GST audit report in Maharashtra will be issued offline; know what steps to take to avoid future litigation

Usually, Goods and Services Tax (GST) department orders a GST audit when any discrepancy or suspicious activities like inconsistent GST return filing, significant mismatch between input tax credit claimed and output tax credit declared, etc. It follows it up with a report. Based on the findings of the audit it also issues a notice to the taxpayer.

However, for FY 2020-21 for which the deadline to issue a GST notice under section 73 is November 30, 2024, a change was made in the process by Maharashtra GST department. This change is related to the GST audit report and the notice for discrepancy, both of which will now be sent offline. The reason citied for this change was technical difficulties with information technology (IT).

“It is decided that for completing the audit procedure for the period 2020-21, the GST proper officers are allowed to issue communications like Notice for Discrepancy under regulation 101(4) and Final Audit Report (GST-ADT-02) under offline mode. Such notices shall not be served on portal, but by any alternate mode prescribed in section 169 of GST Act(s),” as per the circular dated November 8, 2024, of Maharashtra GST.

Why is the GST audit report and notice for FY 2020-21 being sent through offline mode?

According to the Maharashtra GST department circular, GST proper officers lodged their grievances about the system facing technical issues in online processing of subsequent action by use of online audit functionality, hence the decision to implement offline procedure was taken.

Is the limitation period for section 73 notice extended or will it be issued by November 30, 2024?

Maharashtra GST department said in the circular that the limitation period prescribed under sub-section 10 of section 73 of GST Act has not been extended. “But due to some technical glitches, certain deviations have been made in the procedure to use the IT system of GST audit,” said Maharashtra GST in the circular.

Krishan Arora, Partner, Grant Thornton Bharat says, for FY 2020-21 section 73 notice must be passed within three years from the due date of filing annual return.

“Accordingly, 3 years’ time for said period (FY 2020-21) becomes due on 28th February 2025. Working backward, the notice for such cases should generally be issued at least three months prior to said deadline to ensure sufficient time for proceedings. In view of the same, for FY 2020-21, the notice may be issued by 30th November 2024,” says Arora.

Will show cause notice (SCN) be also issued offline?

Maharashtra GST department said in the circular that in cases where the GST audit report results into a demand and recovery (DRC) action subsequent show cause notice (GST_DRC-01) is to be issued online on the GSTN portal. “This concession (offline procedure) is not available to such show cause notices; therefore, those will be served on the portal itself,” said Maharashtra GST department in its circular.

Maharashtra GST department further said in the circular that in order to maintain record of audit activities on the system, it is necessary to upload all such manually issued notices and Final Audit Reports (GST ADT-02) on the system. “Therefore, all proper officers are directed to upload it by December 31, 2024, as per IT system workflow, such uploaded notices and Final audit reports (GST ADT-02) would be again available to taxpayer auditee on GSTN portal. Therefore, taxpayers are advised to ignore any such notices and Final Audit report (GST-ADT-02) on the portal, which were already served in a physical form earlier,” said Maharashtra GST in its circular.

When are taxpayers subject to GST audit- is it only due to any discrepancy?

Ranjeet Mahtani, Partner, Dhruva Advisors explains that there are no set criteria for a taxpayer being subject to GST audit since it is not mandatory.

Mahtani says: Several factors are considered including turnover, significant changes in fiscal data and ratios, identified risk parameters including compliance behaviour, certain type of sectors or activities, past track record, exceptional reports etcetera. Audit is also possible on account of random selection from the pool of taxpayers. Selection of registered persons is based on a risk evaluation method prescribed by the Directorate General of Audit in consultation with the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management.

“GST audit is not mandatory but, since it is a nascent law, it could be used commonly including as a tool for revenue augmentation, minimising tax leakage, enforcing compliance and so on,” says Mahtani.

Sanjay A. Chhabria, Indirect tax lead, Nexdigm says that sometimes proper officers also rely on risk-based parameters, including significant mismatches between ITC claims and output tax declared. “Additionally, inconsistent, or delayed GST filings, incorrect tax calculations, or notable deviations from industry norms can also act as triggers for a GST audit,” he says.

What might be the impact of this circular for GST registered taxpayers who are subject to GST audit

ET Wealth Online has asked various experts about the possible impact of this circular for GST registered taxpayers who are subject to GST audit. Here’s what they said:

Sanjay A. Chhabria, Indirect taxation lead, Nexdigm: GST audits are inherently more complex compared to assessments under other legislations. A significant portion of the GST audit process remains manual, with observations often being finalised through face-to-face discussions and clarifications. Therefore, issuance of offline audit reports and subsequently issuing notices online may pose certain challenges such as:

A. Offline communications may not reach the taxpayers in a timely manner or even lead to disputes regarding the date of receipt. This could leave them with little or no time to respond to the discrepancies noted at the audit stage.
B. Observations that might have been resolved during the audit stage could escalate into show cause notices, effectively initiating a tax litigation. This scenario could undermine the primary objective of reducing tax-related litigation.

Ranjeet Mahtani, Partner, Dhruva Advisors: As such, the GST system is online/electronic and that has been the thrust in design and practice. Using the offline mode for issuance of discrepancy notice and final audit report is antithetical to the stated position and overall approach, although it is unforeseen circumstances that have necessitated it.

Issue of notice for discrepancy and final audit report in the offline mode could cause longer delivery time, or misplacement of documents, both resulting in to lapses of consequential actions.

When the overall direction of Government and its systems is digital/electronic, the move to offline mode is a step backwards although, in the present case, it is owing to technical glitches in the IT system. It should be seen merely as a method for delivery of reports, notices and as an administrative matter.

Krishan Arora, Partner, Grant Thornton Bharat: Issuing notices, and final audit reports offline may result in creating practical challenges for taxpayers. Unlike the GST portal, which ensures instant availability of notices and systematic tracking, offline communication may result in delayed receipt accordingly there is a probability of missed deadlines as well as slower responding time. This may also require taxpayers as well as officers to establish additional monitoring processes to ensure timely action as well track the progress.

Taxpayers should note that even though notices are served offline, the same are still required to be uploaded on the GST portal by officers by December 31, 2024. Once uploaded, these notices and reports will appear again on the portal which may result in confusion. Accordingly, taxpayers are advised to retain copies of physical notices to cross-verify details with portal records. Furthermore, taxpayers should remain proactive in reconciling their filings and addressing any discrepancies promptly, as this procedural shift may also result in detailed scrutiny during audits.

Source: The Economic Times