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GST Audit by Department?

Goods and Services Tax (GST) works on a trust-based system. Hence under GST, the taxpayer himself measures the tax liability; pays the requisite taxes and accordingly, files the returns. In order to ensure the correctness of the self-assessment done by the taxpayer, audit under GST plays a vital role.

Section 2(13) of the Central Goods and Services Tax Act, 2017 defines the word ‘Audit’ as an examination of returns; records and any other GST documents maintained or furnished by the taxpayer to verify the correctness of any of the following-

  • Input Tax Credit availment and utilization;
  • Turnover;
  • Taxes paid;
  • Refund claimed;
  • Exemption/ deduction claimed; and
  • Satisfactory compliance with the provisions of the CGST Act and rules made thereunder.

The present article simplifies various concepts attached with the GST audit conducted by the department.

Types of departmental audit and briefing thereof

There are two types of GST audit conducted by the department. They are-

  • An audit conducted by tax authorities (Section 65 of the CGST Act read with rule 101 of the CGST Rules); and
  • Special audit (Section 66 of the CGST Act read with rule 102 of the CGST Rules).

Brief explanation of both the types of departmental audit

Both the types of audits are briefly explained hereunder-

  1. An audit conducted by the tax authorities-

  • Department can carry out a GST audit of any registered person.
  • Such an audit can be conducted either at the place of business of the registered person or at the office of the tax authority.
  • Prior to the commencement of audit, it is mandatory to inform the registered person about conduct of audit through the issuance of notice in Form GST ADT-01. Notably, the notice for the conduct of audit should be issued at least before 15 working days.
  • Following are some of the responsibilities of the taxpayer during the conduct of the audit-
    • Facilitate the authority to verify books of accounts and other documents.
    • Furnish all the necessary information.
    • Render adequate support for timely completion of the audit.
  • Such audit needs to be completed within a period of 3 months (may extend to maximum of 6 months) from the date of commencement of the audit.
  • The findings of the audit will be informed to the taxpayer in Form GST ADT-02.
  1. Special audit-

  • Prior requirement of conduct of special audit-
    • Scrutiny, investigation, inquiry or any other proceedings is already initiated before the taxpayer,
    • The officer (not below the rank of Assistant Commissioner) is of the opinion that the value is not correctly declared or the input tax credit is availed beyond the normal limits,
    • Prior approval of the Commissioner is mandatory.
  • On satisfaction of all the prior requirements, the officer will issue a direction in Form GST ADT-03 for getting books of accounts audited by the nominated Chartered Accountant or Cost Accountant.
  • The nominated Chartered/ Cost Accountant is required to complete the audit within a period of 90 days (extendable to a further 90 days).
  • On completion of the audit, the Chartered/ Cost Accountant is required to submit a report in Form GST ADT-04.

Probable selection criteria for departmental audit

Any taxpayer can be selected for the departmental audit under GST. However, some of the probable criteria for selection of the taxpayer for audit are highlighted hereunder-

  • GST audit never conducted previously.
  • Size of income from high-risk business/ activities.
  • Quantum of taxpayer’s net profit/ turnover.
  • Huge variation in net profit or turnover as compared to previous years.
  • Higher amount of refund claimed.
  • Taxpayer has multiple branches or is engaged in multiple activities.
  • Taxpayer has received notice from other governmental entities.
  • Inconsistency in return filing requirements.
  • Precise details received from any other governmental entities.

Probable list of documents or records verified during a departmental audit

During the conduct of the GST audit, the departmental officer can call for and verify various information/ records. Aprobable list of some of the documents/ records/ information possibly be verified by the officers are summarized hereunder-

  • Books of accounts including balance sheet, profit & loss account etc.,
  • Various returns filed under GST,
  • Tax invoices, debit or credit notes, receipt voucher and payment voucher, bill of supply, delivery challans etc. issued under GST,
  • Invoice copies based on which input tax credit is availed,
  • Job-work register, stock register, production and process register, fixed assets register etc.
  • Sample copies of e-way bills,
  • Sample purchase orders or work orders or any other orders/ agreements,
  • Income tax return,
  • Form 26AS,
  • Income tax audit report or cost audit report,
  • Reconciliation of amounts declared under GST with amount declared under other laws.

Outcome of the departmental audit

Based on the observations/ findings communicated by the officer, the taxpayer is allowed to submit an appropriate reply and put up their point. On the basis of the counter reply, if any submitted by the taxpayer or on the basis of the observations, the following two outcomes are possible-

Situation

Outcome of the departmental audit

  • When there is no observation/ finding at the end of the audit; or
  • When the observation is appropriately replied to by the taxpayer and the officer is satisfied with the same.

The observation/ finding will be dropped by the officer and the matter will be concluded.

  • When the observation is not at all replied to by the taxpayer; or
  • The reply filed by the taxpayer is not satisfying the officer.

In case the observation/ finding refers non-payment or short payment of taxes, wrong availment/ utilization of the input tax credit, erroneous refund claim or any other non-compliance, show cause notice will be issued under section 73 or section 74, as the case may be.

Brief summary of stage of departmental audit

Stages

Particulars

Normal departmental audit

Special audit

STAGE 1

Intimation of conduct of audit to the taxpayer

Issuance of notice in Form GST ADT-01, minimum 15 days prior to commencement of the audit.

Issuance of direction in Form GST ADT-03.

STAGE 2

Verification of records/ books of accounts

The departmental officer will verify the records/ books of accounts either at the place of business of the taxpayer or at their own officer.

Here, an audit is to be completed within a period of three months.

Books of accounts/ records will be verified by the nominated Chartered Accountant/ Cost Accountant.

Here, an audit is to be completed within a period of 90 days.

STAGE 3

Communication of audit findings

Audit observation/ findings are to be communicated to the taxpayer within 30 days in Form GST ADT-02.

The audit report in Form GST ADT-04 will be submitted to the Assistant Commissioner.

 


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Author:

CA Poonam Gandhi


Jun 19, 2021

Comments


In terms of sub-rule (2) of Rule 102 under Chapter XI of the Central Goods and Services Rules, 2017, 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 article has misconstrued idea that on completion of the audit, the Chartered/ Cost Accountant is required to submit a report in Form GST ADT-04 and that the audit report in Form GST ADT-04 will be submitted to the Assistant Commissioner. The fact is that the appointed Chartered/Cost Accountant can never be a proper officer to have an access to the back end of the common portal under Section 146 under Chapter XXI of the Central Goods and Services Tax Act, 2017 to issue ADT-04. The appointed Chartered/Cost Accountant should submit his/her audit observation to the Departmental Officer. The Departmental Officer in turn will inform the registered person the findings upon special audit uploading pdf file containing audit observation.
By: Arindam Sarkar | Dt: Jun 22, 2021
Some videos on GST are very late to update professionals mainly on GST Audit & Export procedures under GST Laws as span of 4 Years Journey completed.
By: Vinayak Dattatraya Bakre | Dt: Jun 30, 2021


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