prpri GST Audit and Reconciliation GST Audit and Reconciliation

With a year passed on after the implementation of GST and also the 1st financial year ended on 31st March, 2018, time is to be ready for filing of GST Annual Return and conducting GST Audit along with Reconciliation with books of accounts. GST is a trust based taxation regime wherein the registered dealer is required to self- assess his returns and determine tax liability.

1. Annual GST Audit

♠ According to Section 35(5) of the CGST Act, 2017:

Every registered person whose turnover during a financial year exceeds the prescribed limit (presently two crore rupees) shall get his accounts audited by a Chartered Accountant or a Cost Accountant and shall submit a copy of the audited annual accounts along with a reconciliation statement (reconciling the value of supplies declared in return with audited annual financial statements) contents of the audit report and other particulars to be prescribed

♠ Audited Report and Audited Annual Accounts to be submitted along with annual return on or before 31st December following the end of financial year.

2. Annual GST returns

Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year..

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.

3. Types of GSTR 9:

There are 4 types of returns under GSTR 9:

Sr. No. Form GSTR Description
1 GSTR 9 : It is to be filed by the Regular Taxpayers who are filing GSTR 1, GSTR 2 & GSTR 3
2 GSTR 9A : It is to be filed by the persons registered under Composition Scheme under GST.
3 GSTR 9B : It is to be filed by the e-commerce operators who have filed GSTR 8 during the financial year.
4 GSTR 9C : It is a specific return for the taxpayers whose annual turnover is exceeds Rs 2 crores during the financial year.

All such taxpayers are also required to get their accounts audited and shall file a copy of audited annual accounts and reconciliation statement of tax already paid and tax payable as per audited accounts along with GSTR 9C.

The above forms are yet to be notified by GST Council.

4. Reconciliation of GST Returns:

The originally notified GST Returns GSTR 1, 2 & 3 was never implemented in toto and an abstract summary form GSTR 3B has been introduced while keeping GSTR 2 & GSTR 3 filing in abeyance. The dealers are off late getting notices from the GST department regarding mismatch in the outward supply shown in GSTR 1 and GSTR 3B & similar notices are also being issued requiring reconciliation between Input Tax Credit (ITC) as claimed in GSTR 3B and as reflected in GSTR 2A. The dealers have to be ready with the reconciliation of all the returns i.e GST R 1, GSTR 2A & GSTR 3B for the year 2017-18.

5. Rectification of GST Returns:

As we all are aware that there is no scope to revise the GST Returns at least till the time the GST amendments are notified as it contains a scope for revising GST Returns. Till that time the dealers have no option but to rectify the mistakes as explained vide Circular no. 26/26/2017 Dtd. 29/12/2017.

The circular has identified following few instances and appropriate steps wherein the mistake made while filing GST Return can be rectified:

Nature of Error Rectification in 3B Rectification in GST R 1
Liability under Reported in 3B Liability may be added in subsequent 3B & Pay tax along with interest Add the missing entries in subsequent GST R 1 with original dates
Liability Over Reported in 3B Liability may be reduced from subsequent 3B Correct the incorrect entries in subsequent R1 in Table No. 9
Liability wrongly reported in 3B Correction of nature of liability to be done in subsequent 3B along with interest Correct the incorrect entries in subsequent R1 in Table No. 9
ITC Under Claimed Increase the ITC in subsequent 3B No Effect
ITC over Claimed Decrease the ITC in subsequent 3B & Pay Interest No Effect
ITC Wrongly claimed & availed Decrease the ITC in subsequent 3B & Pay Interest No Effect
Wrong Payment of Tax Pay Correct tax & Claim Refund of Wrong Tax Paid.

6. Reconciliation of GST returns with books of accounts

While finalising the books of accounts and conducting the statutory audit, it is observed that in most of the dealers the balances as per books of accounts and that of the electronic Ledgers as per GST portal are not tallying. The reasons can be numerous and needs to be identified. A proper reconciliation statement needs to be prepared for reconciling the balances of Electronic Liability register, Electronic Credit Ledger, Tax Payment Ledger etc. Further, Transitional Credit availed needs to be accounted properly in books of accounts. The reasons once identified needs to be corrected by passing appropriate adjustment entries in books of accounts or in subsequent GST 3B as the case may be.

The aggregate turnover of Outward Supplies as well as inward supplies needs to be reconciled with books of accounts. A sample reconciliation of outward and inward supplies are made hereunder which can be modified as per case to case basis:

Total Credits in statement of Profit and loss XXX
Less: Not Goods / Not Services – eg. Dividend Income (XXX)
Less: Sch. III Items which is not a Supply eg. : Land & Building etc. (XXX)
Less: April – June Supplies (XXX)
Less: Receipts Not in the Course of Business (XXX)
Add: Sch. I Supplies like Branch Transfer not in books, but supply as per GST Law XXX
Add: Receipts capitalised but taxable to GST XXX
Less : Profit on Sale of Capital Goods (XXX)
Add : Taxable Value of Supply of Capital Goods XXX
Add: Advance received during the Current Period XXX
Less: Advance of earlier period adjusted during the Current period (XXX)
Less: Closing unbilled revenue recognised – But Time of Supply did not arise (XXX)
Add: Opening unbilled revenue( Billed during the period/Time of supply falls in the month) XXX
Total Value in GSTR 1 XXX

Total debits in statement of profit and loss XXX
Less: Schedule III items (Ex: Salary expense) (XXX)
Less: Depreciation and Amortization (XXX)
Less: Accrued expenses and month end provisions, not credited to party account (XXX)
Add: Invoices recd. and adjusted for Expenses provision made earlier XXX
Add: Capital Expenses XXX
Total Taxable value in GSTR 2 XXX

7. Important issues to be verified before finalising GST Audit:

1) Classification of Goods/Services

In an indirect tax regime, Classification of goods/services play a very important role in determining the tax rate. Further with the concept of Composite & mixed supply determining the classification has become core important.

2) Admissibility of Input Tax Credit (ITC)

Seamless Input tax credit is the backbone of GST. However with restrictions like Sec. 16(2), 16(4), 17(2), 17(5) etc. in the law, the admissibility of ITC needs to be thoroughly verified before claiming the same.

3) Verification of Place of Supply

GST being destination based tax, Place of Supply determines the nature of transaction. It has been observed that due to wrong identification of place of supply many dealers have paid wrong tax. The GST law has clearly provided that in case of wrong classification and payment of tax, the dealer ought to pay the correct tax and claim refund of wrongly paid tax.

4) Compliance of Reverse Charge Mechanism

It has been observed that many dealers have not complied with RCM Provisions in toto. Sec. 9(3) of C/SGST and Sec. 5(3) of IGST mandated payment of tax in cash and thereafter available as credit. Further Sec. 9(4) of S/CGST and Sec. 5(4) was withdrawn from 13th October, 2017, proper compliance of the same needs to be verified.

5) Verification of Other Income

It is advisable to go through every transactions reflected under the head “Other Income” to confirm whether GST liability if any has been paid on it or not. Penalty, interest, damages received needs to be properly accounted for and GST need to be discharged on the same.

6) Creditors more than 180 days

As per the proviso to Section 16(2) of the CGST Act, 2017, company is required to make payment of basic value plus GST to the respective supplier within a period of 180 days from the date of tax invoice. It may be noted that if such payment is not made within 180 days from the date of tax invoice, then in that case, input tax credit availed against such tax invoice is required to be reversed (by adding output tax liability) along with interest. The amendment in GST law has done away with interest on tax reversal however ITC reversal has to be done without fail.

7) Sale of assets

In case of sale of used cars, Compensation Cess was required to be paid apart from GST. Such Compensation Cess was payable upto 24thDecember 2017. It has been observed that many companies have paid GST at appropriate rate at the time of sale of company owned cars however, Compensation Cess has remain unpaid

8) Unavailed Input Tax Credit 

On detailed review of financials it can be observed that there is a very possibility that certain credits are missed out esp. in cases where the vendor would not have issued tax invoice immediately. GST law limits a dealer to claim unavailed credit upto the last date of filing return of September following the financial year.

9) Transitional Credit under GST 

Taxpayers should review the transitional credit carried forward to the GST regime from the existing regime using Form GST TRAN-1, TRAN – & TRAN – 3 in accordance with the provision laid down in Sec. 141 – 143 of CGST Act 2017. It is also to be verified whether proper accounting entries to those effect has been passed in books of accounts.

10) Refund of GST 

Many eligible dealers have claimed GST refund like on Zero Rated Supply, inverted duty structure, excess Cash balance etc. Ensure that the refund has been processed otherwise ensure proper accounting of GST Refund receivable in books of accounts.

To conclude the Businesses which aim to be clear on compliances, results, returns, accounts and avoid any sort of litigations will largely opt for Audits (whether mandatorily or voluntarily). This benefit which seems immeasurable right now far outweighs the cost associated to it since even a single transaction can identified can save much more than the cost of audit.

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August 2021