1. Availing ITC:

Crediting the ITC in Electronic Credit Ledger is availing ITC. Crediting ITC to credit ledger results in to ITC availed.

2. Utilization of ITC:

Debiting the ITC in the Electronic Credit Ledger is utilization of ITC. Debiting ITC results in to ITC utilized.

3. Interest under section 50:

Wrong credit taken i.e ITC availed and if it is used then utilization. Interest on delayed cash payment is @18% under section 50. Interest on excess claim or excess reduction due to mismatch under section 42(10) and 43(10) is @24% . Further interest is chargeable on net of tax.

4. Eligibility Condition for ITC and ITC Matching:

There was no provision of ITC matching concept for the period 01-07-2017 to 08-10-2019. Rule 36(4) was introduced wef 09-10-2019. Condition for entitlement of ITC is compliance to section 16(2) read with Rule 36. Rule 36 specifies for availing credit based on GSTR 2 and not GSTR 2A. Therefore, additional condition for taking ITC Rule 36(4) and SCN issued beyond the power prescribed under the statute.

Section 16(2) prescribes four conditions for availing ITC.

a. Possession of Tax Invoice.

b. Goods or service has been received.

c. Tax should have been paid to the Govt either in cash or through utilization of ITC on Forward charges by supplier and in the case of RCM by recipient.

d. Recipient has furnished return U/S 39.

Once the above conditions are satisfied ITC becomes vested Legal Right.

Case Laws:

A. Supreme Court in the case of ALD Automative Pvt Ltd Vs Commericial Tax Officer (2019) (13) SCC 225 held that, ITC is a concession given to Tax Payer and not a substantive right. But, when assesee full fills those conditions, of those concessions u convert that concession into a right, once it becomes right, it obtains the status of a property. Article 300A will protect, that particular right to property.

B. Delhi High Court in A B Pal Electricals Pvt Ltd Vs Union of India & Ors WP © 6537/2019 allowed the Tran-1

C. Delhi High Court in Brand Equity Treaties Ltd Vs Union of India WP © 1040/2018 & CM no. 42982/2018.

PARA 19: We are also of the view that CENVAT credit which stood occurred and vested is the property of the assessee and is a constitutional right under Article 300A of the Constitution. The same can not be taken away merely by way of delegated legislation by framing rules, without there being any overriding provision in the GST Act.

D. Press Release dated 18-10-2018:

4. It is clarified that the furnishing of outward details in Form GSTR 1 by the corresponding supplier and the facility to view the same in FORM GSTR 2A by the recipient is on the nature of Tax Payer facilitation and does not impact the ability of the Tax Payer to avail ITC on the self assessment basis in consonance with the provisions of Section 16 of the Act. The apprehension that ITC can be availed on the basis of reconciliation between GSTR 2A and GSTR 3B conducted the due date of filing of return in FORM GSTR 3B unfounded as the same exercise can be done thereafter also.

Please note section 16(2) no where targets GSTR 1. Therefore, credit can not be denied for Golden period ie. for 01-07-2017 to 08-10-2019 as Matching concept of GSTR 1, 2 and 3 never implemented.

5. Audit – Section 65:

Audit means examination of records, returns and other documents maintained and furnished under GST Act to verify the correctness of turnover declared, taxes paid, refund claimed and ITC availed, and assess the compliance of GST Act and Rules there-under.

Officer may conduct Audit at place of business or in their office – section 65(2). Fifteen days prior notice shall be given in Form GST ADT -01. Audit has to be completed within three months from the date of commencement of Audit. Officer may inform discrepancy noticed if any and said person may file his reply and the proper officer finalize audit after due consideration of reply and intimate finding of audit in Form ADT -02.

Audit observation are normally forwarded to Adjudicating Authority in view of legal maxim “Nemo Judex in causa sua” means no one can be judge on his own case. SCN will be issued U/S 73 or 74 and A.A proceeds for adjudication order after following principles of natural justice “Audi Alteram Partem”. Order and demand raised and any demand shall be paid with-in three months from the date of communication. Appeal procedure U/S 107 may be followed by the aggrieved person.

6. Audit Manual:

Audit manual 2019 page 44, point number 5.8 states how to conduct audit. Officer should conduct test check of tax invoices which was not uploaded by supplier in GSTR 2A. Go and verify suppliers tax payment. Audit Office will inform Audit Inspectorate Commissionerate regarding audit and 20% of cases (high tax value transaction) were selected for audit. That means in five years almost all cases were selected for Audit. There were 14 Annexures in Audit Manual.

Annexure 1:

Master File – Assessee Records

Annexure 2:

ADT-01 fifteen days prior notice. Financial year for which audit is conducted. They can conduct audit for part, full or multiple financial years. DIN is mandatory under CGST.

Annexure 3:

Desk Table:

a. Desk Review Stage – b. Walk to Audit which contains total list of document required for audit.

Balance Sheet or Trial Balance of audit period. Ascertainment of holding/subsidiary company and Relative Party. Fixed Asset Register for considering addition/deletion of assets. When asset is sold within sixty months section 18(6) is triggered. Five percent per quarter or part of quarter ITC is allowed balance has to be reversed.

Notes to Account – To check Foreign exchange earnings – Debtors more than six months.

Audit Report U/S 44AB – scrutiny of TAR – Clause 18 – ITC availed – ITC utilized.

Cost Audit Report – To check quantity details.

Balance Sheet – Debtors and Creditors Aging- if payments not made within 180 days reversal of ITC. Creditors for Recipient of Supply – Debtors reversal of other party.

Other income – Like Rent/Incentives/Discount/Interest/dividend credited to profit and loss account Taxable – Exempt.

Expenditure side – RCM liability.

Annexure 4:

Ratio Analysis of Data Base. Accounting Ratio Analysis. Total inward/outward.

Annexure 5:

Comparative Chart – Audit Officer will compare : 1. First your records/figures 2. GSTR 9 3. Cost Audit Report 4. ITR 5. 44AB Report 6. Trial Balance and 7. Lastly Profit and Loss A/C.

Annexure 6:

Questionaire for review of internal control Systems and Walk through analysis – Flow Chart – Audit Trail. ABC analysis – High- Medium-Small Revenue Implications.

Purchase List. Questionair on invoicing pattern – different series – sequence of invoice – cancellation of invoice. 1. Input Register 2. Scrap Register 3. Inspection Report and 4. Test Check Report.

Annexure 7:

Audit Plan Part A for Goods and Part B for services.

Ratios Audit – 1. Risk Analysis 2. Trend Analysis and 3. Abnormal Analysis comparing for three years. Audit Programme which includes Discounts – Valuation U/S 15.

Annexure 8:

Working Paper – Keep the working paper file in systematic manner for the last three years.

Annexure 9:

Verification of records during the course of Audit. Acceptance or Demand of Audit observation.

Annexure 10:

Draft Letter for waiver of SCN to be given U/ 73(6)- Letter of acceptance.

Annexure 11:

Audit Finding in ADT -02.

Annexure 12:

Risk Parameters – How Audit is selected. Chances of Audit – selection is high where multiple branches.

Annexure 13:

Check List for audit of Traders.

Annexure 14:

Check List for audit of Composition Dealers.

Madras High Court D Y Beathal Entreprises Vs State Tax Officer (Data Cell) Madras High Court Appeal No. (MD) No. 2127 of 2021.

– Follow up first supplier then the Recipient of supply.


audit has to be conducted in accordance with manner stated in the Audit Manual.

(Author can be reached at Email: [email protected])


The views expressed are strictly of the Author. The contents of this article are solely for information purpose. It does not constitute professional advice. Neither the Author nor firm and its associates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance there-on.

Author Bio

Qualification: Post Graduate
Location: UDUPI, Karnataka, India
Member Since: 06 Sep 2017 | Total Posts: 1
Prasad K Upadhyaya a Practicing Tax Advocate with twenty years of experience in direct and indirect taxes. His practice specialize in GST Litigation matters. He is also the president of Udupi District Tax Bar Association (R) Udupi. View Full Profile

More Under Goods and Services Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

September 2021