It appears that this Circular / Press note especially the part on the coverage in audit may have been at the behest of the members who are going to certify. The reasons for the need for dilution could be that the law has not been understood in detail. Professionals especially CAs have been exposed to 1000s of workshops from 2016 itself. This may have provided some basic awareness.
This may not have made them ready for conduct of audit with in depth knowledge of GST. Added to this, the 100s of certificate course in GST would have empowered the professionals to practice confidently. However the numbers of GST ready may not be enough to conduct the audit in the first 2 years. This unsigned circular provides some clarification which has been hosted on the CBIC site and therefore should not be used against the tax payer in all fairness.
Legally it is only the understanding of the revenue. It covers the Annual Returns and Reconciliation Statement. The issues concerning the professional with regard to the Certification in 9C needs to be understood clearly. The paper writer is of the view that the responsibility cast on the certifier as per the law is far beyond the apparent relaxation in that part of the circular. The relaxation needs to be relied on ONLY after due consideration. It would not be applicable for future years for sure. The country as whole is moving towards more accountability, responsibility fixation and transparency.
The area of GST audit cannot be contrary to this irreversible trend. The annual returns (which are filled/ supported by the professionals at this point of time in 98% of the cases). The need for that to be complete in all respects and proper tax paid is the statement to the contrary. Further it states that the GSTR 1 should be equal to the GSTR3B which should be equal to the books of account as per the circular. This is an ideal situation and too much to hope for in the first 2 years is the ground reality. Since books of account also include all the registers/ statements required to arrive at the turnover, tax, ITC under GST it would include the following: - value of deemed supplies (sch- I) - stock transfers, cross charge between differently registered branches; transaction for no consideration between related parties etc.; - reimbursements treated as liable to GST, value of supplies different from invoice value - job work, 180 days payment, goods sent on approval, and many other reconciliation to ensure proper tax paid. - Many more The moot question is would all the tax payers who would be subjected to Certification under 9C have the above details. The answer is a resounding NO for at least 95% of the cases. Only 5% would have these details.
Therefore the annual return which is supported by the professional may not be fully accurate. In this background only 5% of the professionals who cater to the more tax compliant and bigger concerns can take the befit of the circular otherwise they may not be risk free. GST Audit By Revenue It is also interesting when one peruses the GST Audit Manual of CBIC - July 2019 which contains the following checks:
i. Assess the credibility of the assessed tax,
ii. Identify under declared/ manipulated tax,
iii. Omissions , errors and deliberate actions
iv. Focus on risk areas
v. All material aspects to be identified. If we look deeper into the checklist which is quite comprehensive it supports a qualitative audit by revenue as under:
- Check whether nil, exempted, non GST supplies
- Check whether proper rate applied,
- Whether the ITC on blocked credit u/s 17 (5) have been verified,
- Whether the reversal of ITC under rule 42 is correct,
- Stock verification,
- Reconciliation between IT/ tax audit/ Internal audit,
- Ledger scrutiny, Jab work, marketing / stores verification
- Ratio/ trend analysis/ use of suggested Internal control questionnaire,
- Many more....
The Objective of the GST Audit - Various stakeholders
I. To make the tax payer aware of the GST laws
II. To identify the revenue leakage in normal course without going into an investigation
III. CAs conducting the other audits to do the GST audit as far as a normal tax payer is concerned.
IV. Those who are advising/ support client in GST should take the responsibility. [The majority of knowledgeable consultants in GST are CAs]
V. Ensure that client is compliant and protected from future disputes
VI. The tax authorities who have given us this responsibility would get respect for us as we continue to be independent. The certifier's credibility grows over time.
VII. Credibility with the industry grows and more and more tax compliant clients seek the service of the diligent certifier. It may even be done to add credibility to the client once the particular professional has made a name. As in case of Statutory Companies audit.
VIII. Possible adding value in the course of our work other than protecting them from future liability.
IX. Today for a normal firm basket of services has to include GST includes certification also.
X. It is definitely a recurring source of professional income which cannot be ignored. XI. It will build longer term continuing clients even in the longer term.
XII. It is our choice of doing the work following the professional standards
XIII. In case of the audit done by revenue later, there should not anything which is raised which was not observed / qualified or flagged by the CA.
XIV. The client reaches the accreditation criterion and with his track record is subjected to less scrutiny, less frequent audit.
Press Release/ Circular - 3rd July 19
The Press release/ Circular on site of CBIC talks of all the aspects below:
- Taxes Not paid
- Taxes Short paid
- Erroneous refund
- Wrongly availed ITC
- Wrongly utilised ( reversed)
- Some information not provided in GSTR 1 or 3B
The annual return part of the circular which paper writers assumes has to be read in entirety and not only the relaxation para, does not seem to let anybody dilute this annual return/ certification exercise.
The subsequent para ( on beyond books of accounts) cannot be read de hors the starting paras. In the understanding of the paper writer, diligent CAs would not put too much importance on the circular. Those who have a good knowledge of GST ( earlier practicing VAT, ST/ CE) who have taken up in the past 2 years may not have the possibility of feigning ignorance of the law in the case of disciplinary proceedings.
Therefore such CAs may need to take a long term view in line of being trusted [ clients as well as revenue] and cannot take short cuts. SA 600 would apply to us for sure for those who are doing only the certification and have not done the audit of the financials. Again the paper writer is of the view that unless the audit under section 35(5) has been done by the statutory auditors then the mere exercise of reconciliation of the audited financials to the annual return can be done. It the earlier auditor has not done the 35(5) audits then the CA who is certifying would need to conduct a comprehensive audit. Some of the Issues which may not complied to be guarded against by many taxpayers could be as under:
a. Deemed supplies identified but tax did not discharge
b. Classification / exemption resulting in exposure
c. RCM not done
d. ITC ineligible or short reversal - not material ( Management report) Material (should be qualified) In case CA thinks there is a possibility of dispute going in favour of client then ask him to pay under protest. If tax payer does not having the resources/ wanting to take a chance- qualify. Not willing to get qualification - withdraw after taking the fees for the time spent (maybe 20% less)
e. Interpretational issues - based on expert opinion - management can give in the MRL - observation to included.
Some of the areas where there could be disclosure / qualifications are as under:
1. Disclose that auditor has used 'materiality' and 'sampling' in their audit approach as permitted by ICAI and provide 'reasonable assurance only'.
2. Disclose that 'estimates' are used throughout this exercise and hence, may contain errors. Overlapping transactions are taxed either as per earlier laws or as per GST, depending on understanding of transitional provisions.
3. Explain that auditor is not responsible for identifying errors in these - classification, valuation, time and place of supply interpretation followed during the year - and expert views are relied upon. However, there may be errors and 100% check is not possible.
4. Explain that taxable transactions where accounted clearly are only verified. Invisible transactions, that too for non-monetary consideration, are not reported if they are not identified.
5. Explain that details not available in respect of tax paid but not available or availed as credit [ref. Table 14 of 9c].
6. Explain that tax arrears are paid out of unearned credits but keeping all adjustments (credits and utilization) within the year 2017-18.
7. Explain that refund is not claimed for any excess tax paid but adjusted with unpaid tax due for the year. Refund process is applies only where excess tax is actually collected.
8. Explain that reversal of common credit is not carried out by auditor but by registered person. And auditor has reviewed those working papers and corrected errors, if any, noted.
9. Explain that credit is claimed based on invoice even though amount is not appearing in gstr 2a.
10. Explain that interest is paid on 'net tax' and not on 'gross tax'.
11. Explain that where full tax is paid by supplier but payment is not made fully due to financial credit notes, credit is not reversed person under rule 37.
12. Explains that registered person has taken a view that there is no 'supply' when any facilities or tools are provided. And the same are provided for self-supply.
13. Explain that URD-RCM is not paid from 1 Jul 2017 to 13 Oct 2017 and the amendment is treated to be retrospective.
14. Explain that all inward supplies are not making outward supply. And that there are no 'personal consumption' [17(5)(g)] or 'gifts' [17(5)(h)].
15. Explain that capital goods being fully depreciated within 60 months does not mean they are written off [17(5)(h) r/w 18(6)]
16. Explain that credit reversed before filing refund is recredited to the extent refund is not sanctioned even though proper officer is yet to restore rejected refund amount.
17. Explain that though export of services requires repatriation of forex, no GST treatment is given where forex is not received as on 31 mar 2018 and 30 jun 2019.
18. Explain that quantitative information is not maintained [ref. Table 17 & 18 may contain errors].
There could be many more observations/ qualifications relating to Electronic way-bill related Tax paid incorrectly as IGST instead of CGST + SGST and vice versa etc. The 60,000 or so CAs are looking upto the indirect tax committee of the ICAI to give their views on this very important aspect which is impacting more than 10 Lakhs entities at this juncture.