Goods & Services tax (GST) is a comprehensive, destination based indirect tax levied on manufacture, sale and consumption of goods & services as well as on import of goods & services, except zero rated and exempt supplies.
The term GST has been defined in Article 366 (12A) to mean 'any tax on supply of goods or services or both except taxes on supply of the alcoholic liquor for human consumption'.
The registered person under GST is required to assess his own tax liability, utilize ITC & pay his GST liability within due date.& file return& require to comply with provision of GST law.GST being in the nature of a self-assessment tax, audit procedures have been introduced for error correction and ensuring proper tax compliance.
GST envisages three types of Audit.
1) Audit by taxable person [Sec 35(5)] : To be done by Chartered Accountant/Cost Accountant, where turnover exceeds certain threshold specified in Rule 80(3) i.e. Rs. 2 crores. This is also known as statutory audit under GST.
2) Audit by tax authorities [ Sec 65 ]: To be done by the commissioner or any officer authorised by him in terms of Section 65 of the CGST Act, 2017 read with Section 20(xiv) of the IGST Act, 2017 and Section 21(xv) of UTGST Act, 2017.
3) Special Audit [ Sec 66] :To be done by a CA/CMA appointed by commissioner in the interest of revenue to determine tax liabilities in complex cases.
STATUTORY PROVISION OF GST AUDIT
Section 35 of the CGST Act, deals with the maintenance of books of accounts, documents and records. Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules relates to Statutory audit under GST. Sec 65 deals with Audit by Tax authority, while Sec 66 of the CGST Act mandate special audit.
The provision relating to Audit under GST is covered in Chapter XI (Rule 101 & 102) of CGST Rules,2017.
Nature of audit
Statutory Audit by CA/CMA
If 'aggregate turnover' exceeds Rs.2 Crores in a F.Y
Audit by Tax authority
It could be for a F.Y or multiples thereof
(to ascertain correctness of the turnover, exemptions and deductions claimed, the rate of tax applied in respect of the supply of goods or services or both, the input tax credit availed and utilised, refund claimed etc.)
Special Audit by CA/CMA
(with the approval of Commissioner, in the interest of revenue)
If at any stage of scrutiny, enquiry, investigation or any other proceedings, the proper officer is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, the commissioner may order Special Audit of a registered person through CA/CMA.
1) 'Aggregate turnover' to be computed on all India basis against a single PAN.
2) 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 (C&AG) or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force shall be exempted from audit U/s 35(5).
3) The council of the ICAI in its 378th meeting stated that an Internal auditor of an entity can not undertake GST Audit of the same entity, since GST Audit is a statutory audit.
MEANING OF AUDIT
As per Sec 2(13) of the CGST Act ,2017 'Audit' means the examination of records, returns and other documents maintained or furnished by the registered person under GST Act or the rules made there under or under any other law for the time being in force to verify :-
• the correctness of turnover declared,
• taxes paid,
• refund claimed
• input tax credit availed, and
• to assess his compliance with the provisions of this Act or the rules made there under.
OBJECTIVE OF AUDIT
The objective of GST audit is to ensure whether registered person has correctly:
1) declared his turnover
2) assessed his liability & paid taxes thereon
3) claimed eligible Input Tax Credit
4) claimed the refund, if any
5) maintained accounts and records/documents
6) filed his return as per the provisions of the law
7) complied with all the provisions of the law, rules and Notifications
TYPES OF AUDIT
1) Audit by Taxable person [Sec 35(5)]
• every registered person ( whether compulsory
or voluntarily registered)
• whose aggregate turnover during a financial year exceeds two crores rupees
• get his accounts audited by a CA/CMA and
• shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified in FORM GSTR -9C ( Rule 80(3) )
Sec 35(5) read with Section 44(2) of the CGST Act provides that the registered person upon conclusion of the Audit shall furnish the following documents electronically through the common portal either directly or through a facilitation centre notified by the commissioner.:
a) Annual Return
b) Copy of Audited annual accounts
c) Reconciliation statement, reconciling the value of supplies declared in the return (GST Annual Return) furnished for the financial year with the audited annual financial statement in FORM GSTR 9C, duly certified,
d) such other particulars, as may be prescribed
While Rule 80(3) of the CGST Rules speaks of the prescribed threshold limit at Rs. 2 Crore which is attributed to the ‘aggregate turnover’, section 35(5) speaks of the turnover in the State / turnover attributable to a GSTIN. Therefore, if a registered person is liable to get his accounts audited under Section 35(5), all the registrations obtained under the same PAN will also be liable for such audit, regardless of the turnover in each State in which the other registrations have been obtained.
For example if the aggregate turnover (PAN based) is at Rs.4 crores and the registered person is carrying on business in two different States having a turnover of Rs.2.75 crores (in Delhi) and Rs. 1.25 crores respectively, the law mandates that audit is required to be carried out in both the States.
2) Audit by tax authorities ( Sec 65 )
The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.
• Period of audit can be a financial year or multiples thereof
• Notice for audit shall be issued in FORM GST ADT-01 at least 15 days prior to the date of commencement of audit.
• Following shall be verified during audit by the Proper officer and team assigned:-
a) Documents relied upon for updating books of
accounts and returns and statements furnished under the Act and rules made there
b) Correctness of the turnover
c) Exemptions and deductions claimed
d) Rate of tax applied in respect of supply of goods or services or both
e) Input tax credit availed and utilized
f) Refund claimed
g) Other relevant issues
• The registered person is obliged to provide all necessary details, documents and information required for completion of an audit.
• Officer shall record the observations in his audit notes and inform the discrepancies to the auditee.
• The auditee can submit his reply to the observations.
• Audit findings shall be informed in FORM GST ADT-02 once the audit is concluded.
• The audit under shall be completed within a period of three months from the date of commencement of the audit.
• Where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.
• On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.
• Where the audit conducted under section 65(1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.
3) Special Audit (Sec 66)
As per Sec 66(1) if , during scrutiny, inquiry, investigation or any other proceedings, in the interest of revenue, if it is observed that a registered person has not declared the value correctly/ ITC wrongly availed -
• any officer not below the rank of Assistant Commissioner,
• with the prior approval of the Commissioner,
• direct such registered person by a communication in writing to get his records audited
• by a CA/CMA as may be nominated by the Commissioner.
a) The CA/CMA so nominated shall submit Audit
report, within the period of ninety days (which may be extended for a further
period of 90 days on special ground)
b) Special audit shall be conducted in addition to audit conducted under this law or any other law
c) Expenses of audit & remuneration of CA/CMA so appointed, shall be determined and paid by the Commissioner
d) If tax not paid/ short paid/erroneously refunded/ITC wrongly availed or utilized detected action shall be initiated under section 73 or section 74.
Special audit provides a lawful and legal way for the GST officers to take the assistance of a CA/CMA to determine tax liabilities in complex cases. The professional expertise of a CA/CMA will be of great significance in ensuring that the interest of revenue is safeguarded at all times.
Note : A Special Audit can not be conducted for an unregistered taxable person, but can be ordered in respect of the non-filer.
GST AUDIT FORM
FORM GST ADT -01
Notice for Conducting Audit U/s 65(3)
FORM GST ADT -02
Audit Report under Sec 65(6)
FORM GST ADT -03
Communication to the registered person for conduct of Special Audit by CA/CMA under Sec 66
FORM GST ADT -04
Audit Report under Sec 66
KEY ASPECTS IN GST AUDIT
GST audit required signification preparation from both Auditor & Auditee. Each & every transaction appearing in the audited financial statements as well as supply made without considerations also need to be analysed to access GST implications.
Following issues need special attention during GST audit :
1) Reconciliation of turnover, ITC & Tax paid
Turnover & other particulars declared in GST annual return (FORM GSTR 9) should be reconciled with data shown in Audited Annual accounts & reconciliation statement should be furnished in FORM GSTR 9C. The total turnover need to be bifurcated among Exempted/Nil/Non GST supply, Zero rated supply & supply on which tax to be paid on Reverse charge basis. Rate wise taxable value & GST payable thereon along with GST already paid need to be disclosed in Table 9 & Reconciliation of Input Tax Credit (ITC) need to be disclosed in Table 12 of FORM GSTR 9C. Any output liability which has not been discharge through monthly return GSTR-3B or Annual Return GSTR-9 and which has been observed & recommended by the auditor may be discharge alongwith interest through DRC 03.
2) Review of Accounts/GST Return
The GST Annual Return is the summary of all monthly returns filed during the year, where as Reconciliation statement (FORM GSTR 9C) is based on audited annual accounts & GST Annual Return. So, if the GST Annual return is correctly not prepared , reconciliation statement (GSTR 9C) will give misleading figure. Therefore , prior to finalizing FORM GSTR 9C , annual return (GSTR 9) should be reconciled with all the monthly return filed during the year. Amount appearing under the head 'Advance received' need to be reviewed carefully since GST applicable on 'Advance received' against future 'supply of services' and not on 'supply of goods'.
3) Classification of Supply
A supply need to classified as either goods or service. There is no concept of part supply of goods & part supply of service. The GST rate of goods are based on HSN classification, while GST rate of services are based on SAC classification. Therefore, tax invoices of inward & outward supply need to be reviewed to ascertain whether GST has been paid at correct rate. Further, the categorization of Nil rated/exempted/ Zero rated/Non GST supply need to be reviewed.
4) Compliance of Reverse charge Mechanism (RCM)
In respect of inward supply of notified goods & services covered U/s 9(3) of CGST Act & U/s 5(3) of IGST Act, the recipient is required to discharge GST liability thereon & also required to issue tax invoice. further, RCM tax liability need to be discharge by cash & not through utilization of ITC. Therefore, inward supply which are covered under RCM, need special attention. Auditor should ensure that, the auditee has complied with RCM provision & has discharge tax liability thereon correctly & timely.
5) Review of amount booked under head 'other income'
Amount appearing under account head 'other income' need special attention. Income in the nature of bank interest, LD/Penalty recovered for non performance of contract, recoveries from employees and others in the form of house rent recoveries/electricity recoveries/miscellaneous receipt find placed under this head. Some of the income are taxable supply while others are exempted supply. So each & every entry under this account group should be scrutinised.
6) Admissibility of Input Tax Credit
Eligibility & Conditions for availing ITC are prescribed in Sec 16(1) & Sec 16(2) of the CGST Act. The auditor should check whether the entity has claimed ITC in accordance with Law or not & all the documents required for availing ITC as prescribed in Rule 36 are available or not. While checking admissibility of ITC, factors such as use of goods or services for business purpose & inward supplies which are covered under blocked credit Us/17(5), on which ITC not available should be kept in mind.
Transitional credit carried forward to GST regime from pre-GST regime using FORM GST TRAN-1, TRAN-2 & TRAN-3 in accordance with the provision laid down in Section 141-143 of the CGST Act 2017 also need to be reviewed to ascertain their correctness.
7) Review of Creditors outstanding for more than 180 days
As per the proviso to Section 16(2) of the CGST Act, the recipient of supply is required to reverse ITC availed, if payment is not made to the supplier within 180 days from the date of issue of tax invoice. Therefore, during GST Audit, the auditor should ask for list of creditors appearing in the books of accounts of the client at the close of the relevant F.Y and review the same. If, payment has not been made to the supplier within the stipulated time period against the tax invoice on which ITC has been availed, the same need to be reversed & GST liability to be discharged along with interest@18%.
8) Review of Sale/disposal of business assets
As per Para 4(a) of Schedule II of the CGST Act, Transfer of business assets will be treated as supply of Goods:
'where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person'.
Further, as per Para 1 of Schedule I of the CGST Act, Permanent transfer or disposal of business assets where input tax credit has been availed on such assets, to be treated as supply even if made without consideration.
On combined reading of Para 1 of Schedule I & Para 4(a) of Schedule II, it can be safely conclude that all cases of transfer or disposal or business assets will attract GST. But the method of arriving at taxable value for the purpose of levy of GST is different for assets on which ITC is availed & on which ITC not availed. Therefore, each such cases of Sale/disposal of business assets should be reviewed carefully & GST liability thereon should be assessed accordingly.
9) Review of transactions not forming part of annual accounts
Supplies made without consideration do not find place in Annual accounts. However, Schedule I of CGST Act, specifies certain transactions which are to be treated as supply, even if made without consideration & GST applicable thereon.
There is no requirement of actual sale of goods under GST. The alternative methods of supply of goods could be in the form of:
a) Inter State or distinct person stock
b) captive consumption in another State location;
c) supply on consignment basis or any other basis by the principal to his agent;
d) supply on job work basis (if working under returnable basis- GST need not to be paid);
e) any other supply such as donation, free sample, gift etc.
E Way bill/ Delivery challan raised during the F.Y may be reviewed to identify above transactions. Due care must be exercise by the auditor to identify such transactions & assess GST liability thereon.
DUE DATE OF FILING GST ANNUAL RETURN & AUDIT REPORT
The due date of filing of GST Annual return & GST Audit Report for the F.Y 2017-18 has been extended upto 31st August 2019, Vide removal of Difficulty Order N0. 06/2019-Central Tax Dated 28th June 2019.
The Central Government vide Notification No. 39/2018-Central Tax Dated 4th September 2018 has notified GST Annual Return FORM (GSTR 9) & Vide Notification No.74/2018-Central Tax Dated 31st December, 2018 has notified GST audit Report format in FORM GSTR-9C comprising PART A- Reconciliation Statement and PART B- Certification, which has to be certified by a GST auditor i.e CA/CMA.
CONSEQUENCE OF NON FILING OF GST ANNUAL RETURN/FAILURE TO GET ACCOUNTS AUDITED AS PER GST LAW
Sec 47(2) provides that in case of failure to submit the GST annual Return within the specified time, a late fee shall be leviable @ Rs.100/day during which such failure continues subject to a maximum of 0.25% of the turnover in the State/UT.
There is no specific penalty prescribed in the GST law for not getting the accounts audited by a CA/CMA U/s 35(5). Therefore, in terms of Sec 125 of the CGST Act, general penalty of upto Rs.25,000/- shall be leviable.
The author is a Fellow member of The Institute of Chartered Accountant of India, New Delhi & Fellow member of The Institute of Cost Accountants of India, Kolkata. He is author of Amazon Best seller book on GST titled 'Students' Guide to GST for Nov 2019 Exam' published by Mewar University Press. Available on Flipkart/Amazon & all leading book stores across the country. He can also be reached at email@example.com