RATIO ANALYSIS OF DATABASE FOR AUDIT BY GST DEPARTMENT to detect wrong Input Tax Credit availed, To identify under valuation of goods as value-addition should involve adequate difference between the two, To identify removal of goods without payment of duty, To identify claiming of input tax credit on inputs used in exempted products, to identify Fraudulent availment of credit like availment of credit without receipt/actual use of input, To identify outward supplies made in the guise of exempted supplies, To identify supply of essential parts of outward supply as exempted supplies, To identify under valuation of outward supplies by overvaluing exempted outward supply etc.
(PROCEDURE/FORMATS SEPARATE FOR GOODS AND SERVICES)
PART –A: GOODS
| S. No. | Nature of Ratio /Method of calculation |
Utility of the Ratios | Source Document |
| 1. | Input Tax Credit availed
(A) : Total tax paid through (Electronic cash ledger + Input Tax Credit) (B) = (A)/(B) |
i) To identify wrong availlment of input tax credit
ii) To identify under valuation of goods as value-addition should involve adequate difference between the two. iii) To identify removal of goods without payment of duty. iv) To identify claiming of input tax credit on inputs used in exempted products. |
Annual or Monthly GST returns (As applicable) |
| 2. | Total inward supply cost: Total outward supply value | i) This ratio shows the part of outward supply value represented by inward supply cost. The balance outward supply value represents the value addition on account of non-taxable elements like wages, overheads, depreciation, interest.
ii) Theoretically, this ratio should have a bearing on the ratio of Input tax credit: Total tax payment (Sl.No.1). iii) If this ratio is lower than ratio at Sl.No.1 or more than previous year’s ratio, it may be on account of the following: a) Wrong availment of credit like cases of availing value of goods as credit or availment of credit of basic custom duties in case of import or double credit on same document. b) Fraudulent availment of credit like availment of credit without receipt/actual use of input. c) Rejection/return/clearances of inputs without reversal of credit d) Receipt of inputs and availment of credit but clearances of finished goods without payment of duty. e) Under valuation of finished goods. Important points to be considered: i) Only taxable goods sales value should be considered. ii) Export value to be excluded from sales value, if export is under bond (if export was on payment of duty, in that case, export value should be included). iii) Exclude the GST from sales value, if details are available. |
Annual or Monthly GST returns (As applicable)Trial Balance, Profit & Loss Account and Notes to the Accounts. |
| 3 | Input tax credit availed on Capital Goods purchased during the year : Addition to Capital Goods | i) Addition to the Plant & Machinery is available from the Fixed Assets Schedule enclosed to the Balance sheet. | Balance Sheet & GST Returns. |
| 4. | Other Income: Sales | i) If this ratio is higher than previous period, it may be on account of the following:
a) Under valuation of finished goods by non-inclusion of other incomes like recovery of Advertisement expenses, Packing and Forwarding Expenses in the assessable value. b) Non-payment of duty on scrap/rejects/job ii) GST liability on Other Income may also be examined. |
Profit & Loss Account. |
| 5 | Outward supply of Scrap: Total outward supplies made | If ratio in the current year is lower, it may be on account of the following:
i) outward supply of scrap made without payment of duty ii) Non receipt of scrap from job worker. |
Profit & Loss Account/Trial Balance. |
| 6 | Value of exempted outward supply: value of total outward supplies made |
i) To identify outward supplies made in the guise of exempted supplies.
ii) To identify supply of essential parts of outward supply as exempted supplies. iii) To identify under valuation of outward supplies by overvaluing exempted outward supply |
Profit & Loss Account. |
| 7 | Input tax credit availed on inputs: Purchase price of inward supplies | i) Non reversal of credit/payment of duty on inputs rejected/short received/cleared to other units/cleared as spare during warranty period. | Annual or Monthly GST returns (As applicable) |
| 8 | Value of Zero rated supply : Total supply | i) To identify outward supplies made in the guise of zero rated supplies.
ii) To identify under valuation of outward supplies by overvaluing zero rated supply outward supply |
Profit & Loss account |
| 9. | Non-GST Supply : Total supply | i) To identify outward supplies made in the guise of non-GST supplies.
ii) To identify supply of essential parts of outward supply as non-GST supplies. iii) To identify under valuation of outward supplies by overvaluing Non-GST outward supply |
Profit & Loss Account |
PART-B FOR SERVICES RATIO ANALYSIS OF DATABASE
| Source Documents | Utility of the Ratios in GST Audit and manner of use | Nature of Ratio / Method of calculation |
| 1. Profit & Loss Account;2. Income &Expenditure Account(in case of non-profit organisations like clubs); and3. GST return |
Compare the ratio over a period of 3-4 years. If the ratio is increasing there is possibility of the following irregularities:-
i) Rendering of unaccounted outward supply. ii) Undervaluation of outward supply. iii) Diversion of outward supply income into non- taxable income. Compare this ratio (A) with (B) If ratio B is greater than ratio A, then there is a possibility of wrong availment of credit either due to calculation mistake or availment of credit on inward supply being not used properly in outward supply. |
Total cost of inputs received (both Goods & Services) : Value of Taxable outward supply (say A) Credit availed: Total GST payable (say B) |
| 1. Profit & Loss Account;2. Income &Expenditure Account(in case of non-profit organisations like clubs); and 3. GST return |
Compare the ratio over a period of 3-4 years or with the Taxable person rendering the same services.
If the ratio is increasing over a period of time or it is more when compared to other suppliers, then there is a possibility of under valuation by showing outward supply income as non-taxable / exempted income. |
Other incomes not charged to GST : Value of taxable outward supply |
| Balance Sheet | A comparison of this ratio with the rate of growth of the value of taxable outward supplyduring the year may be useful in verifying whether the value of taxable outward supply has been correctly declared.It is particularly to be checked in cases where the additions to plant & machinery / fixed assets directly impact the volume of outward supplies. | Additions to plant and machinery / fixed assets during the year : Total value of assets at the beginning of the year |
| GST returns | Compare the ratio over a period of 3-4 years.
If the ratio is increasing there is the possibility of the following irregularities:- (a) Rendering of unaccounted outward supply; (b) Under valuation of outward supply; (c) Showing outward supply income as non-taxable outward supply income. (d) Inflation of inward supply credit. |
Amount of input tax credit availed on inward supply : Total tax liability on outward supply |
| GST returns | i) To identify wrong availment of input tax credit
ii) To identify under valuation of outward supply as value-addition should involve adequate difference between the two. iii) To identify outward supplies made without payment of GST. iv) To identify claiming of input tax credit on inward supplies used in exempted outward supplies. |
Input Tax Credit
(A) : Total Tax paid through (Electronic cash ledger + Input Tax Credit) (B) = (A)/(B) |
| Balance Sheet & GST return | i) Addition to the Plant & Machinery is available from the Fixed Assets Schedule enclosed to the Balance sheet. | Input tax credit availed on Capital Goods purchased during the year : Addition to Plant & Machinery |
| Profit & Loss Account. | If this ratio is higher than previous period, it may be on account of the following:
a) Under valuation of outward supply by non-inclusion of other incomes b) GST liability on Other Income |
Other Income: Outward supplies |
