GST Audit - An Overview

GST Audit

Audit under GST is the process of examination of records, returns and other documents maintained by a taxable person. The purpose is to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the provisions of GST.

A) Audit by Registered Dealer - Rule 80 and Section 35(5) of CGST Act, 2017

Every registered dealer whose turnover during a financial year exceeds the Rs 2 crores has to get his accounts audited by a CA or a CMA.  He shall electronically file:

1. an annual return using the Form GSTR 9 by 31st December of the next Financial Year, (Due date for filing GSTR-9, GSTR-9A and GSTR-9C is extended till 31st March 2019 by CBIC for FY 2017-18)
2. the audited copy of the annual accounts,
3. a certified reconciliation statement in the form GSTR-9C, reconciling the value of supplies declared in the return with the audited annual financial statement,
4. And other particulars as prescribed.

 ICAI clarifies through an announcement dated 28th September 2018 that an Internal Auditor cannot undertake GST Audit simultaneously

Rectifications after Return Based on Results of Audit under GST

If any taxable person, after furnishing a return discovers any omission/incorrect details (from results of audit), he can rectify subject to payment of interest. However, no rectification will be allowed after the due date for filing of return for the month of September or second quarter, (as the case may be), following the end of the financial year, or the actual date of filing of the relevant annual return, whichever is earlier.

This rectification will not be allowed where results are from scrutiny/audit by the tax authorities.

B) Audit by Tax Authorities - Section 65 of the CGST Act, 2017

• The Commissioner of CGST/SGST (or any officer authorized by him) may conduct an audit of a taxpayer. The frequency and manner of an audit will be prescribed later.
• The Audit can be carried out either in the premises of the registered person or may also be done at the office of the proper officer, by calling for information or documents. A 15 days clear notice in GST ADT - 01 would be required to be provided to the person before the initiation of such an audit.
• The audit will be completed within 3 months from the date of commencement of the audit. The date of commencement of audit shall be the date on which all the documents and information called for are provided or audit initiated at the business premises, whichever is later.
• The Commissioner can extend the audit period for a further six months with reasons recorded in writing.

 

Obligations of the Auditee

The taxable person will be required to:

1. Provide the necessary facility to verify the books of account/other documents as required
2. To give information and assistance for timely completion of the audit.

 

Findings of Audit

On conclusion of an audit, the officer will inform the taxable person within 30 days of conclusion of audit, about:

• the findings,
• their reasons, and
• the taxable person’s rights and obligations

In Form GST ADT - 02

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 - Section 66 of the CGST Act, 2017

When can a special audit be initiated?

The Assistant Commissioner may initiate the special audit, considering the nature and complexity of the case and interest of revenue. 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.

 Who will order and conduct a special audit?

The Assistant Commissioner (with the prior approval of the Commissioner) can order for special audit in Form GST ADT - 03. The special audit will be carried out by a chartered accountant or a cost accountant nominated by the Commissioner.

 Time limit for special audit

The auditor, so nominated will have to submit the report within 90 days in Form GST ADT - 04, duly signed by him and certified by him to the assistant commissioner. This period may be further extended by the tax officer for 90 days on an application made by the taxable person or the auditor.

Cost 

The expenses for examination and audit including the auditor’s remuneration will be determined and paid by the Commissioner.

Findings of special audit

On conclusion of the special audit, the registered person shall be informed of the findings of the special audit in Form GST ADT - 04.

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.

Some of the key aspects to be considered by companies are as follows:

·         Reconciliations: Ensure reconciliations of output tax/input tax between the books of accounts, returns and e-waybills issued (output side)/tax discharged by the vendors (input side).

·         Tax positions: Review the tax positions adopted by the company and also whether these are correctly reflected in documentation.

·         Credits: Review if any ineligible credits have been availed (including review of credits availed) and in the process also ensure completeness of credits.

·         Applicability of other provisions like free of cost services/goods, valuation, and cross-charges between related persons/distinct persons.

GSTR 9C: Reconciliation Statement & Certification

GSTR-9C is a statement of reconciliation between:

• the Annual returns in GSTR-9 filed for an FY, first being 2017-18 and
• The figures as per Audited Annual Financial statements of the taxpayer.

It is certified by the CA. It can be considered to be similar to that of a tax audit report furnished under the Income tax act. It will consist of gross and taxable turnover as per the Books reconciled with the respective figures as per the consolidation of all the GST returns for an FY. Hence, any differences arising from this reconciliation exercise will be reported here along with the reasons for the same.

The certified statement shall be issued for every GSTIN. Hence, for a PAN there can be several reports of GSTR-9C.

Preparation & submission of GSTR-9C

GSTR-9C must be prepared and certified by the Chartered Accountant or Cost Accountant. It must be filed on the GST portal or through facilitation Centre by the taxpayer along with other documents such as the copy of the Audited Accounts and Annual returns in GSTR-9.

This statement is applicable to all those taxpayers who must get their Annual Accounts audited under the GST laws. Audit applies to those registered persons whose Annual aggregate turnover exceeds Rs 2 crores in that FY, here being FY 2017-18.

Due date for GSTR-9C

The due date for submitting the Annual returns in GSTR-9 is the same deadline for submission of GSTR-9C. Hence, the GSTR-9C must be filed on or before 31st December of the year subsequent to the relevant FY under audit

Importance of GSTR-9C

A Chartered accountant or cost accountant must prepare this GST Reconciliation statement. Any differences between the details reported in all the GST returns and the Audited Accounts must be reported by the CA therein with the reasons for the differences. Also, this statement acts as a base for the GST authorities to verify the correctness of the GST returns filed by the taxpayers. This is because the CA has to certify any additional liability arising out of the reconciliation exercise and GST audit in GSTR-9C.

 

Contents of the GSTR-9C

The GSTR-9C consists of two main parts:

Part-A: Reconciliation Statement
Part-B: Certification

Part-A: Reconciliation Statement

The figures in the audited financial statements are at PAN level. Hence, the turnover, Tax paid and ITC earned on a particular GSTIN (or State/UT) must be pulled out from the audited accounts of the organization as a whole.

The Reconciliation Statement is divided into five parts as follows:

Part-I: Basic details: Consists of FY, GSTIN, Legal Name and Trade Name. The taxpayer must also mention if he is subject to audit under any other law

Part-II: Reconciliation of turnover declared in the Audited Annual Financial Statement with turnover declared in Annual Return (GSTR-9)-
This involves reporting the gross and taxable turnover declared in the Annual return with the Audited Financial Statements. One must note that mostly the Audited Financial statement is at a PAN level. This might require the breakup of the audited financial statement at GSTIN level for reporting in GSTR-9C.

Part-III: Reconciliation of tax paid-
This section requires GST rate-wise reporting of the tax liability that arose in FY 2017-18 as per the accounts and paid as reported in the GSTR-9 respectively with the differences thereof. Further, it requires the taxpayers to state the additional liability due to unreconciled differences noticed upon reconciliation.

Part-IV: Reconciliation of Input Tax Credit (ITC)-
This part consists the reconciliation of input tax credit availed and utilized by taxpayers as reported in GSTR-9 and as reported in the Audited Financial Statement. Further, it needs a reporting of Expenses booked as per the Audited Accounts, with a breakup of eligible and ineligible ITC and reconciliation of the eligible ITC with that amount claimed as per GSTR-9. This declaration will be after considering the reversals of ITC claimed, if any.

Part-V: Auditor’s recommendation on additional Liability due to non-reconciliation-
Here, the Auditor must report any tax liability identified through the reconciliation exercise and GST audit, pending for payment by the taxpayer. This can be non-reconciliation of turnover or ITC on account of:

• Amount paid for supplies not included in the Annual Returns(GSTR-9)
• Erroneous Refund to be paid back
• Other Outstanding demands to be settled

Lastly, the instruction to the format of GSTR-9C specifies that an option will be given to taxpayers to settle taxes as recommended by the auditor at the end of the reconciliation statement.

Part-B: Certification

The GSTR-9C can be certified by the same CA who conducted the GST audit or it can be also certified by any other CA who did not conduct the GST Audit for that particular GSTIN.

The difference between both is that in case the CA certifying the GSTR-9C did not conduct the GST audit, he must have based an opinion on the Books of Accounts audited by another CA in the reconciliation statement. The format for certification report will vary depending on who the certifier is.

GSTR – 9A

A person paying tax under section 10 of CGST Act (composition scheme) shall furnish the annual return in form GSTR-9A – proviso to rule 80(1) of CGST and SGST Rules, 2017.

GSTR – 9B

Every e-commerce operator required to collect tax at source under section 52 of CGST Act shall furnish annual statement in form GSTR-9B – Rule 80(2) of CGST and SGST Rules, 2017.