirement would be an examination of the books and records as is required under the GST law and to certify the correctness of the information furnished under GSTR 9C. The word “certify” indicates absolute level of assurance is expected to be provided by the practitioner on the subject matter.
GST is a state based registration system and many companies have multiple registration for various instances like:
(a) Registered branches in two different States / UTs;
(b) Registrants within the same State, as business verticals or otherwise;
In the above cases, there may be instances where the turnover in a state in few states may be less than the prescribed limit of Rs. 2.00 Crore & in few may be more whereas the aggregate turnover is more than 2.00 Crore on a PAN India basis. The question here arises whether the dealer is liable for GST audits only in those states where the turnover exceeds 2.00 Crore or in all states.
Combined Reading of above provisions in the act & rules, we may observe that the term used is aggregate turnover which is defined in the act to include all turnover on a PAN India basis and so we can conclude that though in few states the turnover is less than the prescribed limit but since the aggregate turnover of the company as a whole is more than 2.00 crore, the audit needs to be carried out for all registrations of the dealer.
The definition of aggregate turnover includes exempt turnover. Exempt turnover is defined under the CGST Act to mean supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services tax Act and includes non-taxable supply. Thereby a dealer has to consider the aggregate of all turnover including taxable, exempt, non-taxable etc. to arrive at aggregate turnover liable for audit.
The audit under Section 35(5) of the CGST Act to be conducted by CA or CWA is applicable only to a Registered Person. A non-filer is a Registered Person under Section 25 of the CGST Act; the audit is required to be conducted under Section 35(5) of the said Act, if it satisfies the condition stated in the section. Practically such a person would not have filed his returns at all and therefore Form 9 & 9C would not be possible. Therefore, there may be no audit for him though he is liable for the same. However an unregistered Person who is liable to take registration under Section 25 of the CGST Act is a person who has to pay tax. But the said unregistered Person is not a Registered Person defined under Section 2(94) of the CGST Act 2017. Hence in terms of Section 35(5) of the Act, audit is not required.
For the financial year 2017-18, the GST period comprises of 9 months whereas the relevant section 35(5) uses the expression financial year; Therefore, in the absence of clarification from government, also to avoid any cases of default, it is reasonable to understand that to reckon the turnover limits prescribed for audit i.e., Rs. 2 crores one has to reckon the turnovers for the whole of the financial year which would also include the first quarter of the financial year 2017-18.
GST Audit comprises of two parts…One is Reconciliation and another is Certificate. It’s a Certificate and not just a report.
“A Certificate is a written confirmation of the accuracy of facts stated there in and does not involve any estimate or the opinion.”
“A Report, on the other hand, is a formal statement usually made after an enquiry, examination or review of specified matters under report and includes the reporting auditor’s opinion thereon”.
Thus, where a certificate is issued, the Chartered Accountant shall be responsible for factual accuracy of what is stated therein. In case of a report, he is responsible for ensuring that the report is based on the factual data, true and fair (or in some cases true and correct) to the best of his belief, knowledge and information furnished to him.
Time has come to gear ourselves with the biggest responsibility of Audit which has been rightly thrusted on us by the Govt. and we need to do Justice.
Ritesh R. Mehta, Nagpur