With GST getting implemented from July 2017, it brought a paradigm shift in the way business and operations are conducted across India. Although it’s been 4 years since the new law came into force, business in India are still struggling to cope up with the changes which the government is making on a recurring basis.
One such significant change which the new law brought was audit and more specifically departmental audit under GST law. As significant period i.e., 4 years of the new law has passed, GST department has started issuing audit notices to assessee for verification and scrutiny of records. In this situation it becomes imperative for the business to understand the meaning of audit and potential challenges/ issues which they might face during the departmental proceedings.
Section 2(13), CGST Act, defines audit as the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder.
Under GST the authorities Suo moto can initiate audit of registered person and the assessee is duty bound to provide all the documents/ information and timely assistance as demanded by the department for the timely completion of GST audit. There are two types of audits envisaged in GST law.
- GST Audit by tax authorities u/s 65
- The Commissioner or any officer authorized by him, by general or a specific order may undertake audit of any registered person either at the place of business or in their office.
- Audit proceedings shall be initiated by way of issuance of notice in Form GST ADT-01, which is to be issued atleast 15 days before the start of audit.
- Audit shall be completed within a period of 3 months from the date of commencement of Audit & the same could be extended for 6 months by the proper officer upon recording of reasons in writing.
- Commencement of audit means the date on which all the documents required are furnished to the audit team or actual institution of audit at place of business, whichever is later.
- The registered person audited shall be informed about the findings & observations by the proper officer within a period of 30 days of completion of audit & if audit results in tax not paid or shortly paid, wrongly claimed input tax credits or erroneously refunded, the proper officer may initiate action under Section 73 or Section 74.
- Special GST Audit direction from department u/s 66:
- Due to the nature and complexity of the case and the interest of revenue, officer not below the rank of Assistant Commissioner may direct registered person for Audit & examination of books of accounts by a chartered accountant or a cost accountant as nominated by the Commissioner.
- Such nominated auditor shall submit his report to the commissioner within 90 days. Further 90 days period can be extended on application made by the auditor.
- If Audit results in tax not paid or shortly paid, wrongly claimed input tax credits or erroneously refunded, the proper officer may initiate action under Section 73 or Section 74.
As per Section 73(10), CGST Act the show cause notice shall be issued atleast 3 months before the period of 3 years from the due date for furnishing of annual return (GSTR-9) for the relevant financial year. However, in case of fraud, wilful- misstatement or suppression of facts time limit to issue notice extends to 5 years as per Section 74(10) of CGST Act.
Information required for Audit:
| From Financials | From GST | Other Information |
| ü Signed copy of Profit and Loss account and Balance Sheet.
ü Copy of Trial Balance for the requisite period. ü Annual returns and forms submitted with Registrar of Companies for the audit period. ü Copy of Directors report ü Copy of internal audit report. ü Transactional ledgers ü Details of Managerial cadre |
ü Copy of GSTR-3B, GSTR-1, GSTR-9
ü Copy of registration Certificate ü Electronic Cash ledger and Electronic credit ledger ü Copy of GSTR-9C ü Copy of GSTR-2A ü Annexure of month wise input tax credit availed and utilised for FY ü Annexure of GST Payable and GST paid in cash and/or through ITC for FY ü Annexure of month wise, HSN wise and rate wise outward supplies made during FY ü Sample copies of Sales/Purchase Invoices ü Details of refund claimed and sanctioned during the requisite period.
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ü Income Tax Return along with Form 3CEB and 3CD for FY
ü Copies of the Tax Audit Report for FY ü FORM 26AS ü Sample copies of sales/purchase orders/Agreements ü Fixed Assets Register ü Duly filled GSTAM-01 (Acc. to Performa) ü Questionnaire (Acc. to Performa) |
Issues in departmental audit:
- Reconciliation: It is a major issue for taxpayers with multiple state registrations to reconcile the audited financial statements with the Annual GST returns.
- Decentralized Audit under GST: Management of information as GST audit under different states can be initiated at the same time unlike earlier regime where audit was centralised.
- Request for numerous documents: No uniform list of documents prescribed by the government for audit purpose.
- Inconsistency: Inconsistent tax positions adopted by different jurisdictional authorities leading to unwanted notices and litigations.
- Data Management: In case of onsite audit, there is difficulty in providing and managing documents as generally information maintained at central level.
Role of Professionals in Departmental GST Audit:
- A regular professional advice & review ensures compliance of the statutory provisions of the Act.
- Helping management in streamlining & strengthening business process of the entity by complying with the latest provisions of the statute.
- Prior to onsite visit of the tax officers, professionals can provide assistance in reviewing the documents/information for submission with the authorities.
- Time to time discussions & timely submission of requisite documents/ information/ replies with the authorities.
- During onsite visit they represent client before the relevant officers by settling disputes, reducing uncertainty.
- Assistance in presenting the case before the department or the special auditors.
Given the complexity involved in departmental GST proceedings, it becomes important for an assessee to start preparing for audit proceedings by undertaking activities such as re assessing the tax positions, reconciliations of ITC, periodic review etc to ensure that there are no last-minute surprises from the GST department.
GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.