As per Section 65 of CGST Act 2017, The Commissioner or any officer authorized by him may undertake an audit of any registered person for such period, at such frequency and in such manner as may be prescribed.
Audit means the examination of records, returns and other documents maintained or furnished by the registered person under this Act to verify the correctness of turnover declared, taxes paid, refund claimed, and input tax credit availed, and to assess compliance with the provisions of this Act or the rules made thereunder.
2. What happens during the course of a GST Audit
The GST Audit process includes the following steps:
The taxpayer is formally notified of an upcoming audit through the prescribed format (FORM GST ADT-01) at least 15 working days prior to the conduct of audit.
FORM GST ADT-01 also enlists the documents and data to be submitted to the Auditor for a preliminary review. A period of 15 days is prescribed for submission of the documents.
The audit will officially commence when the auditor accepts the documents submitted by the taxpayer or initiates verification of the business premises, whichever is later.
During the audit, the authorized officer may request access to verify the books of accounts or other necessary documents. The taxpayer’s cooperation is crucial for a timely completion of audit.
On completion of the audit verification, taxpayer receives the preliminary findings, and his views/comments are recorded to finalize the observations.
On finalization of observations, the results are sent to the taxpayer in the form of Final Audit Report (Form GST ADT-02) within 30 days.
The taxpayer is given the option to make the payment of tax short paid / not paid with waiver of show cause notice. The final audit findings are informed to the taxpayer within 30 days along with his rights and obligations and the reasons for such findings.
The entire audit process is to be completed within 3 months from the date of commencement, with the provision of a further 6-month extension, if necessary, after prior approvals of higher authorities.
If the GST Audit results in detection of tax being unpaid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the concerned officer provides opportunity to pay the tax. If the taxpayer disagrees or does not pay the tax, GST Audit officer will move the case to a Jurisdictional officer to initiate the proceedings under section 73/74 of CGST Act 2017.
3. Some useful tips for taxpayers
Take advantage of the laws under section 50 of CGST Act with respect to ITC wrongly availed but not utilised to avoid paying interest.
Conduct timely reconciliation of records
Compare e-Way Bills with respect to data in GSTR-1
Compare GSTR-3B Returns filed, with GSTR-2B and GSTR-1, and ensure that all data matches
Have a clear understanding of the provisions of CGST Act and Rules, invest your time to read it.
Ensure timely filing of GSTR-9/9C return (whichever is applicable).
Participating in GST Audits offers several benefits for the taxpayer:
Avoid penalties: Audit can help taxpayers to rectify the default in compliances with respect to tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised without penalty under section 73 or with lesser penalty under section 74.
Enhanced Compliance: Taxpayer gains a better understanding of tax laws and procedures, making compliance smoother.
Precision in Returns: Taxpayer’s GST returns, and Self-assessments are prepared accurately, with a sharper focus on correctness and completeness.
Improved Accounting: Audits can help taxpayers in spotting and rectifying deficiencies in accounting and internal control systems.
• Fewer Hassles: With thorough audits, the chances of disputes and legal proceedings decrease significantly.
5. Some important FAQs on audit by tax authorities under GST
Q1. What is the indicative list of documents, other than documents mandated by GST Act, required to be furnished by the taxpayer?
The Taxpayer will be required to furnish: • Copies of Balance Sheet, Profit & Loss Accounts with all complete schedules • Annual returns submitted to the Registrar of Companies and Form 26 AS • Income Tax Returns along with the Annexures and Income Tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 • Cost audit report, if any, under Section 148 of the Companies Act, 2013 • The taxpayer will be also required to provide necessary facilities and give information /assistance for timely completion of audit.
Q2. What are the frequent issues detected during audits?
• Non-payment/ short payment of Tax • Wrong classification of Goods/Services • Collecting Tax from the customers but not paying the same to the Government • Wrong availment of ITC on ineligible items • Tax not paid on advance in case of services • Reverse Charge Mechanism liability • Non- consideration of new notifications issued by the GST Department which includes Industry specific ( Ratio of value of Goods and services in case of composite supply ) /transaction specific ( Amendment of exempted goods or services to taxable goods or service, Amendment of GST Rates ).
Q3. Where can an Audit of a taxpayer be conducted?
Audit of records can be carried out either at the jurisdictional office premises of the tax authority (desk-based audit) or the business premises of the taxpayer as decided by the jurisdictional Commissioner CGST, Audit. Desk-based audit is mandated for small category taxpayers as a trade facilitation measure.
Q4. Which documents are required by the GST officers during the Audit apart from the list mentioned in Q1?
The taxpayer is required to submit the following documents for the Audit: • Input tax credit register including input tax availed on capital goods • Details of agreements entered by the registered person for suppling / receiving services • Input tax credit details and reconciliation with GSTR3B, GSTR1/GSTR-9, and GSTR 2A with Books of Accounts. • Details about output tax payable & payment • Detailed trial balance for the audit period • Outward supply details including exempted and zero-rated supplies • Details of expenditure in foreign currency. • E-way bills details, debit notes, credit notes • Purchase and Sales invoices with respective ledgers (both soft and hard copy) • Import of services / goods details if any • Goods Produced or Manufactured • List of major input supplies with specific mention of HSN Code and applicable rate of GST • Registered person’s master file • Other documents as may be prescribed
This blog is written by A.Yuvakiran working in V Ramaratnam and company