Audit management requires planning and effective execution of the audit process. Structurally and functionally, this is to be undertaken at two levels – Apex level and Local level. In order to monitor, co-ordinate and guide the effective implementation of the GST audit system, the Board has set up the Directorate General of Audit as the nodal agency. At the local level, management of audit is entrusted to GST Audit Commissionerates, which are supervised by Principal Chief Commissioners/Chief Commissioners.
1. Management at Apex level
The Directorate General of Audit, Indirect Taxes and Customs, New Delhi (headed by Principal Director General/ Director General) with its Seven Zonal Units at Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Mumbai (each headed by an Additional Director General) is required to ensure the efficient and effective implementation of the audit system (based on EA 2000 methodology) and also to evolve and improve audit techniques and procedures through a periodic review. With the help of its Zonal units, the Directorate General of Audit regularly monitors GST audits conducted by the GST Audit Commissionerates to ensure that the coverage of the registered persons is adequate in number and is reflective of their risk profile and to ensure that these audits are conducted in accordance with provisions of law by following the procedure enunciated in this manual. To achieve this, the Directorate needs to interact closely with Principal Chief Commissionerates/ Chief Commissionerates to eliminate the deficiencies and to improve the performance of the GST Audit Commissionerates.
1.1 As an advisor to the Board, the Directorate General of Audit is required to suggest measures for enhanced tax compliance, to gauge the level of audit standards and to ascertain the views of the Registered persons on the existing audit system. It should also interact with selected Registered persons to take a holistic view of the internal audit and to formulate proposals to remove bottlenecks and obviate the scope of irregularities.
1.2 The selection of Registered persons would be done based on the risk evaluation method prescribed by the Directorate General of Audit. The risk evaluation method would be separately communicated to the GST Audit Commissionerates during the month of February/ March of every year. The risk assessment function will be jointly handled by the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management and the Risk Management section of Audit Commissionerates. It helps the GST Audit Commissionerates in selection of units for audit during the audit year.
2. Role of Zonal Principal Chief Commissioner/Chief Commissioner, Central GST:
2.1 The office of the Principal Chief Commissioner/Chief Commissioner is not an operational formation for the conduct of audit, but it provides an important link between the Directorate General of Audit and the GST Audit Commissionerates of the zone. The role of this office in the overall management of audit is as follows:
i. Collection, compilation and analysis of the data received from GST Audit Commissionerates and communication of the same to the respective Zonal Additional Director General (Audit) and to the Director General (Audit) wherever specifically asked for.
ii. Review of performance of the GST Audit Commissionerates.
iii. Dissemination of information pertaining to audit to the GST Audit
iv. Resolving problems in implementation of audit system at local level and providing feedback to the Directorate General of Audit.
v. Ensuring implementation of guidelines, issued by the Directorate General of Audit, as pertaining to the GST Audit Commissionerates.
vi. Monitoring the training for auditors and the officers of the Zone, in techniques of GST audit and accountancy.
vii. Assisting and providing information to the officers of the Directorate General (Audit) in regularly examining the conduct of audits and results thereof.
viii. Posting/allocating the officers with requisite experience and expertise in conducting audits/analysing financial statements, to the GST Audit Commissionerates, ensuring equitable distribution of officers for improving coverage.
ix. To take a final decision in cases, other than finalisation of audit objection, where there is difference of opinion between GST Audit Commissioner and Executive Commissioner.
x. To resolve issues that may arise between Executive and GST Audit Commissionerates.
xi. Selection of theme, planning and execution of Theme based
xii. Approving the 20% of the taxpayers to be audited as selected by the Audit Commissionerates based on local risk factors.
3. Functions of a GST Audit Commissionerate:
The GST Audit Commissionerate comprises of the following sections:
i. Planning and coordination section:
To maintain and to keep a copy of Registered person’s master file (TAG) and update it in coordination with the audit groups of circles; to maintain database of officers’ profile, to look after formation/constitution of audit groups; deployment of officers, matching skills with audit requirement;, to plan the audit schedule in such a way as to make optimum use of available resources and ensuring proper desk review before commencement of audit etc., to communicate to the Executive Commissioners seven days in advance of MCM the details of audit paras, to schedule and to provide support in conduct of Monitoring Committee Meetings (MCM); to maintain records/registers and to submit reports.
ii. Administration, Personnel & Vigilance section:
To look after administrative matters, transfer, leave, allowances, budgetary grants, vigilance matters etc.
iii. Technical section & Legal Section:
To attend to draft show cause notices, audit follow up, court cases, and maintain Board’s circulars, instructions etc. To provide legal interpretation of issues raised in MCM and requiring interpretation.
iv. Risk Management and Quality Assurance section:
To attend to risk-based selection of units, use of third-party source of information, to maintain Audit database of units to be audited, to identify themes/issues for audit, to evaluate and scrutinize working papers and to look after the work related to performance appraisal and quality assurance etc., and to implement the risk-based selection advisory received from DGARM / DG (Audit) and to carry out selection of units after applying local risk parameters. Obtaining the approval of the Chief Commissioner in respect of such selection by applying local risk parameters.
Actual conduct of audit and subsequent follow up till the logical conclusions of the audit objections approved in MCM by way of recovery or issuance of Show Cause Notice up to DC/AC level, forwarding of draft SCN of the competency level of above DC/AC along with relied upon documents.
4. Role of senior officers of GST Audit Commissionerate:
4.1 Principal Commissioner/Commissioner
i. To ensure selection of assessees/taxpayers, to be audited during the year, on the basis of risk assessment in consultation with the Directorate of Audit. To also ensure that 20% of the taxpayers to be audited are selected based on local risk factors and obtain the approval of the Chief Commissioner.
ii. To approve the Desk Review and Audit Plan, in respect of top 5 assessees/taxpayers of each audit circle mentioned in the Annual Plan for audit coverage, after ensuring that all the steps have been completed and review few draft plans approved by the ADC/JC to ensure quality of audit.
iii. To hold either circle-wise (or any number of circles together as deemed necessary), Monitoring Committee Meeting (MCM), once a month to take decision about the acceptability of all audit objections and to determine as to whether larger period is invokable in respect of the accepted objections.
iv. To ensure that MCM is held by using the offline Audit Report Utility and no paper based audit report is prepared. Also to ensure that after the MCM, each Audit Report Utility is uploaded in the Systems.
v. To liase with DG (Systems) to ensure that EDW/ADVAIT data and GST data is available to the auditors
vi. To ensure that requisite follow-up action i.e. recovery, issue of show cause notice is taken.
vii. To review audit performance and to take steps for
viii. To take remedial measures based on the report of audit group on performance appraisal and quality assurance.
ix. To review the performance and participation of the Additional/ Joint Commissioner and Deputy/ Assistant Commissioner of audit circles.
x. To interact with the major assessees/trade associations, to obtain feedback on the audit system.
xi. To assess the training needs of the auditors and organize training programmes.
xii. To submit periodical reports to various formations including Zonal ADG (Audit) or Director General (Audit) as prescribed from time to time.
xiii. To send a list containing details of show cause notices issued by the Audit Commissionerate (including Circles), during the month, to each of the Executive Commissionerates, on monthly
xiv. In cases where further investigation is required, the matter may be forwarded to the Executive Commissionerates with a self-contained note for further investigation and necessary action like recording statements under summons etc.,
4.2 Additional/Joint Commissioner
i. Co-ordination, planning and overall management of the audit sections and circles including supervision of work relating to theme based audit, etc.
ii. To approve the desk review and audit plan, in respect of all the large and medium units, other than the top 5 units that are to be approved by the Commissioner, after ensuring that all the steps have been completed.
iii. To review audit plans of small units approved by the Deputy/Assistant Commissioners of circles and to communicate results of such review if any to the Circle DC/AC before taking up audit verification.
iv. To interact with the management of the large units at the time of audit in order to share major audit findings and compliance
v. To approve and issue SCNs which are to be adjudicated by ADC/JC as per the Monetary limits prescribed by CBIC from time to time, on receipt of DSCN and other documents from Circles,
vi. To organize training programmes for auditors.
vii. To review the follow-up action.
viii. To ensure selection of units for audit as per the risk-based list received from DGARM / DG (Audit) and to provide justification for tweaking the lists.
ix. To ensure that the Audit Report Utility is used in MCM and the reports are uploaded in system and no paper based audit reports are prepared.
x. To ensure scrutiny of NIL DARs files received from audit circles.
4.3 Deputy/Assistant Commissioners in-charge of Sections of Audit Commissionerate Headquarters
To supervise the work relating to the respective sections of Headquarters viz., Planning and Co-ordination Section, Administration, Personnel and Vigilance Section, Technical Section and Risk Management and Quality Assurance Section and theme based audit. To ensure that the Audit Report Utility is used for uploading of Audit reports finalised in MCM and no paper based audit reports are prepared.
4.4 Deputy/Assistant Commissioners in-charge of Circles:
i. Co-ordination, planning and overall management of the audit circle.
ii. To monitor maintenance of Registered person’s master files and
iii. To approve the desk review and audit plan, in respect of all the small units, after ensuring that all the steps have been completed and forward a copy to JC/ ADC for review.
iv. To interact with registered persons at the time of audit in order to share major audit findings and compliance issues.
v. To approve and issue draft audit reports before placing the same in MCM meeting.
vi. As in-charge of Circle, to attend MCM and to represent the Circle in case of all DARs taken up for discussion during MCM.
vii. To issue final audit reports after approval in the MCM meeting.
viii. To issue show cause notices falling under his purview as per monetary limits fixed by CBIC from time to time both under Section 73 and 74 of CGST Act.
ix. To ensure timely preparation and forwarding of DSCNs along-with relevant documents to the Audit Commissionerate, which are falling within the monetary limits for SCN and adjudication by ADC/JC.
5. Role of GST Executive Commissionerate:
i. To represent in MCM;
ii. To respond to the draft audit objections, within 7 days of receipt from Audit Commissionerates;
iii. To provide detailed comments with a justification on the disputed audit paras including the details of Board’s Circulars, case laws (if any) or any point of law;
iv. To attend to the litigation after adjudication proceedings and to defend the order before the appellate fora – viz., Commissioner (Appeals)/ Tribunals/ Courts, with the help of inputs from Audit Commissionerates, wherever required;
v. To attend to the work related to pre-audit, post audit of refunds, rebates;
vi. To attend to the work related to CERA;
vii. To pursue recovery of amounts in respect of pending paras admitted by the party (in writing), based on the reference received from the Audit Commissionerate.
viii. To ensure immediate intimation to the jurisdictional Audit Commissionerates regarding any cases booked/investigation carried out by Anti-Evasion wing of the Executive Commissionerate or by DGGI and any audit conducted by A copy of the CERA objection shall also be sent.
ix. To ensure timely adjudication of show-cause notices issued by the Audit Commissionerates.
x. To carry out investigation and necessary action like recording statements under summons etc. in respect of cases forwarded by Audit Commissionerates.
6. Staffing norms for GST Audit Commissionerate:
i. Headquarters shall be headed by one Principal Commissioner / Commissioner with the assistance of two Additional or Joint Commissioners and three or four Assistant Commissioners/ Deputy Commissioners.
ii. Normally, officers selected and posted to the Audit Commissionerate should be allowed to continue to function in the Commissionerate for a minimum period of two years and maximum of four years.
iii. The supervising officer of the rank of Additional / Joint / Deputy / Assistant Commissioner must frequently (especially in important and sensitive units) associate with the actual audit and attend to the areas of risks identified during desk-review.
iv. Each audit circle shall be headed by a Deputy or an Assistant Commissioner.
v. Deputy/Asst. Commissioner of the circles should be associated with all major audits. Senior Officers of the cadre of Additional / Joint Commissioners should interact with the senior management of large units after conducting audit.
vi. Audit circle comprises of one stationary audit group (MIS) to look after the work relating to planning and co-ordination section of Hqrs. Office, such as MCM, maintenance of Registered person’s Master Files, attending to follow up work and deployment of audit groups for conduct of audit.
vii. The Audit Groups deployed for audit of large units may comprise of 2-3 Superintendents and 3-5 Inspectors. For medium units, the audit group may include 1 – 2 Superintendents and 2 – 3 Inspectors. For small units, the Audit Group may include 1 Superintendent and 1 – 2 Inspectors.
viii. Groups for large units, medium units and small units should be in such numbers that the following distribution of manpower deployment in audit groups is achieved.
a. 40% of manpower for large units including audits of Multi Locational Supplier (MLS), and theme-based audits
b. 30% of manpower for medium units
c. 20% of manpower for small units
d. 10% of manpower for planning, coordination and follow
7. Auditors’ Profile:
Profile of each of the auditor posted in the groups should be available in the Audit Planning and Coordination Cell of Circle, in the following proforma.
i. Name of the officer.
iii. Experience in the department.
iv. Professional qualification, if any.
v. Experience in Central Excise Range/ Service Tax formation or Divisional office (in years).
vi. Whether undergone training in audit.
vii. Experience in audit wing.
viii. Number of major audit points raised by him on his own (to be taken from working papers) in his career. Amounts involved in such cases.
ix. Any commendation/awards, rewards, etc. received.
7.1 Each auditor should furnish a self-appraising resume containing the above information immediately upon joining the audit section, which should be updated on yearly basis so long as the officer continues to be posted in the Audit Groups. Auditor’s profile facilitates effective deployment of auditors to units by considering appropriate skill levels, training, educational background of the auditor etc.
7.2 The formation of audit groups is a critical component of audit management. The cadre controlling authority in-charge of the Audit Commissionerate shall ensure that the officers with the requisite skill and experience are posted to Audit Commissionerates depending on the availability and other administrative constraints. Audit Commissioners should ensure that the skill and experience available is evenly distributed across the audit groups. As far as possible there should be at least one officer with commerce or accounts background in each party. It is also useful to assign officers with computer skills to each party to deal with units that keep computerized accounts. For efficient functioning of the MIS section of Audit Commissionerate/Circle, officers with computer skills and some prior audit experience are required. Similarly, the skill sets and experience available with an audit group should govern the size and complexity of audits that it handles. For optimal results, there should be matching of these two factors.
7.3 Officers, when posted to the GST Audit Commissionerate for the first time, should invariably be sent for training in GST Audit process and financial accounting so that they have the basic skills to handle audit work. Compulsory in-house training programmes should also be organized in the Audit Commissionerates for the benefit of new entrants soon after the annual transfers. The GST Audit Commissioner should also ensure to organise special training programmes for major industrial sectors in the jurisdiction of an Audit Commissionerate so that auditors have the necessary specialization and sufficient number of auditors specializing in major industries are available. Officers, who have worked in audit sections earlier, should also be imparted with refresher course on the latest techniques of audit and changes in the statutory provisions, if any.