Departmental GST Audit

1. INTRODUCTION

In the GST regime the assessee is required to self-assess his returns and determine tax liability. Therefore, a tax regime that relies on self-assessment has to put in place a robust audit mechanism to measure and ensure compliance of the provisions of law by the taxable person. GST Audit by the Department is one such proactive measure to ensure proper compliance from assessees. This ‘self-assessment and then audit’ mechanism is based on the principle of ‘trust but verify’.

2. MEANING OF AUDIT

“Audit” has been defined in section 2(13) of the CGST Act, 2017 and it means the examination of records, returns and other documents maintained or furnished by the registered person under the GST Acts 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 the GST Acts or the rules made thereunder.

Accordingly, ‘Audit’ implies –

(a) Detailed examination of

· records

· returns

· other documents

maintained / furnished by a registered person, under GST law/any other law or rules;

(b) For verification of correctness of –

· turnover declared

· taxes paid

· refund claimed

· input tax credit availed

· assessment of compliances with provisions of GST law and rules.

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Thus, GST audit is not only for reconciliation of tax liability and payment thereof but, it also encompasses the verification of compliance of the provisions of the GST Acts, laws, etc. by a registered person.

Section 65 and Section 66 of the CGST Act, 2017 are the empowering section for Departmental Audits. Section 65 deals with the pure form of Departmental Audit whereas Section 66 talks about the Special Departmental Audit.

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3. DEPARTMENTAL AUDIT UNDER SECTION 65

3.1. Authorised Person

Section 65 of the CGST Act, 2017 empowers the Commissioner or any officer authorised by him, to carry-out audit of any registered person by issuing general order or a special order. A General Order is one which specifies the criteria for audit (like turnover, total tax paid, the element of risk,) and all the registered persons fulfilling such criteria will be covered within the scope of audit. Whereas, a Special Order is one which is issued in the name of a registered person who is required to get his books of account audited. The audit under section 65 can be for a period of a complete financial year, or a part thereof, or multiples thereof. The words ‘or a part thereof’ was inserted by amendment of rules on 31st December 2018 vide Notification No. 74/2018-Cental Tax to enable the audit of part of a financial year.

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3.2. Notice

The proper officer authorised to conduct audit will issue a notice in FORM GST ADT-01 informing the registered person about the conduct of the audit. The notice must be served not less than 15 working days prior to the conduct of the audit.

3.3. Commencement of Audit

Commencement of Audit means the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

However, the aforementioned provision is an open-ended provision which can be easily misused by the authorities, as everytime when the 3 months are about to end the officer may demand new documents.

3.4. Manner of Conducting Audit

The Audit may conduct at the place of business of the registered person or in the office of authorised officer, this option to select the place of audit lies with the proper officer. The proper officer authorised to conduct audit will, with the assistance of the team of officers and officials accompanying him, verify:

· the documents on the basis of which the books of account are maintained,

· the returns and statements furnished under the provisions of the Act and the rules made thereunder,

· the correctness of the turnover,

· exemptions and deductions claimed,

· the rate of tax applied in respect of the supply of goods or services or both,

· the input tax credit availed and utilised,

· refund claimed and

· other relevant issues.

and record the observations in his audit notes.

Also, he may during the course of audit require the registered person:

· to afford him the necessary facility to verify the books of account or other documents as he may require;

· to furnish such information as he may require and render assistance for timely completion of the audit.

3.5. Duration of Audit

The audit will be completed within a period of 3 months from the date of commencement of the audit. However, if the Commissioner is satisfied that the audit cannot be completed within a period of 3 months, he may extend the period by a further period not exceeding 6 months after duly recording the reasons for doing so in writing.

3.6. Concluding the Audit

After conducting the audit:

Ø the proper officer authorised to conduct audit may inform the registered person of the discrepancies noticed, if any, as observed in the audit.

Ø The registered person may then file his reply and submit his defense on discrepancies raised by the proper officer.

Ø The proper officer will after due consideration of the reply furnished by registered person finalise the findings of the audit and within 30 days of the conclusion of audit inform the registered person, about the finalised findings, his rights and obligations and the reasons for such findings in FORM GST ADT-02.

Such communication of audit findings to the registered person will act as a recourse in case a notice is issued in future for any matter that has already been clarified to the audit team at the time of the audit.

3.7. Proceedings of Demand and Recovery

Where the Audit results in:

· detection of tax not paid or short paid, or

· tax erroneously refunded, or

· input tax credit wrongly availed or utilised,

the process of demand and recovery can be initiated against the registered person under section 73 or section 74 of the CGST Act, 2017.

4. SPECIAL AUDIT UNDER SECTION 66

4.1. Authorised Person

Section 66 of the CGST Act, 2017 confers power on any officer not below the rank of Assistant Commissioner after obtaining approval of the Commissioner to direct a registered person to get his records including books of account examined and audited.

4.2. Special Auditor

The registered person will be required to get his record and books of accounts audited by a Chartered Accountant or a Cost Accountant as may be nominated by the Commissioner.

4.3. Special Circumstances under which Special Audit is required

Any officer not below the rank of Assistant Commissioner, while performing scrutiny, inquiry, investigation or any other proceedings, at any stage, is of the opinion that:

· the value has not been correctly declared, or

· the credit availed is not within the normal limits;

Then he may direct the registered person (after obtaining approval) to get his books of accounts audited under section 66 of the CGST Act, 2017.

4.4. Notice

The Authorised Officer is required to issue a direction writing in FORM GST ADT-03 to the registered person to get his records including books of accounts audited.

4.5. Duration of Audit

The Special Auditor nominated by the commissioner will have to submit within a period of 90 days, a duly signed and certified report to the Authorised Officer. However, the Assistant Commissioner may extend this period by a further period of 90 days if:

· An application has been made to him seeking an extension, by the registered person. or

· An application has been made to him seeking an extension, by the Chartered Accountant or Cost Accountant nominated to conduct the audit, or

· For any material or sufficient reason

4.6. Opportunity of Being Heard

On conclusion of the Audit, the registered person will be informed of the findings of the audit in FORM GST ADT-04 and will be given an opportunity of being heard, if any material finding of the audit are proposed to be used in any proceedings against him.

4.7. Expenses of Audit

Expenses of Audit including the remuneration of the Chartered Accountant or Cost Accountant will be determined and paid by the Commissioner. Such determination by Commissioner will be final i.e. no appeal against such determination can be made to any authority.

4.8. Proceedings of Demand and Recovery

Where the Audit results in:

· detection of tax not paid or short paid, or

· tax erroneously refunded, or

· input tax credit wrongly availed or utilised,

the process of demand can be initiated against the registered person under section 73 or section 74 of the CGST Act, 2017.

4.9. Overriding Provision

It is also essential to note that, irrespective of the fact that books of accounts of the registered person are audited under any provision of the CGST Act, 2017 or any other law in force, the registered person will have to get his accounts audited by the Special Auditor.

5. CONCLUSION

The Tax Authorities can carry-out the audit of a registered person in a personal capacity (section 65) or by authorising a third party to conduct the audit as per their guidelines (section 66) and ensures that the audit is conducted in a fair and transparent manner. Audit under GST has opened the door to new opportunities for professionals and thus it is essential for them to be well versed in the intricacies of the provisions of the GST Law.

Palash Khurpia

Departmental GST Audit