Goods and Services Tax (GST) works on a trust-based system. 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.
Audit of records of taxpayers is the substratum for the proper functioning of a self-assessment based tax system. It is an important tool in the tax administration to ensure compliance of law and prevent revenue leakage. This provision provides for audit of the business transactions of any registered person. Hence, audit cannot be conducted in case of unregistered person even if he was required to be registered.
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.
As per Section 2(13), Audit means the Examination of records, returns and other documents maintained or furnished by the registered person under this Act or Rules made thereunder, to verify correctness of:
a. turnover declared,
b. taxes paid,
c. refund claimed, and
d. input tax credit availed, and
e. to assess his compliances with the provisions of this Act or the Rules made thereunder.
Types of departmental audit
There are two types of GST audit conducted by the Department:
1. An audit conducted by tax authorities under Section 65 of the CGST Act, 2017 read with Rule 101 of the CGST Rules, 2017; and
2. Special audit under Section 66 of the CGST Act, 2017 read with Rule 102 of the CGST Rules, 2017
1. Detailed analysis of the audit conducted by tax authorities under Section 65 of the CGST Act, 2017 read with Rule 101 of the CGST Rules, 2017.
a. Intimation of Audit
The Commissioner or the officer appointed by him has the power to undertake Audit of any registered person by issuing a special or general order for such period as it may deem fit. As per Rule 101(1), the period of audit can be financial year or part of it. Multiple periods can also be audited. Audit can be conducted at Business place of Auditee or even at the office of such officer or commissioner as mentioned in the Audit Notice. It is important that the said order of Commissioner must be specific to the auditee for the tax period selected for audit.
Before commencement of proceeding, the officer has to issue notice in FORM GST ADT-01 at least 15 days prior to commencement of Audit Proceedings.
b. Time Limit for Completion of Audit
The audit shall be completed within 3 months from the date of commencement of Audit or such extended time. If Audit cannot be completed in time bound manner, then commissioner has the power to extend the time further not exceeding 6 months, with reasons recorded in writing.
Commencement date of Audit shall mean, later of the following:
(i) Date on which the records and other documents required by the tax authority are made available by the registered person, or
(ii) Date of the actual execution of the Audit at business place of such registered person.
Illustration: A notice for audit was served to M/s. Abacus Ltd, on 20.05.2020. Required information was given by M/s. Abacus Ltd, on 25.08.2020. The audit officers visited the place of business on 26.09.2020. What is the last date within which the audit is to be completed?
It will be 3 months from 27.09.2020, viz., 26.12.2020 or within an extended period of 6 months. The extended period would be 26.06.2021.
c. Obligation of registered person & scope of audit
When Audit is being conducted, the registered person shall provide the following to the authorized officer:
(i) Necessary facility to verify the Books of Accounts
(ii) Any other documents as required by the authorized officer
(iii) Furnish such other information as required by the authorized officer to complete audit in the timely manner
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. A probable list of some of the documents/ records/ information possibly be verified by the officers are summarized hereunder.
1. Books of accounts including balance sheet, profit & loss account etc.,
2. Various returns filed under GST,
3. Tax invoices, debit or credit notes, receipt voucher and payment voucher, bill of supply, delivery challans etc. issued under GST,
4. Invoice copies based on which input tax credit is availed,
5. Job-work register, stock register, production and process register, fixed assets register etc.
6. Sample copies of e-way bills,
7. Sample purchase orders or work orders or any other orders/ agreements
8. Income tax return,
9. Form 26AS
19. Income tax audit report or cost audit report,
11. Reconciliation of amounts declared under GST with amount declared under other laws.6)
Scope of Audit shall be to:
1. Verify the documents, returns, statements furnished
2) The Correctness of Turnover, Exemption & deduction claimed
3) The rate of tax, correctly applied or not
4) The ITC availed & claimed
5) Calculation of refund claimed, if any..
6) Any other issue
Any discrepancies as observed in the audit shall be informed to the registered person by the proper officer and the said person may file his reply and the proper officer shall finalize the findings of the audit after due consideration of the reply furnished.
d. Communication of Audit Findings
The proper officer shall inform the registered person about the audit findings & the reasons for such findings, during the course of Audit in FORM GST ADT-02 within 30 days from conclusion of Audit.
e. Consequence of Audit Observations
During the Audit, if the proper officer finds that:
> Tax is collected but not paid, or
> Tax is collected but short paid, or
> Tax Amount is erroneously refunded to the registered person
> ITC is wrongly availed or utilized
Then, the officer may initiate action under Section 73 (Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful misstatement or suppression of facts) or Section 74 (Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts) for the demand and recovery for such amount under default.
2. Detailed analysis of Special audit under Section 66 of the CGST Act, 2017 read with Rule 102 of the CGST Rules, 2017.
a. Situation warranting Special Audit
When any officer not below the rank of Assistant Commissioner, at any stage of inquiry, investigation or any other proceeding before him, has the opinion that:
> The turnover has not been correctly declared, or
> The credit availed is not within the normal limits
Then, in such cases, the officer with the prior approval of the Commissioner, will communicate to the registered person, to get his accounts audited by a Chartered Accountant or Cost accountant as may be nominated by the Commissioner. Such intimation is to be given in FORM GST ADT-03 to the registered person by the authorized officer.
b. Time limit for completion of special audit
The appointed CA or CMA shall submit the duly signed & certified Audit report within 90 days to the Assistant Commissioner. The said period of 90 days may be further extended up to 90 days by Assistant Commissioner on the application made by such registered person or CA or CMA on material and sufficient reasons shown to him.
Further on conclusion of Special Audit, the registered person shall be informed of the finding of the special audit in FORM GST ADT-04.
c. Special audit to have overriding effects
Audit under Section 66 may be conducted irrespective of the fact that the Books of Accounts have earlier been audited under any other provision of law, like:
> Books of Accounts audited under the Companies act, or
> Books of Accounts audited under the Income Tax Act, or
> Any other law, for the time being in force
d. Opportunity of being heard to registered person
The opportunity of being heard must be given to the registered person, in respect of any material gathered which is proposed to be used in any proceedings against him, during special audit.
e. Expenses of special Audit
The expenses related to special audit including Auditor’s Remuneration shall be determined and paid by the Commissioner.
f. Consequences of Special Audit Findings
During the course of Audit, if the Auditors has detected any non-payment or short payment, or tax erroneously refunded, ITC wrongly claimed, then the proper officer may initiate action under Section 73 (Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful misstatement or suppression of facts) or Section 74 (Determination of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts) for demand and recovery of such amount in default.
Brief summary of comparison between departmental audits has been tabulated as under:
| Stages | Particulars | Normal Departmental Audit under Section 65 | Special Audit under Section 66 |
| STAGE 1 | Intimation of conduct of audit to the taxpayer | Issuance of notice in Form GST ADT01, 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. | Books of accounts/ records will be verified by the nominated CA/CMA. |
| 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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