Procedures Of Audit under GST

Procedures Of Audit under GST
An Audit ?

Audit under GST is a verification process of records maintained by a registered dealer. The aim is to verify the correctness of information declared, taxes paid and to assess the compliance with GST. Usually, audits are carried out to check the accuracy of GST turnover declarations, tax payments, and refunds claimed. Audits validate compliance ratings of businesses by assessing the degree of compliance of their activities. The meaning of audit is given under section 2(13) of Central Goods and Services Tax Act, 2017.

  1. Audit by Registered Dealer:
  2. Audit by GST Tax Authorities:
    • General Audit: Ordered by commissioner
    • Special Audit: Nominated by commissioner
  3. Audit Threshold and Rectifications:
  4. Obligations of the Auditee:
  5. Finalisation of Audit:
  6. Consequences of Non-Compliance:
Audit by Registered Dealer:

Every registered person, whose turnover during the financial year exceeds the prescribed “GST audit turnover limit” i.e., 2 crore rupees, shall get the accounts audited by a Chartered Accountant (CA) or a Cost and Management Accountant (CMA). Registered person who is required to get his accounts audited in accordance with section 35(5) shall submit electronically the Annual Return as per section 44 along with a copy of the audited statement of accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year. He shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in Form GSTR-9C along with annual return.

Every Taxable person under GST shall maintain their accounts to show the Correct value in regards to: 
  • Manufacturing /Production /Stock of goods,
  • Outward/ Inward supply of goods/services or both,
  • Input tax credit (ITC) availed & Output tax payable and paid
  • Books of accounts point can be added.
Audit by GST Tax Authorities {Sec.65(1)}:
1. General Audit

The Commissioner of CGST/SGST (or any officer authorized by him) may conduct an audit of a taxpayer:

  • A notice will be sent to the auditee at least 15 days before.
  • The audit will be completed within 3 months from the date of commencement of the audit.
  • The Commissioner can extend the audit period for a further 6 months with reasons recorded in writing.
  • On conclusion of audit, the proper officer will inform, the registered person, within 30 days, about the findings, his rights and obligations and the reasons for such findings in Form ADT-02.
2. Special Audit: By CA /CMA Nominated by commissioner:

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

  • the value has not been correctly declared or
  • the credit availed is not within the normal limits,
  • direct such registered person to get his records examined and audited by a CA or CMA as may be nominated by the Commissioner. The officer will issue direction in Form GST ADT-03 to the registered person in this regard.
  • The CA or CMA so nominated shall submit a report of such audit duly signed and certified by him to the said Assistant Commissioner, within the period of 90 days, which can be further extended by 90 days.
  • Special audit can be conducted even if accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.
  • The expenses of the examination and audit of records, including the remuneration of such CA or CMA, shall be determined and paid by the Commissioner.
  • On conclusion of the special audit, the registered person shall be informed of the findings of the special audit in FORM GST ADT-04.
Audit Threshold and Rectifications:

If the turnover of any registered tax payer exceeds rupees 2 crore in a financial year, then he/she shall get his books of accounts audited by a CA or a Cost Accountant as per GST Rules. He /She shall electronically file:

  • An annual return using the Form GSTR 9/9B by 31st December of the next Financial Year,
  • The audited copy of the annual accounts,
  • a certified reconciliation statement in the form GSTR-9C, reconciling the value of supplies declared in the return with the audited annual financial statement, and Other particulars as prescribed.
Obligations of the Auditee {sec.65(5)}:

During the course of audit, the authorized officer may require the registered person,

  • To give the information required by the tax authorities which may require for the conduct of the audit.
  • To provide the facility for the verification of accounts/records requisitioned or available by the tax authorities.
  • To provide assistance for the timely completion of the audit.

The authorized officer may inform the person whose records are audited any discrepancies noticed if any, and the said registered person may file his reply and the proper officer shall finalise the findings of the audit after considering the reply furnished.

Finalisation of Audit:
  • The proper officer shall finalise the observation of the audit after considering the reply of the registered person to audit findings brought to his notice during the course of the audit.
  • The authorized officer within 30 days from the conclusion of the audit shall inform the registered person, of the observations, the reasons for such findings and his rights and obligations.
  • If the audit results in any detection of any sum unpaid/short paid or wrongly refunded or wrongly an ailment of input tax credit, then demand and recovery actions will be initiated.
Consequences of Non-Compliance:

The law specifies strict action against those who does not follow the compliances like imposing monetary penalties, interest and prosecution. The penalty can be up to amount Rs. 10,000/- or the amount of tax evaded whichever is greater when a tax payer has committed any of the following 21 offences. To name a few:

  • Failing to collect tax or does not collect sufficient amount of tax as required from the supplier or fails to pay the tax collected to the government.
  • Supply of goods and services is carried without giving appropriate invoice or providing incorrect invoice.
  • Not obtaining registration whenever required and declaring incorrect / false information at the time of registration
  • Tax refund claimed through incorrect or fraud practices
  • In case a tax payer fails to furnish the statistics or declares incorrect details willingly, then the following penalties may get applied:
  • First time offence – Extend to 10,000 rupees & Continuing Offence – 10,000 rupees plus penalty which may extend to 100/- rupees per day subject to a maximum limit of 25,000 as per Section 124.

The government’s support and intention to ensure that GST compliance is followed paved a way for application of penalties. The penalties can be partially or fully waived as the government reserves the right to do the same.  As a whole, GST is aimed at bringing the complete nation under ambit of one tax.

As they say, “Prevention is better than cure” it’s always a good practice to avoid penalties or prosecution that would contribute to achieve better transparency and compliance as per GST law.

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