Audit under GST

Last Update Date : August 13, 2018

audit under gst

Various measure have been taken by the government to ensure compliance of GST law and audit is one them. Audit conducted under GST law is the examination of records maintained by a taxable person to verify the correctness of information furnished, taxes discharged, refund claimed and input tax credit availed. It is a way to analyse the compliance of taxpayer with the provisions of the GST Act. The meaning of audit is given under section 2(13) of Central Goods and Services Tax Act, 2017. There are three types of audit as prescribed under GST.

Audit Challenges under GST

GST law has taken care of the strong audit mechanism, but some ambiguity is still unanswered:

  1. The assesses having multiple states should have a centralised audit or should undergo multiple audits, no clarity over the procedure.
  2. Manual audit should be conducted or e-audit.
  3. Taxable persons, the frequency at which audit should be conducted is not specified.
  4. Is the response to be submitted manually or electronically?

Audit of Accounts by CA or CMA

GST Audit Limit: 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 registered person, for facilitating the audit, shall keep and maintain his accounts to show the correct value in regards to:

  • Production or manufacture of goods
  • Inward supply of goods or services or both
  • Outward supply of goods or services or both
  • Stock of goods
  • Input tax credit availed
  • Output tax payable and paid
  • Books of accounts point can be added

Audit by Tax Authorities

The Commissioner or any officer authorised by him, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed in a general or a specific order (Section 65 of CGST Act). The officers may conduct audit at the place of business of the registered person or in their office. The registered person shall be informed by way of a notice of not less than fifteen working days before the conduct of audit in Form GST ADT-01. The audit shall be completed within a period of three months from the date of commencement of the audit and can be further extended by a period not exceeding six months, by the Commissioner if he has a reason to believe that the audit cannot be completed in the given duration.

During the course of audit, the authorised officer may require the registered person,—

  • to provide 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

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.

The officer along with his team will verify:

  • Documents on the basis of which the books of account are maintained and the returns and statements furnished under the provisions of the Act and the rules made there under
  • Correctness of the turnover
  • Exemptions and deductions claimed
  • Rate of tax applied in respect of the supply of goods or services or both
  • Input tax credit availed and utilised
  • Refund claimed
  • Other relevant issues

Special Audit – Audit by CA or CMA on the Directions of the GST Officer

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,

He may, with the prior approval of the Commissioner, direct such registered person to get his records including books of account examined and audited by a Chartered Accountant or a cost accountant 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 Chartered Accountant or Cost Accountant so nominated shall submit a report of such audit duly signed and certified by him to the said Assistant Commissioner, within the period of ninety days, which can be further extended by ninety 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 chartered accountant or cost accountant, 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.

The annual return shall be filed electronically through Form GSTR 9B, along with the reconciliation statement, the audited statement of annual accounts and other documents as prescribed as per the GST law.

If any error/mistake is noticed in any of the returns filed during the financial year while auditing the accounts, it can be rectified only in the annual return. For example, if any liability was missed to be reported in any of the months for the financial year, It has to be reported and paid along with interest at the time of filing the annual return pertaining to that year.

Obligations of the Auditee

The taxable person will be required to:

  1. Audit timely completion information & assistance.
  2. To give all the necessary documents of books of accounts and provide a necessary facility required.

Difference Between Audits under Section 65 and Section 66

Components Section 65 Section 66
Nature of Audit In this section, we have a departmental audit In this section, we have a special audit
Conducted by It is conducted by officers of the department authorised by the commissioner It is conducted by Chartered accountant/cost accountant nominated by the commissioner
Prior Notice Prior notice of 15 days is required o such notice/intimation is required
Time for conclusion of the audit The conclusion of the audit is given in 3 months, further extension of 6 months is allowed The conclusion of the audit is given in 90 days, further extension of 90 days is allowed
Audit Findings/Report Audit reports should be intimated soon upon completion of the audit Audit reports should be shown to deputy/assistant commissioner
The opportunity of being heard No specific provision Yes, where material gathered during the audit is to be used in any proceedings against the auditee
Action based on a report Yes, under section 73 by the issuance of SCN (Show Cause Notice) Yes, under section 73 by the issuance of SCN (Show Cause Notice)

Consequences of Non-compliance – GST

In order to effectively implement the various laws in our country like GST laws, Income Tax law etc, 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 deduct the tax required or deducts a lower amount of TDS or fails to deposit the tax to the government
  • 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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