This article contains the description of provisions related to audit under Model GST Law. Objectives of audit under indirect taxation can be described broadly under following two head-

  1. For Valuation purposes
  2. For checking the correctness of Input tax credit

The provisions of audit of Goods and Service Tax Act, 2016 are contained in sun section (4) of section 42 (when turnover exceeds the prescribed limit), section 49 (Audit by tax authorities) and Section 50 (Special Audit).

Section 42 (4) Audit by a chartered accountant or a cost accountant

Every registered taxable 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 to the proper officer a copy of the audited statement of accounts, the reconciliation statement under sub-section (2) of section 30 and such other documents in the form and manner as may be prescribed in this behalf.

Section 49 Audit by tax authorities

(1) The [Commissioner of CGST/Commissioner of SGST] or any officer authorised by him, by way of a general or a specific order, may undertake audit of the business transactions of any taxable person for such period, at such frequency and in such manner as may be prescribed.

 (2) The tax authorities referred to in sub-section (1) may conduct audit at the place of business of the taxable person and/or in their office.

(3) The taxable person shall be informed, by way of a notice, sufficiently in advance, not less than fifteen working days, prior to the conduct of audit in the manner prescribed.

(4) The audit under sub-section (1) shall be carried out in a transparent manner and completed within a period of three months from the date of commencement of audit: Provided that where the [Commissioner] is satisfied that audit in respect of such taxable person cannot be completed within three months from the date of commencement of audit, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months. Explanation.- For the purposes of this sub-section, ‘commencement of audit’ shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the taxable person or the actual institution of audit at the place of business, whichever is later.

(5) During the course of audit, the authorised officer may require the taxable person, (i) to afford him the necessary facility to verify the books of account or other documents as he may require and which may be available at such place, (ii) to furnish such information as he may require and render assistance for timely completion of the audit.

(6) On conclusion of audit, the proper officer shall without delay inform the taxable person, whose records are audited, of the findings, the taxable person’s rights and obligations and the reasons for the findings.

 (7) Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51.

Section 50 Special audit

(1) If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any officer not below the rank of [Deputy/Assistant Commissioner] having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the [Commissioner], direct such taxable person by notice in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the [Commissioner] in this behalf.

(2) The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said [Deputy/Assistant Commissioner] mentioning therein such other particulars as may be specified: Provided that the proper officer may, on an application made to him in this behalf by the taxable person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by another ninety days.

 (3) The provision of sub-section (1) shall have effect notwithstanding that the accounts of the taxable person have been audited under any other provision of this Act or any other law for the time being in force or otherwise.

 (4) The taxable person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings under this Act or rules made there under.

(5) The expenses of, and incidental to, the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the [Commissioner] and that such determination shall be final.

(6) Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51.

                                                              A Quick Review

Section 42 (4) Audit by a chartered accountant or a cost accountant

  • In case turnover of a taxable person during a financial year exceeds the prescribed limit
  • Audited by a chartered accountant or a cost accountant
  • Submission of Audit Report with reconciliation statement under sub-section (2) of section 30 reconciling the value of supplies declared in the annual return
  • Before the thirty first day of December following the end of Financial Year as per subsection 2 of section 30.

Section 49 Audit by tax authorities

  • Audit by the [Commissioner of CGST/Commissioner of SGST] or any officer authorised by him
  • The tax authorities may conduct audit at the place of business of the taxable person and/or in their office.
  • Information to the taxable person fifteen working days prior to the conduct of audit
  • Completion within a period of three months from the date of commencement of audit
  • Extension by a further period not exceeding six months by the Commissioner.
  • The taxable person required to afford taxing authority the necessary facility to verify the books of account (ii) to furnish information and render assistance for timely completion of the audit.
  • On conclusion of audit, the proper officer shall inform the taxable person of the findings, the taxable person’s rights and obligations and the reasons for the findings.
  • Where the audit results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51 (Determination of Tax).

Section 50 Special audit

  • Where the value has not been correctly declared or the credit availed is not within the normal limits, any officer not below the rank of [Deputy/Assistant Commissioner] find in the stage of scrutiny, enquiry, investigation may with the prior approval of the [Commissioner],
  • Direct the taxable person to get his books of account audited by a chartered accountant or a cost accountant nominated by the [Commissioner].
  • The chartered accountant or cost accountant shall, within the period of ninety days, submit a report
  • Extension by the proper officer, on an application by the taxable person or the chartered accountant or cost accountant for sufficient reason for another ninety days.
  • Special Audit shall have effect notwithstanding that the accounts of the taxable person have been audited under any other provision of this Act as section 42(4) or any other law.
  • The expenses of and the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner.
  • Where the special audit results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51(Determination of Tax).

Issue – An issue that is to be considered in final law-

There are two levies in GST for intra state transaction. One is CGST and other is SGST. Taxable person will file returns at one place “a portal” but after that there could be separate inspection by both Governments.

Both governments can do separate audits and take a different view on the same transaction. What happens then?

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