GST AUDIT INTRODUCTION
The audit is all about the examination of records, returns, and other documents maintained by a registered individual under Goods and Services Tax. the main aim is to verify the correctness of the declared turnover, taxes paid, reimbursed, and input tax credit used, and other such compliances which are thereby evaluated by a qualified expert pursuant to the GST statutes. Goods and Services Tax is a taxation regime wherein a taxpayer must self-evaluate his/her tax liability, pay taxes, and file returns. As a result, a robust audit mechanism is necessary in order to ensure that the taxpayer properly assess their tax liability and pays taxes accordingly.
As per section 2(13) of CGST Act, 2017, “audit is the examination of records and accounts which a registered person is required to maintain and furnish under this act or any rules made thereon in order to verify its correctness and conformity with the GST compliance.”
On 1st Feb 2021, Union Budget 2021:
As per the notification, Chartered Accountants and Cost Accountants have been removed for audit requirement under GST, thereby amending sections 35 and 44 of CGST Act, 2017. Accordingly, taxpayers are required to submit GSTR-9 annual self-certified returns to the GST portal, thereby completely abolishing the GSTR-9C reconciliation statement which was earlier required.
However, the Govt. of India is still to clarify the effective date or fiscal year from which the removal is applicable.
Note - GSTR-9C is still subject to change for FY 2019-20.
OBJECTIVES OF GST AUDIT
- Check Over Compliance - To ensure that the Registered Taxpayers (RTP) are complying with the provisions of the GST Act & GST rules made thereunder.
- Correctness and Completeness - To make ensure & promote the correctness of -
- Declared turnover
- Taxes paid
- ITC claimed
- Refund issued
- Discovery Of Under – Declared Liabilities – To identify any suppression, omission, error or deliberate deception by the registered person in order to avoid or evade taxes.
PRINCIPLES OF GST AUDIT
- The audit must be conducted in a systematic and comprehensive manner.
- Greater emphasis is given on key areas of risk and scrutinizing of the records be done in normal business hours.
- All the audit techniques to be applied to be based on materiality.
- Proper records of all the findings and checks be kept.
- All the irregularities be identified without any bias.
- Also, educate the person for voluntarily complying with the provisions laid down in law.
REQUIREMENT OF GST AUDIT
Every registered person whose aggregate turnover exceeds the prescribed limit of RS.2 Crore during a financial year, is required to get his accounts audited by a Chartered Accountant or a Cost and Management Accountant and shall submit the copy of the audited statement along with other documents as may be prescribed under the act.
Each state shall be audited separately under Goods and Services Tax in India. For that reason, there is a separate Goods and Services Tax Audit under the same permanent account number for every single registration (PAN).
TYPES OF GST AUDIT
BASIS OF DIFFERENCE
AUDIT BASED ON TURNOVER
PERFORMED BY -
Commissioner or any officer authorized by him.
Chartered Accountant or Cost and Management Accountant appointed by the taxpayer
Chartered Accountant or Cost and Management Accountant nominated by the commissioner.
TIME OF INITIATION
At any such period
When the aggregate turnover exceeds RS. 2 Crore in an FY.
Any stage of inquiry, scrutiny, or investigation.
General or special order by the Commissioner
No such order required if done within the prescribed time period
Order of Assistant/
NOTE – As per the notifications, a registered person having an aggregate turnover of less than RS. 5Crore is exempt from filing GSTR-9C for FY 2020-2021.
AUDIT BY REGISTERED DEALER BASED ON TURNOVER U/S 35(5) OF CGST ACT, 2017
Every Goods and Services Tax Registered taxpayer's whose annual aggregate turnover exceeds Rs.2 crores in a FY, is required to get their accounts audited by a practicing CA or CMA every year. The financial year rages from April 1 of a calendar year to March 31 of the next calendar year.
Special Note: As per the government notification in a press release dated 3 July 2019, the Below aspects were clarified -
- The period from 1 July 2017 to 31 March 2018 shall apply and the first quarter of FY 2017 to 2018 shall be excluded.
- Businesses having an aggregate turnover of less than INR 5 Crore are not required/ waived from filing GSTR-9C for FY 2018-2019.
AGGREGATE TURNOVER UNDER GST
Annual Aggregate turnover = Value of all taxable intra and inter - state supply of goods or services or both + Value of exempt supplies + Value of exported goods or service or both.
The supplies shall include the total supplies of all the businesses registered under one PAN number i.e. on PAN India basis.
Supplies to exclude inward supplies under reverse charge mechanism.
ITEMS TO BE EXCLUDED -
- Goods that have been supplied to or received back from a Job Worker.
- Activities specified under schedule III of CGST Act are neither supply of goods nor service.
- All the taxes and cess levied under Goods and Service Tax like CGST, SGST or IGST, Compensation Cess.
- Inward supply of goods or services or both on which tax is paid under reverse charge mechanism (RCM).
ITEMS TO BE INCLUDED -
- Goods which have been supplied to/received from job workers on a principal-to-principal basis.
- Supplies between separate business verticals.
- Value of all export/zero-rated supplies.
- All taxable intra and interstate supplies other than those supplies on which tax is paid under reverse charge mechanism.
- All exempt supplies. E.g. Agricultural produce supplied along with branded ready-to-eat food.
- Taxes other than those mentioned under the Goods and Services Tax Act for example – entertainment tax, etc..
- Supplies made by agents/ job workers on behalf of their principal.
GST AUDIT PROCEDURE
- At least 15 days prior notice must be given for the preparation of audit proceedings and findings.
- Adjournment can be an option in case of unavoidable circumstances.
- The registered person has a right to submit his say throughout the audit proceedings in written form
- He shall be given an equitable chance to represent his case.
- The whole process of audit is completed within the prescribed time period of 3 months.
- In case any discrepancy is found out, such discrepancy is cleared along with interest before issuance of the Show Cause Notice. In such cases, no penalty may be imposed
- The auditor must disclose audit findings in Form ADT-02 within 30 days of the end of the audit.
- CHECKS TO BE PERFORMED BEFORE STARTING AUDIT PROCEEDINGS
- Whether the books of account and related records maintained by the registered person are good enough for verification of the correctness, completeness, and accuracy of the returns.
- Whether the annual return filed reflects the correct figures and also includes all the related transactions arising in that FY.
- Whether the value of outward supplies and inward supplies declared in the annual return reflects the correct amount of supplies actually made or received.
- Whether the inclusions and exclusions to/from the value of supply was as per the compliance provisions or not.
- Whether the exemptions claimed are in conformity with the provisions of the law and whether the same is of the correct amount.
- Whether the amount of ITC determined as eligible and ineligible has been determined in conformity with the said provisions of the GST act.
- Whether the classification of outward supplies along with rate and amount of tax thereon is correct.
- Whether any other information provided in the return is correct and complete.
ITEMS TO BE CONSIDERED UNDER GST AUDIT
- Preparation and making reconciliation of internal reconciliation,
- Ensure proper presentation of all relevant documents.
- Above all, review of the legal positions under Goods and Services Tax. In this respect, some instances are as follows:-
- The transactions for which Goods and Services Tax has not been released (for example, GST on transactions covered by Schedule – I of the CGST Act (i.e. supplies without reference) cannot be released
- Where the input tax credit for goods/services covered in Section 17(5) of the CGST Act is misused (for example, the input tax credit for goods/services inadvertently exploited)
- If the input tax credit is reversed, whenever necessary, and if the reversal is correct in the case of misallocation of GST advantages i.e. the reversals of ITC to the level of making the supplies exempt under Rule 42 and 43 of the CGST Rules (e.g. claiming refund of IGST paid in respect of exports which is treated as a zero-rated supply under GST).
- The authorized representative (who is aware of all facts and legal positions) of that registered individual must be identified to represent the GST Department at the time of an audit.
GST Audit is a time-consuming process requiring full knowledge of fact and legislation and thereby should be done properly and seriously.
STEP BY STEP PROCESS
- Creation of audit team and signing of the audit engagement.
- Preparation of proper schedule of activities to be performed based on the risk assessed.
- Allotting the taxpayers to the respective team along with requisite authority.
- Intimating the respective taxpayer about the audit teams.
- Reviewing the data and records along with the accounts maintained by the taxpayer.
- Conducting desk review with the audit teams and uploading their status online.
- Preparing audit plan and uploading the same online for verification.
- Carrying out the audit activity and verify the report.
- Upload the drafter audit report for MCM within 10 days of completion,
- Uploading the monitoring committees' meetings and their reports.
- Uploading the final audit report duly verified by the auditor.
- Communication to the taxpayer about the audit report.
- Communicating the further course of action required on the part of the registered person.
DURATION OF AUDIT PROCEDURE
1. The whole process be starting from audit plan to ending with certification the following time period is mentioned –
- For large taxpayers – 6-8 working days.
- For medium taxpayers – 4-6 working days.
- For small taxpayers – 2-4 working days
2. In case of an audit is covering a period of around 5 years the said duration be extended to double the duration prescribed above.
APPOINTMENT OF THE AUDITOR
The auditor must be a Chartered Accountant or a Cost and Management Accountant and he shall be appointed by the partner or, the proprietor or, the Board of Directors, in case of Partnership, Proprietorship, and Company respectively, at the starting of the respective financial year.
NOTE – Internal auditors of a company cannot be appointed as the GST auditor of that company. Also, a GST Practitioner is disallowed to undertake any Goods and Services Tax Audit.
RETURNS UNDER GST AUDIT
TYPES OF TAXABLE PERSONS
FORM TO BE FILED
Taxpayers whose aggregate turnover exceeds Rs. 2 crores in FY
B.Cases Whether or not applicable to GST Audit
Registered person paying tax under Composition Scheme
A registered person who being a Regular taxpayer is filing GSTR 1 and GSTR 3B
GST registered Person who are E-commerce operator
IMPORTANT PROVISIONS REGARDING RETURN FILING
- A registered person is required to file GSTR-9C on and before 30 June following the relevant financial year.
- GSTR-9C can be filed only after the filing of the annual return which is GSTR-9.
- GSTR-9C contains two parts namely Part A and B. Part A deals with the reconciliation of outward supply and ITC and Part B deals with certification of the audit report by the concerned auditor.
ACCOUNTS REQUIRED TO BE AUDITED
- ITC(Input tax credit) claimed & utilized
- Supplies made under the course of Intra and Inter - state transaction
- Purchase Register and Expenses ledgers
- Stock Register
- E-way bills generated as per the provisions of the GST Act.
- Any such documents maintained containing the record of communications from the GST department relating to the FY.
RETURN TO BE FILED BY REGISTERED PERSON
As discussed earlier, the registered person shall submit the report of the accounts audited by CA or CMA and FORM GSTR-9C duly certified by the same Chartered Accountants or CMA that performed the GST audit, or any other Chartered Accountants or CMA that did not perform the GST Audit on this GSTIN can also certify it.
The report shall state the following information -
- Whether the Financial Statements drawn up are in accordance with the account books maintained at the taxpayer's principal place of business or additional business or not.
- Whether all the necessary accounts and records prescribed above are kept or not.
- List out in the audit comments all the observations, or comments where applicable.
- Certify the correctness of the GSTR-9C information.
- The filing of GSTR-9C for FY 2018-19 shall be waived for companies that have an annual turnover of less than Rs 5 crore.
In case any discrepancy is found by the GST Auditor in these books of accounts or related records of the taxpayer, the GST Auditor shall add a comment in GST Audit Report. Furthermore, the Registered person can rectify such a discrepancy reported by GST Auditor in Form C-03.
RECTIFICATION OF REPORT AFTER AUDITOR’S COMMENTS
In case any taxable person after furnishing a GST return discovers any omission/incorrect details (from audit findings), he or she may correct subject to interest payment.
However, no option for rectification be available after the date of
Earlier of -
- the actual date of filing of the relevant annual return.
- the due date for filing of return for the month of September or 2nd Quarter, following the end of the relevant FY.
DUE DATES FOR SUBMISSION OF GST AUDIT REPORT:
Every taxable person is required to submit FORM GST-9 and GSTR-9C on or before 31 December following the fiscal year in which the audit is performed.
Special Note: GSTR-9 submission made optional for FY 2017-18 and FY 2018-19 to businesses with aggregate turnover up to Rs 2 crores
PENALTY IN CASE OF FAILURE
There is no particular penalty provision as to non-compliance to GST audit. However, there is a general penalty that will therefore become applicable. The amount of penalty is up to INR 25,000.
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our Expert also ensures the client in compliance with all laws & well-prepared if there is an audit conducted by our higher authority.
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