GST AUDIT

GST follows a trust-based mechanism. Accordingly, the registered person himself assess the tax liability; pay the taxes and files GST returns. Hence, GST audit is very important to make sure the correctness of the self-assessment done by the registered person.
 

OBJECTIVE OF SELECTION OF REGISTERED PERSONS

Selection of registered persons for audit means selection of registered persons to be audited during a specified period, taking the available resources under consideration. Given the big number of registered persons under GST, it's impossible to subject every registered person to audit every year with the available resources. Further, emphasis placed merely on coverage of a greater number of registered persons would dilute the standard of Audit. Selection of units for audit in a very scientific manner is extremely important because it permits the efficient use of audit resources viz. manpower and skills for achieving effective audit results. Selection of units for audit supported revenue risk ends up in deployment of audit resources where they're most needed, i.e., within the audit of less compliant units. Such selection is finally subject to the supply of administrative resources. These registered persons should be selected on the idea of assessment of the danger to revenue. This process, which is an important feature of audit selection, is thought as ‘Risk Assessment’. It involves the ranking of registered persons in step with a quantitative indicator of risk called a ‘risk parameter’.

TYPES OF DEPARTMENTAL GST AUDITS

As per section 2(13) of the CGST Act, audit means-

• In-depth examination of records, statements and other documents that are maintained/ furnished by a registered person.

• The purpose of conducting such examination is to verify the correctness of turnover; taxes paid; refund claimed; input step-down availed and compliance with the provisions of the CBIC CGST Act and CGST rules.

GOVERNING SECTION	PARTICULARS	AUDIT CONDUCTING PERSONNEL
SECTION 65	AUDIT BY TAX AUTHORITIES	AUTHORIZED DEPARTMENTAL OFFICER
SECTION 66	SPECIAL AUDIT	CA/ CMA NOMINATED BY THE COMMISSIONER

PARAMETERS FOR SELECTION FOR GST AUDIT 

Following are a number of the illustrative parameters supported which the registered person may be selected for conducting the departmental audit-

1. Size of the turnover/ net income.
2. Quantum of refund claimed.
3. Variation in turnover/ earnings as compared to the previous year.
4. Involved in high-risk activities.
5. Multiple branches/ multiple activities.
6. Receipt of notices from other governmental entities.
7. Previously GST audit never conducted.
8. Waiver/ bankruptcy declared.
9. Specific information/ details received from other governmental entities; etc.

DETAILED TYPES OF GST AUDITS

Goods and Services Tax (GST) works on a trust-based system. Thus, under the GST regime, the taxpayer measures his own tax liability, pays the taxes accordingly and also files the returns. so as to confirm the correctness of the self-assessment done by the taxpayer, audit under GST plays a significant role.

Section 2(13) of the Central Goods and Services Tax Act, 2017 defines the word ‘Audit’ as an examination of returns; records and the other GST documents maintained or furnished by the taxpayer to verify the correctness of any of the following-

• ITC availed and utilized,
• Turnover;
• Taxes paid;
• Refund claimed;
• Exemption/ deduction claimed; and
• Compliance as to requisite provisions applicable on them under CGST Act and rules made thereunder.

TYPES OF DEPARTMENTAL AUDIT

GST audit, conducted by the department, are of two types, namely -

1. An audit conducted by tax authorities (Section 65 of the CGST Act read with rule 101 of the CGST Rules).
2. Special audit (Section 66 of the CGST Act read with rule 102 of the CGST Rules).

BRIEF EXPLANATION

An audit conducted by the tax authorities-

• Department can do a GST audit of any registered person.
• Such an audit may be conducted either at the place of business of the registered person or at the office of the tax authority.
• Prior to the commencement of audit, it's mandatory to tell the registered person about conduct of audit through the issuance of notice in Form GST ADT-01. Notably, the notice for the conduct of audit should be issued a minimum of before 15 working days.
• Following is a number of the responsibilities of the taxpayer during the conduct of the audit-
• Facilitate the authority to verify books of accounts and other documents.
• Furnish all the required information.
• Render adequate support for timely completion of the audit.
• Such audit has to be completed within a period of three months (may reach maximum of 6 months) from the date of commencement of the audit.
• The findings of the audit are going to be informed to the taxpayer in Form GST ADT-02.

Special audit-

• Prior requirement of conduct of special audit-
• Scrutiny, investigation, inquiry or the other proceedings is already initiated before the taxpayer.
• The officer (not below the rank of Assistant Commissioner) is of the opinion that the worth isn't correctly declared or the input diminution is availed beyond the traditional limits.
• Prior approval of the Commissioner is mandatory.
• On satisfaction of all the prior requirements, the officer will issue a direction in Form GST ADT-03 for getting books of accounts audited by the nominated comptroller or comptroller.
• The nominated Chartered/ controller is required to finish the audit within a period of 90 days (extendable to an additional 90 days).
• On completion of the audit, the C
• hartered/ accountant is required to submit a report in Form GST ADT-04.

AUDIT BY DEPARTMENT

Section 65 of CGST, Act, 2017 and Rule 101 of CGST Rules, 2017 deals with law and procedure of the Audit to be conducted by the department, which we'll discuss herein below:

• Who Can Conduct - As per Section 65(1) of CGST Act, 2017, the Commissioner and any Officer authorized by him can conduct an Audit under GST of any registered person by passing a general or specific order.

Therefore, law vested the facility with Commissioner to conduct audit and also vested the facility that Commissioner can authorize the other officer to conduct the Audit of any taxable person under GST Act.

• Where Can the Audit Be Conducted - As per Section 65(2) of the CGST Act, 2017, the Audit referred above will be conducted by the Commissioner or any Officer authorized by the commissioner, either at the principal place of business of the taxpayer or registered person or at any other office of the said person.
• Prior Notice of Audit - As per Section 65(3) of the CGST Act, 2017, the law bounds to the Commissioner or Officer authorized by him for conducting the Audit under GST law shall inform to the registered person by issuing notice for not but 15 working days. It is provided that Rule 101(2) of CGST Rules, 2017 shall be applicable here, and the notice required u/s 65(3) of CGST Act, 2017, be issued in FORM GST ADT-01.

PROBABLE SELECTION CRITERIA FOR DEPARTMENTAL AUDIT

Any taxpayer may be selected for the departmental audit under GST. However, a number of the probable criteria for selection of the taxpayer for audit are highlighted hereunder-

• GST audit never conducted previously.
• Size of income from high-risk business/ activities.
• Quantum of taxpayer’s net profit/ turnover.
• Huge variation in net or turnover as compared to previous years.
• Higher amount of refund claimed.
• Taxpayer is having multiple places of business and having different branches as well.
• Taxpayer is in receipt of a notice issued by any other governmental entities.
• Inconsistency reciprocally filing requirements.
• Precise details received from the other governmental entities.

Method of selection for GST Audit supported risk assessment:

The selection of registered persons would be done supported the danger evaluation method prescribed by the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management. The types of evaluation method would be separately communicated to the Audit Commissioners during the month of January/February of each year. the danger assessment function is going to be jointly handled by the Directorate General of Audit and therefore the Risk Management section of GST Audit Commissioners. the danger Management section of GST Audit Commissionerate would ensure availability of registered person-wise data, which might facilitate risk assessment and preparation of the list of registered persons to be audited within the current year.

Based on the chance methodology, an inventory of units is communicated to the Audit Commissioners by DGARM / DG (Audit), for the aim of conducting audit for the audit year. The list will contain the name of the registered person and therefore the risk indicator along with the action points for decision support so the auditor is responsive to the world to focus while conducting audit. The Audit Commissioners may select the units to be audited in a very particular year after reviewing the list received by, within the context of local risk perceptions and parameters. The Audit Commissionerate shall select a registered person having a low-risk score as compared to a different registered person having a relatively higher-risk score, being the same is supported by Local Risk Factors. It should be ensured that 20% of the taxpayers to be audited are selected supported local risk factors after obtaining the approval of the Chief Commissioner.

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

The Audit Commissioners can also select some units every which way or supported local risk perception in each category of enormous, medium and little units. Feedback on such random selection and results of audit thereof would help in evaluation of parameters used for the method of selection. The Audit Commissioners may 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 is also provided to the Directorate General of Audit.

PREPARATION OF GST AUDIT SCHEDULE

ANNUAL PLAN

• The Audit Commissioner is required to release an annual plan latest by 15^th March of the relevant financial year, indicating the names of persons proposed to be audited during the course of the year (period from 1st April to 31st March of the subsequent year) and therefore the probable month within which the Audit officers would visit the units for verification of records. The Audit coverage (i.e., number of units selected for Audit during a year) is also calibrated with the manpower availability in an exceedingly Commissionerate. The working strength of officers in Audit Commissionerate would be taken because 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 make sure that at the top of the year audit of all the units allocated is Circle DC/AC can permit changes with relevance conduct of audit of any unit by allowing preponing / postponing from one month to a different month/ from one quarter to a different quarter. However, it is to be noted that the audit of all the units allocated by the Audit Commissionerate shall be completed by 31^st March and no single unit should be left uncovered.
• In order to confirm adequate coverage, the registered persons shall be categorized into three categories namely large, medium and tiny units. Given the past experience in detection of non-compliance and recovery of Tax through audits, it's suggested that Audit Groups could also be deployed to hide large, medium and little units. While deploying officers ordinary care should be taken, in order that the staff is proportionately allocated to attend the audit work associated with registered persons handling supply of products and people addressing supply of services supported revenue profile of the Commissionerate.
• The criteria for recognition of a registered person as large, medium or small shall be dependent on the full annual value of outward supplies (including export and exempt supplies). the brink limits of import of outward supplies for categorizing the units into large, medium and tiny would be dependent upon –
• The available manpower within the Audit Commissionerate and
• The entire no. of registered persons and turnover of every registered person within the jurisdiction of the Audit Commissionerate. 

It's going to be noted that threshold limits may vary from one Audit Commissionerate to a different Audit Commissionerate in sight of varying number of registered persons and quantum important of outward supply by each registered person. Such a categorization be undertaken by the Directorate General of Audit. The methodology for categorization along with threshold limits would be communicated to the Audit Commissioners by Directorate General of Audit during the month of January/February.

• The scheduling may be reviewed half yearly for necessary adjustments, if any. The Directorate General of Audit will periodically review and revise, wherever necessary, the factors for categorizing the units into large, medium and little 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 wiped-out consultation with the Audit Commissioners so on make sure that Audit coverage by officers is created optimal.
• Principal Chief Commissioner / Chief Commissioner may allow temporary reallocation / diversion of officers amongst the Audit Commissioners to confirm adequate Audit coverage of all categories of registered persons falling under the jurisdiction of the zone.

THEME BASED COORDINATED GST AUDITS

• Theme based co-ordinated audits the least bit India level would be conducted by the concerned Audit Commissioners during a coordinated manner. The theme would be selected by the Directorate General of Audit, supported a scientific 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 knowledge. The D.G. Audit will also involve consultation regarding trade, industry and suppliers on timely basis, wherever required. The theme would be intimated well ahead, say four to 6 months, to the sector formations. the amount of such audits is one or at the best two in an exceedingly year. the choice of theme/issue, coordination and dissemination would be done by the D.G. Audit in consultation with the sphere formations.
• The theme based coordinated Audits would even be distributed at the Zonal level. The theme for the audit, which may be a sensitive commodity, would be selected at the zonal level and simultaneous and coordinated audit would be disbursed within the zone. the amount of such audits will again be one or two in a very year. The theme for the Audit would be selected supported analysis of knowledge provided by DG (Systems) and relevant third-party information identified from time to time. The Principal Chief Commissioner/Chief Commissioner shall also include the zonal units of Directorate General of Audit for the selection of theme, planning and execution of a theme-based Audit.

ACCREDITED STATUS FOR DEFERRING FREQUENCY OF GST AUDIT

A segment of registered person, may be given an “accredited” status, kind of like the one given in Customs, supported their proven data of compliance with tax laws and procedures. Such identified registered person needn't be subjected to Audit in every cycle. it's been decided that such units should normally be audited only after 3 years from the date of last audit. However, the procedure and criteria in respect of the accreditation shall be communicated separately.

DOCUMENTS VERIFIED DURING A DEPARTMENTAL AUDIT

During the conduct of the GST audit, the departmental officer can imply and verify various information/ records. A probable list of a number of the documents/ records/ information possibly be verified by the officers are summarized hereunder –

• Books of accounts including record, profit & loss account etc.,
• Various returns filed under GST.
• Invoice of Tax, debit and credit notes, vouchers of receipt and payment, bill of supply, delivery challans etc. issued under GST.
• Invoice copies supported which input reduction is availed.
• Job-work register, stock register, production and process register, fixed assets register etc.
• Sample copies of e-way bills.
• Sample purchase orders or work orders or the other orders/ agreements.
• Income legal document.
• Form 26AS.
• Income tax audit report or cost audit report.
• Reconciliation of amounts as declared under GST along with the amount declared under any other laws.

ILLUSTRATIVE LIST OF DOCUMENTS GENERALLY VERIFIED DURING GST AUDIT

The following list of records, documents and data are likely to be furnished during the course of conduct of GST audit by the departmental officer-

• Books of accounts;
• Balance sheet, annual report, revenue enhancement returns and Form 26AS;
• Various forms of returns filed under GST;
• Audit reports, as applicable, like-
• Audit report as required under Income Tax Act, 1961 like Form 3CA or 3CD and Form 3CB
• Cost audit report;
• Internal audit report etc.
• Invoice of Tax, debit and credit notes, vouchers of receipt and payment, bill of supply, delivery challans etc. issued under GST.
• Copies of invoices on basis of which the input decrease is availed;
• Reconciliation between-
• Turnover as per profit and loss account with turnover reflected in GST returns;
• Input decrease availed with Form GSTR-2A;
• Reverse tax paid with corresponding expenses booked within the accounts.
• Sample copies of the acquisition order; work orders and the other agreements entered.
• Registers related to stock in hand; job-work; fixed assets; production/ process etc.
• Sample E-way bills.

DEPARTMENTAL GST AUDIT PROCESS

STEP-1: Intimation Regarding the Conduct of GST Audit

• At first, a notice will be issued by the department, intimating the conduct of an audit.
• Such notice must be served to the registered person a minimum of 15 working days before the conduct of the audit.

STEP-2: Commencement of Audit by The Department

• The audit is marked as commenced within later of the subsequent dates –
• The date on which records/ documents/ information caught up by the officer is submitted by the registered person; or
• The actual commencement of the audit at the place of business of the registered person.

STEP-3: Manner of Conducting the Audit

• GST audit is conducted by the officer at either of the subsequent place-

• At the principal place of business of the concerned person or
• Any other place of business of branch office of the said person.
• Verification of assorted records; returns; documents and knowledge are done by the departmental officer.

• Generally, for the chosen audit period, the officer will make sure the correctness of the following-
• Turnover.
• Exemptions/ deductions claimed;
• Rate of GST applied;
• Input reduction (availed further as utilized);
• Refund claims;
• Any other issues referring to GST.
• Apart from above documents, the departmental officer may ask the registered person for the following -
• Facilitate him to verify the books of accounts and the other documents; and
• Furnish such information as needed by him.

STEP-4: Completion of The Audit

• Once the audit is completed, the officer shall communicate on the findings/ discrepancies noted by him to the registered person.
• The registered person will must appropriately reply to the findings/ discrepancies raised by the officer.
• After considering the reply filed by the registered person, the officer will conclude the audit by noting the ultimate observation in Form GST ADT-02 (or Form GST ADT-04 just in case of a special audit)

COURSE OF ACTION POST COMPLETION OF DEPARTMENTAL GST AUDIT

Once the audit is completed, supported the observation of the officer and counter reply of the registered person, any of the subsequent action are adopted by the right officer –

Conclude The Matter

Under the subsequent circumstances, the matter would be marked as closed with none further action-

• After completion of the GST audit, there are not any observation/ findings of the officer; or
• Where the observation/ findings of the officer are properly answered by the registered person. Accordingly, the findings are dropped by the officer.
  Issuance of show cause notice

Show cause notice under section 73 or section 74 are going to be issued to the registered person, if during an audit, it's observed that there's any-

• Non-payment/ short payment of taxes; or
• Erroneous refund claim; or
• Wrong availment or wrong utilization of the input tax credit;
• Any other non-compliance.

TIME BARRING LIMIT OF AUDIT

• As per Section 65(4) of the CGST Act, 2017, the law prescribed the deadline to finish the Audit i.e., three months from the date of commencement of Audit.
• Further, it's provided in law that the Commissioner is vested with power to increase the limit for a period less than six months by recording a reason in writing. Here, it's necessary to say that the Commissioner can use his power as long as he's satisfied that the Audit cannot be completed with the amount of three months as prescribed in law.
• That commencement of audit refers to the time, where the record and documents, as called by tax authorities, are provided by the registered person or actual institution of Audit at business place of registered person whichever is occurred later.

FINDINGS OF GST AUDIT

• As per Section 65(6) of the CGST Act, 2017, the Officer who conduct the audit u/s 65 of CGST Act, 2017 shall sure to give his findings within the amount of thirty days from the completion of audit stating therein his rights and obligations and reasons for his finding.
• Here, the Rule 101(2) of CGST Rules, 2017 comes in to role which prescribed that on completion of audit the finding pro re nata u/s 65(6) of CGST Act, 2017, shall be made in FORM GST ADT-02.
• As per Section 65(7) of the CGST Act, 2017, if at the tip of the audit, it's concluded or finds that tax wasn't paid or short paid or erroneously refunded, or input decrease wrongly availed or utilized, then the Officer may invoke the provisions of Section 73 or Section 74 of CGST Act, 2017.

SUMMARIZATION OF GST AUDIT

PARTICULARS	SECTION 65	SECTION 66
FORMAT OF NOTICE INTIMATING FOR CONDUCT OF AUDIT	FORM GST ADT-01	FORM GST ADT-03
DURATION OF AUDIT	THREE MONTHS. COMMISSIONER CAN EXTEND THE SAME TO FURTHER PERIOD OF SIX MONTHS.	THE NOMINATED CHARTERED ACCOUNTANT/ CERTIFIED MANAGEMENT ACCOUNTANT WILL SUBMIT AUDIT REPORT WITHIN 90 DAYS.
PERIOD OF AUDIT	FINANCIAL YEAR OR PART OR MULTIPLES THEREOF	FINANCIAL YEAR OR PART OR MULTIPLES THEREOF
FORMAT FOR INTIMATION OF OBSERVATIONS TO THE REGISTERED PERSON	FORM GST ADT-02 WITHIN 30 DAYS FROM THE DATE OF COMPLETION OF THE AUDIT.	FORM GST ADT-04

SUMMARIZED PROCESS OF THE DEPARTMENTAL GST AUDIT

• Intimation of audit.
• Verification of records/ documents and data by the departmental officers/ authorized person.
• Communication of findings/ discrepancies.
• Noting of ultimate observation of the audit.

Outcome Of the Departmental Audit

As per the observations and findings communicated by the officer, the taxpayer shall submit an answer, conveying their point of view on the said findings. On the premise of the counter reply, if any submitted by the taxpayer or on the idea of the observations, the subsequent two outcomes are possible-

SITUATION	OUTCOME OF THE DEPARTMENTAL AUDIT
NO OBSERVATION/ FINDING OBTAINED BY THE OFFICER; OR THE OBSERVATION IS APPROPRIATELY REPLIED BY THE TAXPAYER AND THE OFFICER IS SATISFIED ON THE SAME.	THE OBSERVATION/ FINDING WILL BE SETTLED DOWN BY THE OFFICER AND THE CASE WILL BE CLOSED.
THE OBSERVATION IS NOT REPLIED BY THE TAXPAYER; OR THE OFFICER IS NOT SATISFIED WITH THE REPLY FILED WITH THEM.	WHERE THE OBSERVATION INVLOVES NON-PAYMENT OR SHORT PAYMENT OF TAXES, WRONGFUL UTILIZATION OF ITC, ERRONEOUS REFUND CLAIM OR ANY OTHER NON-COMPLIANCE, A SHOW CAUSE NOTICE WILL BE ISSUED UNDER SECTION 73 OR SECTION 74, DEPENDING ON THE CASE.

SUMMARY OF PROCEDURE

STAGES	PARTICULARS	NORMAL DEPARTMENTAL AUDIT	SPECIAL AUDIT
STAGE 1	INTIMATION FOR CONDUCTING OF AUDIT	NOTICE BE ISSUED IN FORM GST ADT-01, SERVED MINIMUM 15 DAYS PRIOR TO COMMENCEMENT OF AUDIT.	DIRECTION BE ISSUED IN FORM GST ADT-03.
STAGE 2	VERIFICATION OF DOCUMENTS AND REPORTS.	VERIFICATION BY OFFICER, AT THE PRINCIPAL PLACE OF BUSINESS OR AT THEIR PLACE OF BUSINESS OR BRANCH OFFICE.	VERIFICATION BY THE NOMINATED CHARTERED ACCOUNTANT/ COST ACCOUNTANT.
STAGE 3	TIME PERIOD FOR COMPLETION	AUDIT BE COMPLETED WITHIN A PERIOD OF THREE MONTHS FROM THE DATE OF ISSUANCE OF NOTICE.	AUDIT BE COMPLETED WITHIN A PERIOD OF 90 DAYS, FROM THE DATE OF ISSUANCE OF DIRECTIONS.
STAGE 4	FILLING OF FINDINGS OF AUDIT	COMMUNICATION BE FURNISHED IN FORM GST ADT-02, WITHIN 30 DAYS OF COMPLETION, TO THE TAXPAYER.	COMMUNICATION BE FURNISHED IN FORM GST ADT-04, TO THE ASSISTANT COMMISSIONER.