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November 30, 2020

Know all about Audit under GST

by CA Shivam Jaiswal in GST

Know all about Audit under GST

The GST regime though was initiated to collate indirect taxes and simplify their applicability, the GST law has its fair share of complexities. Issues like Non-payment / Short Payment of Output liability, Excess claim of Input Tax Credit (ITC) / Non-reversal of Input Claim, failure (willingly/unwillingly) to correctly read, understand, check the applicability, and applying the provisions such as Place of Supply, Time of Supply, taxability of goods & services, payment of respective taxes (IGST, CGST, SGST), matching of Electronic Cash & Credit ledger with the books, etc. can have huge financial impacts on the taxpayers. Many of such errors can result in payment of Interest & Penalties under the GST Act and can burn deep pockets for the business houses.

Audits, however can largely reduce or remove such errors and thus save the taxpayers from Interest and penalty burdens. Audit under GST means inspection of returns, records and other documents furnished by the taxpayer. GST Audit is carried out to check whether the turnover, taxes paid, ITC refund claimed and ITC availed mentioned in his annual report are true and fair or not. Moreover, a GST audit also helps in evaluating whether the taxpayer is compliant with the GST provisions.

The Types of Audit under GST are as follows:

  • Turnover based audit – It is carried out when the aggregate turnover of the taxpayer exceeds the prescribed limit by a CA (Chartered Accountant) or CWA (Cost and Work Accountant) appointed by the taxpayer
  • General Audit – It is carried out after the order is passed by the commissioner by a CGST or SGST commissioner or any other person authorized by them. However, it is important to give 15 days prior notice.
  • Special Audit – It is carried out after the order is passed by the deputy or assistant commissioner after the prior approval of GST commissioner by a CA or CWA appointed by the commissioner

Let us learn more about audit under GST in this Article.

Turnover Based Audit

Section 35(5) of CGST Act, 2017 states that “Every registered 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 a copy of the audited annual accounts, the reconciliation statement under section 44(2) and such other documents in such form and manner as may be prescribed.

Any registered taxable person whose annual aggregate turnover exceeds Rs. 2 Crore during a financial year needs to get their accounts audited. The eligible taxpayer can get their records and account audited either by a CA or a CWA.

However, all registered taxpayers must file annual returns at the end of each financial year irrespective of the annual turnover.

It shall be noted that the audit under GST is carried out state-wise. This is the reason why a separate GST audit is done for each unique registration under the same Permanent Account Number (PAN).

For whom is the above limit not applicable?

The above limit shall not apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.

How is aggregate turnover under GST computed?

Aggregate Turnover under GST = Value of all taxable supplies whether inter-state or intra-state + exempt supplies + supplies made outside India (export supply) + Supplies between separate business verticals + Supplies of agents/ job worker on behalf of the principal + All taxes other than those covered under GST 

However, such taxable supplies do not include the value of inward supplies on which GST is paid under reverse charge basis. The aggregate turnover in whole also does not include Central tax, State tax, Union territory tax, Integrated tax and cess also.

The calculation of turnover is required to be PAN based which means all the taxpayers registered under the GST Act, having turnover more than Rs 5 Crores are required to get the GST audited for all financial years.

What form is required to be submitted for audit under GST?

Every registered person whose aggregate turnover exceeds Rs 5 crore shall get his accounts audited as specified under section 35(5) and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C for the said financial year, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

General Audit by Tax Authorities

  • The Commissioner of CGST/SGST (or any officer authorized by him) may conduct an audit of a taxpayer.
  • A notice will be sent to the auditee at least 15 days before.
  • The audit will be completed within 3 months from the date of commencement of the audit.
  • The Commissioner can extend the audit period for a further six months with reasons recorded in writing.
  • The taxable person will be required to:
  • provide the necessary facility to verify the books of account/other documents as required
  • to give information and assistance for timely completion of the audit.
  • On conclusion of an audit, the officer will inform the taxable person within 30 days of:
  • the findings,
  • their reasons, and
  • the taxable person’s rights and obligations
  • If the audit results in detection of unpaid/short paid tax or wrong refund or wrong input tax credit availed, then demand and recovery actions will be initiated.

Special Audit

  • The Assistant Commissioner may initiate the special audit, considering the nature and complexity of the case and interest of revenue.
  • The Assistant Commissioner (with the prior approval of the Commissioner) can order for special audit (in writing). The special audit will be carried out by a chartered accountant or a cost accountant nominated by the Commissioner.
  • If he is of the opinion during any stage of scrutiny/ inquiry/investigation that the value has not been correctly declared or the wrong credit has been availed then special audit can be initiated.
  • A special audit can be conducted even if the taxpayer’s books have already been audited before.
  • The auditor will have to submit the report within 90 days. This may be further extended by the tax officer for 90 days on an application made by the taxable person or the auditor.
  • The expenses for examination and audit including the auditor’s remuneration will be determined and paid by the Commissioner.
  • The taxable person will be given an opportunity of being heard in findings of the special audit.
  • If the audit results in detection of unpaid/short paid tax or wrong refund or input tax credit wrongly availed then demand and recovery actions will be initiated.

Who can be appointed as a GST Auditor?

  • Only a Chartered Accountant or a Cost Accountant can perform a GST Audit u/s 35.
  • An internal auditor cannot parallelly be appointed as a GST Auditor.
  • The GST Act does not allow a GST practitioner to perform the audit. The power to audit is granted only to a Chartered Accountant or Cost Accountant who is in practice or is an employee of a firm of Chartered Accountants or Cost Accountants.
  • Therefore, a Chartered Accountant must not be registered as a GST practitioner for the purpose of issuing the Audit Report.

What is generally reviewed by a GST Auditor?

The following important accounts or records are reviewed by a GST Auditor:

  • Sales Register
  • Stock Register
  • Purchase Register and Expenses ledgers
  • Input tax credit availed and utilized
  • Output tax payable and paid
  • E-way bills generated during the period under Audit, if in compliance with rules.
  • Any documents that record communications from the GST department relating to the year.

It is crucial to get one’s GST Audit done, if it is mandatory by law. Multinational companies have started getting notices from State GST Authorities, even as the Centre is talking about lowering compliance burden. These notices are for initiating department driven audits wherein team of officers would undertake comprehensive verification of details and records being maintained by a tax payer. These notices are relayed with conducting audit for FY 2017-18. In case of failure to comply with these notices, it would be presumed that you are not in possession of such book of accounts and proceedings as deemed fit may be initiated as per provisions of the Act and rules made there under against you without making any further correspondence in this regard.

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