Points To Be Remembered While Facing Audit Under Section 65 of GST Law

1. Check authenticity of the communication by verifying DIN number Ref – Circular no 122/41/2019-GST dt 05.11.2019

2. check the designation and jurisdiction of the officer issuing letter / notice / communication etc as displayed on site while verifying DIN.

3. If the communication is issued without DIN, then check whether reasons for doing so are recorded in the communication itself & appropriate approvals for the same are taken for the same

4. Hon’ble Apex court has recently directed State GST Authorities to implement DIN procedure in all its communications. Read: SC directs GST council to implement Document Identification No (DIN)

5. Check the delegation of authority from Commissioner to the officer issuing communication u/s 65 –

6. At least 15 working days prior notice needs to be given – check the date of service of notice in ADT-01

7. Check whether the mode of service of notice is one of those specified in section 169 ( it is similarly worded as Rule 127 of Income Tax Rules)

8. Usually the Officer in charge will indicate names / mobile numbers / emails of the team members authorized by him for the purpose of the audit assignment.. only these team members will be entitled to seek information from auditee

9. As far as possible do not provide any information without a written request from the audit party either email or physical communication

10. Keep proof of every communication made with the audit party either in soft or hard copy – this will be handy because of the provisions of section 65(4) pertaining to time limit for completion of audit

11. Time limit as per section 65(4) is three months from the date of “commencement of audit”

12. “Commencement of audit” has been spelled out in explanation to section 65(4) as – date on which information sought is made available to the audit party or actual institution of audit at the place of business WHICHEVER IS LETTER

13. LAW is yet to evolve on what is meant by “actual institution of audit at the place of business”

14. LAW also is not clear on what will happen if the audit party does not bother to “actually institute audit at the business premises” of the auditee

15. ONLY Commissioner can extend the period of completion by a further period of 6 months after recording reasons for the delay – only Government of West Bengal has issued a notification for extension of the time limit so far the same can be seen at WBGST: Extension of period for completion of GST Audit therefore in no case the audit should stretch beyond 6 months

16. the deficiencies found by the audit party need to be communicated to the auditee and his reply needs to be taken on record ONLY AFTER receiving the reply the audit process is deemed to be concluded – Final GST Audit Report to be issued after considering Assessee’s Reply  thereafter the audit party gets 30 days to inform the auditee about the conclusion of audit in form ADT-02

17. Section 65 uses the terms “officer authorized” in section 65(1) & (5) and “Proper Officer” in section 65(6)&(7) & also in Rule 101

18. Whereas the term “Officer Authorized” had not been defined anywhere in the Act or Rules, the term “Proper Officer” is defined in section 2(91) of the Act, Though the law is silent on this issue after going through section 65 & Rule 101, it can be seen & understood that the “officer authorized” & “Proper Officer” needs to be same person for proper execution of the audit assignment

19. As many times the audit results in raising a demand by issue of SCN, it will be worthwhile to check out the time limits for issue of SCN

Under section 73 –

Under section 74 –

20. Moreover it is worthwhile to note that – Officers of Audit & Investigation Department can issue SCN BUT have no power to adjudicate, which will be done by the Jurisdictional officer – Proper officer for adjudication of SCN issued by officers of DGGI

21. Further it will also be worthwhile to note the powers of officials to issue SCNs – which could be found out at Anatomy of Tax Determination Proceedings Under GST

22. Important Points of Discussion on two of the often repeated issues raised in GST audit –

22.1 Difference in ITC claimed as per GSTR-2A vis a vis GSTR-3B (when the later is more) –

Para 4 of Press Release dt 18.10.2018 – link – Last date to avail Input Tax Credit pertaining to July 2017 to March 2018

“It is clarified that the furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of section 16 of the Act. The apprehension that ITC can be availed only on the basis of reconciliation between FORM GSTR-2A and FORM GSTR-3B conducted before the due date for filing of return in FORM GSTR-3B for the month of September, 2018 is unfounded as the same exercise can be done thereafter also.”

Whether Principle of Promissory Estoppel will apply with respect to the said Press Release…??

Also para 46 of Hon’ble Apex Court Judgement in case of Bharti Airtel – GST: ‘Rectification of Errors Permissible Only At Initial Stages’: Supreme Court Dismisses Bharti Air-tel’s Plea For Refund of Rs.923 Crore which confirms the contentions made by CBIC in para 4 of above press release

22.2 Difference in output tax liability as per GSTR-1 vis a vis GSTR-3B (when the later is less) – Ref – explanation inserted in Section 75(12) by Finance Act 2021 with effect from 01.01.2022 –

Intention of the amendment as clarified by CBIC on Twitter – CBIC clarifies on Explanation added in Section 75(12) of CGST Act

Though the Twitter announcement says that the explanation is clarificatory, This explanation has been inserted with a view to practically expand the scope of sub-section 12 of section 75, & it has introduced a definition of “self assessed tax” which was previously not there, & moreover it has an effect of putting the assessee into more difficulty therefore the same will have a retrospective effect meaning thereby that it will not have any application to the returns filed before 01.01.2022. Moreover it does not begin with “For the purpose of removal of doubts” or “This is to clarify that”

Reliance can be placed on Apex Court decision in case of Martin Lotteries Agencies Ltd 20 STT 203

Also it will be worthwhile to go through para no 11 of the CESTAT Ahemdabad Judgement in case of B A Research India Ltd – 26 STT 60 which discusses the effect of inserting an explanation into the act in a very detailed manner

Hope this write up dealing with a totally different aspect is useful to the professionals in dealing with Departmental Audit under section 65 of GST Law.