1. Objective of Selection of Registered Persons for GST Audit:

Selection of registered persons for audit means selection of registered persons to be audited during a specified period, taking the available resources into account. Given the large number of registered persons under GST, it is impossible to subject every registered person to audit each year with the available resources. Further, emphasis placed merely on coverage of more number of registered persons would dilute the quality of Audit.Selection of units for audit in a scientific manner is extremely important as it permits the efficient use of audit resources viz. manpower and skills for achieving effective audit results. Selection of units for audit based on revenue risk leads to deployment of audit resources where they are most needed, i.e., in the audit of less compliant units. Such selection is finally subject to the availability of administrative resources. These registered persons should be selected on the basis of assessment of the risk to revenue. This process, which is an essential feature of audit selection, is known as ‘Risk Assessment’. It involves the ranking of registered persons according to a quantitative indicator of risk known as a ‘risk parameter’.

2. Method of selection for GST Audit based on risk assessment:

The selection of registered persons would be done based on the risk evaluation method prescribed by the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management. The risk evaluation method would be separately communicated to the Audit Commissionerates during the month of January/February of every year. The risk assessment function will be jointly handled by the Directorate General of Audit and the Risk Management section of GST Audit Commissionerates. The Risk Management section of GST Audit Commissionerate would ensure availability of registered person-wise data, which would facilitate risk assessment and preparation of the list of registered persons to be audited in the current year.

2.1 Based on the risk methodology, a list of units will be communicated to the Audit Commissionerates by DGARM / DG (Audit), for the purpose of conducting audit for the audit year. The list will contain the name of the registered person and the risk indicator alongwith with the action points for decision support so that the auditor is aware of the area to focus while conducting audit. The Audit Commissionerates may select the units to be audited in a particular year after reviewing the list received by, in the context of local risk perceptions and parameters. The Audit Commissionerate may also select a registered person with low risk score compared to another registered person with relatively high-risk score, based on Local Risk Factors (Illustrative list of Local Risk Factors is given in GSTAM Annexure XII). It should be ensured that 20% of the taxpayers to be audited are selected based on local risk factors after obtaining the approval of the Chief Commissioner.

2.2 However, the reasons for such selection should be indicated which would be used as a feedback by the Directorate of Audit for further improvisation of risk factors in future.

2.3 The Audit Commissionerates may also select a few units at random or based on local risk perception in each category of large, medium and small units. Feedback on such random selection and results of audit thereof would help in evaluation of parameters used for the process of selection. The Audit Commissionerates may also select some registered persons registered in terms of Section 51 and Section 52 of the CGST Act, 2017 for checking the correctness of TDS and TCS. Feedback on such selected persons and results achieved may be provided to the Directorate General of Audit.

3. Preparation of GST audit schedule:

3.1 Annual plan for GST Audit Coverage (Audit year being – 1st April to 31st March):

i. The Audit Commissionerate would release an Annual plan by 15th March, indicating the names of registered persons proposed to be audited during the course of the year (period from 1st April to 31st March of the next year) and the probable month in which the Audit officers would visit the units for verification of records. The Audit coverage (i.e. number of units selected for Audit in a year) may be calibrated with the manpower availability in a Commissionerate. The working strength of officers in Audit Commissionerate would be taken as the basis for calibration. After release of Annual plan by the Audit Commissionerate, concerned DC/AC In-charge of Circles may issue quarterly schedules and to constantly monitor conduct of audits to ensure that at the end of the year audit of all the units allocated is Circle DC/AC can permit changes with reference to conduct of audit of any unit by allowing preponing / postponing from one month to another month/ from one quarter to another quarter. However, it shall be ensured that audit of all the units allocated by the Audit Commissionerate are completed by 31st March so that no single unit is left uncovered.

ii. In order to ensure adequate coverage, the registered persons shall be categorized into three categories namely large, medium and small units. Given the past experience in detection of non-compliance and recovery of Tax through audits, it is suggested that Audit Groups may be deployed to cover large, medium and small units as discussed in Staffing Norms in para 3.6 above. While deploying officers due care should be taken, so that the staff is proportionately allocated to attend the audit work related to registered persons dealing with supply of goods and those dealing with supply of services based on revenue profile of the Commissionerate.

iii. The criteria for categorizing a registered person as large, medium or small would be the total annual value of outward supplies (including export and exempt supplies). The threshold limits of value of outward supplies for categorizing the units into large, medium and small would be dependent upon (i) the available manpower in the Audit Commissionerate and (ii) the total no. of registered persons and turnover of each registered person in the jurisdiction of the Audit Commissionerate. It may be noted that threshold limits may vary from one Audit Commissionerate to another Audit Commissionerate in view of varying number of registered persons and quantum of value of outward supply by each registered person. The categorization of Registered Taxpayers would be done by the Directorate General of Audit. The methodology for categorization alongwith threshold limits would be communicated to the Audit Commissionerates by Directorate General of Audit during the month of January/February.

iv. The scheduling can be reviewed half yearly for necessary adjustments, if any. The Directorate General of Audit will also periodically review and revise, wherever necessary, the criteria for categorizing the units into large, medium and small within each Zone / Commissionerate, manpower deployment in each category, composition of Audit Group and number of days required for audit in each category. The review/revision would be done in consultation with the Audit Commissionerates so as to ensure that Audit coverage by officers is made optimal.

v. Principal Chief Commissioner / Chief Commissioner may allow temporary reallocation / diversion of officers amongst the Audit Commissionerates to ensure adequate Audit coverage of all categories of registered persons falling under the jurisdiction of the zone.

4. Theme based coordinated GST audits

4.1 Theme based co-ordinated audits at all India level would be conducted by the concerned Audit Commissionerates in a coordinated manner. The theme would be selected by the Directorate General of Audit, based on a systematic and methodical risk analysis of internal data of registered person (from DG (Systems), economic indicators, third party information from tax and other regulatory authorities and other relevant sources of data. The D.G. Audit would also consult trade, industry and suppliers from time to time, wherever necessary. The theme would be intimated well in advance, say four to six months, to the field formations. The number of such audits will be one or at best two in a year. The selection of theme/issue, coordination and dissemination would be done by the D.G. Audit in consultation with the field formations.

4.2 The theme based coordinated Audits would also be carried out at the Zonal level. The theme for the audit, which could be a sensitive commodity, would be selected at the zonal level and simultaneous and coordinated audit would be carried out within the zone. The number of such audits will again be one or two in a year. The theme for the Audit would be selected based on analysis of data provided by DG (Systems) and relevant third-party information identified from time to time. The Principal Chief Commissioner/Chief Commissioner may involve the zonal units of Directorate General of Audit in selection of theme, planning and execution of theme-based Audit.

5. Accredited status for deferring frequency of GST audit

6. A segment of registered person, could be given an “accredited” status, similar to the one given in Customs, based on their proven track record of compliance with tax laws and procedures. Such identified registered person need not be subjected to Audit in every cycle. It has been decided that such units should normally be audited only after 3 years from the date of last audit. The procedure and criteria for accreditation would be communicated separately.

Source- GST Audit Manual of CBIC

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June 2021