Under the GST regime, both the Central Government and State Governments have the power to audit registered taxpayers. The purpose of these GST audits is to ensure that taxpayers are complying with the GST laws and regulations, and to identify any areas where there is a risk of tax evasion. One of the ways in which the GST authorities initiate audits is by issuing audit notices to taxpayers.
These audit notices under GST can be issued for a variety of reasons, such as:
- The taxpayer’s turnover exceeds the prescribed threshold limit
- The taxpayer has a history of non-compliance with the GST laws
- The taxpayer’s business activities are considered to be high-risk
- The taxpayer has filed suspicious returns
What are Audit Notices under GST?
An audit notice under GST is a formal document issued by a government agency or regulatory body to a business or individual, informing them that they will be subject to an audit. Audits are conducted to ensure that businesses and individuals are complying with all applicable laws and regulations.
The purpose of an audit is to gather information about the taxpayer’s business activities and financial transactions. This information is then used to assess the taxpayer’s compliance with the law. If an audit finds that the taxpayer is not in compliance with the law, the taxpayer may be subject to penalties, interest, and/or additional taxes.
Imp things to note about audit notices under GST:
- The audit officer is required to issue a notice to the taxpayer at least 15 working days in advance of the commencement of the audit.
- The audit officer is required to complete the audit within 3 months from the date of commencement of the audit.
- The taxpayer is entitled to be present during the audit and to provide explanations for any discrepancies in their records.
- The taxpayer has the right to appeal under GST against any findings or decisions made by the audit officer.
Types of Audit Notices under GST
There are two main types of audit notices that can be issued under GST:
- Notice under Section 65 of the CGST Act: Section 65(1) of the CGST Act, 2017, stipulates that “The Commissioner or an officer duly authorized by him, through a general or specific directive, may conduct an audit of any registered entity for a specified duration, at a frequency, and in a manner as prescribed.”In the case of a regular audit, the authority to conduct the audit of a registered entity, specifying the duration, frequency, and method, is vested in the Commissioner or an officer authorized by him according to the GST law.
- Notice under Section 66 of the CGST Act: Section 66(1) of the CGST Act, 2017, provides that “If, during any stage of scrutiny, inquiry, investigation, or any other proceedings, an officer not below the rank of Assistant Commissioner, considering the nature and complexity of the case and the revenue’s interest, opines that the declared value is inaccurate or the availed credit exceeds the customary limits, he may, with prior approval from the Commissioner, instruct the registered individual, through written communication, to have their records, including books of account, examined and audited by a chartered accountant or a cost accountant nominated by the Commissioner.”This type of audit is referred to as a Special Audit. It empowers the designated officer to direct a registered person to undergo an audit of their records, including books of account, by a chartered accountant or cost accountant at any phase of scrutiny, inquiry, investigation, or other proceedings, based on the complexity of the case.
Procedure for Audit under GST
Once an audit notice has been issued, the taxpayer is required to cooperate with the audit officer and provide all of the necessary information and documents. The audit officer will then examine the taxpayer’s records and prepare an audit report.
On conclusion of an audit, the officer will inform the taxable person within 30 days of:
- The findings,
- Their reasons, and
- the taxable person’s rights and obligations
If the audit officer finds any discrepancies in the taxpayer’s records, they will issue a show-cause notice to the taxpayer. This notice will list the discrepancies and give the taxpayer an opportunity to explain them. If the taxpayer is unable to provide a satisfactory explanation, the audit officer may raise a demand for tax and interest.
How to Respond to an Audit Notice
If you receive an audit notice, it is important to respond to it promptly and provide all of the required information and documents. It is also advisable to seek professional advice.
Here are some tips for responding to an audit notice:
Review the notice carefully and understand the scope of the audit: The first step is to carefully review the audit notice and understand what the audit officer is looking for. The notice should specify the period of time that will be covered by the audit, as well as the specific areas of your business that will be reviewed.
Gather all the required information and documents in advance: It is important to gather all the required information and documents in advance of the audit. This will help to ensure that the audit is completed smoothly and efficiently. This may include:
- Financial statements
- Tax returns
- Purchase orders
- Bank statements
- Reconciliation of Output tax, Input tax with books of accounts
- Any other documentation that supports your business activities
Be prepared to answer questions from the audit officer: During the audit, the audit officer will ask you questions about your business activities and the information and documents that you have provided. It is important to be prepared to answer these questions honestly and accurately.
If you have any questions or concerns, seek professional advice: If you have any questions or concerns about the audit process or about the information and documents that you need to provide, you should seek professional advice from a chartered accountant or GST consultant.
Consequences of Non-Compliance with an Audit Notice
If you fail to comply with an audit notice, you may face a number of consequences, including:
- A penalty of up to 10% of the tax due
- Prosecution under the GST laws
- Suspension of your GST registration
Audit notices can be a stressful experience, but it is important to remember that they are a routine part of the tax and regulatory system. Audit notices under GST are an important part of the GST compliance system. By cooperating with the audit officer and providing all of the required information and documents, you can help to ensure that your audit is completed smoothly and efficiently. If you have any questions or concerns about an audit notice, you should seek professional advice from a chartered accountant or GST consultant.
If you receive an audit notice, it is important to remember that you are not alone. There are a number of resources available to help you, including professional advice from IRIS GST Experts.
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