Tax authorities gear up for first-ever GST Audit

The GST collection has started showing signs of recovery with the monthly collection crossing 1 lakh crore for 2 consecutive months. In order to maintain a stable collection, the finance ministry and GST officials have been taking some strict measures to improve tax adherence and curb tax frauds.

However, it should be noted that despite these measures, the states might still have to face a consolidated revenue gap of over INR 1 Lakh Crores by the end of the transition period, in the year 2022.

Thus, to close the revenue gap, GST officials have called for a nation-wide GST audit for the FY 2017-18. Let us break the scenario, for a better understanding:

What is Audit?

An audit is a process of examining and verifying documents in relation to a person’s financial accounts. Under GST, a taxpayer is responsible for the assessment of his tax liabilities. However, such assessments can be susceptible to intentional/unintentional errors such as erroneous refund claims, missing/unmatching invoice data, etc.. An audit in such circumstances can help you/ tax authorities identify the pain areas and take necessary actions.

Procedure

Generally, the proceeding of a Tax Audit is conducted as follows:

Audit by tax authorities. (Section 65)

The Commissioner or an officer authorised by him, by way of a general or a specific order, may undertake the audit of any registered person for such period, at such frequency and in such manner as may be prescribed.
The authorised officers may choose to conduct the audit at the registered person’s place of business or in their office.
Notice must be sent to the registered person not less than 15 days before initiating such an audit in Form GST ADT-01 by tax authorities

The proper officer authorized to conduct audit of the records and books of account of the registered person shall with the assistance of the team of officers and officials accompanying him, verify the documents and statements furnished under the Act and rules made there under, to check the correctness of following:-

The turnover,
Exemptions and deductions claimed,
The rate of tax applied in respect of supply of goods or services,
The input tax availed and utilized,
Refund claimed, proper officer and his team will examine other relevant issued ad record the observations in is audit notes.

4. The given audit shall be completed within a period of three months from the date of commencement. However, if the Commissioner is satisfied (with the reasons recorded in writing) that audit in respect of such registered person cannot be completed within three months, he may extend the period by a further period not exceeding six months.
5. During the proceedings, the authorised officer may require the registered person, —

- to provide him with the necessary facility for the verification of the books of account and any other documents as required.
- to provide such information and assistance as required for timely completion of the audit.

To afford the necessary facility to verify the books of accounts or other documents he may require, the taxable person submit these following records to audit officer:

1. Cash book for the audit period mentioned by the audit officer in said notice,
2. Ledger of inward supply of goods , services,
3. Ledger of out ward supply of goods, services,
4. Returns forms like GST Form 3B, GSTR-1, GSTR-2 and GSTR-3 and GSTR-4, maintained by the taxable person as per GST Act, Maintenance of Records Rules,
5. Payments challans,
6. Ledger of Bank account,
7. Details of E way bill for the audit period for inward and out ward supply of goods and services,
8. GST registration certificate details like principle place of business, branch and other place of details whether incorporate or not,
9. Ledger of stock maintained at Where house by the taxable person,
10. Trial Balance for the audit period and Profit and Loss Account,
11. Copy and details of Trans-1, Trans-2 and 2A and Trans-3 etc., for the year 2017-18 along with stock register and copies of original invoice relating to ITC claimed in Trans-1 for the period prior to July’2017 as per Sec.143 of CGST Act,2017.

6. On conclusion of audit, the proper officer is required to inform the registered person about the findings, his rights & obligations and the reasons for such findings within thirty days.

7. In cases where the audit conducted detects unpaid or short paid tax or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.

Special Audit (Section 66)

If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, an officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, 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 by a communication in writing to get his records including books of account examined and audited by a CA or a cost accountant as may be nominated by the Commissioner.
The CA or cost accountant so nominated shall, within the period of 90 days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified. However, the Assistant Commissioner, on an application made to him in this behalf by the registered person, CA or the cost accountant for any material and sufficient reason, can extend the said period by a further period of ninety days.
The provisions of sub-section (1) shall have effect notwithstanding that the 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 registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made there under.
The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.
As per Rule 102(2)of CGST, SGST and UTGST Rules,2017 , on conclusion of special audit , the registered person shall be informed of the findings of special audit in FORM GST ADT-04.
Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.

Current Scenario

For the first time ever, the government has entered into assessment mode. The GST officials have started issuing notices, asking for detailed information on accounts and records for the FY 2017-18. These notices involve 12 sets of documents involving details like of business agreements for sales and purchase, GSTR filing records, Cost audit reports, eCash/credit ledgers, etc.

What you have to do?

As per the notices issued, the notified taxpayer is directed to attend in person or through an authorised representative conversant with activities of the firm/company along with following self-attested documents and records required for audit.

Pre-preparing for such notices

If you have not filed your GST returns, it is advised that you complete your filing process at the earliest. The last date to file your annual returns is January 31, 2020.
The GST audit may consist of examination based on the amendments introduced since 2017. Thus, seeking compliance assistance from a professional GST auditor or tax expert can come in handy.
For taxpayers who have already filed their GST reports, it is advised that you keep the following data ready:
- Return forms
- Registration certificates
- Copies of the annual report
- Directors audit report
- Income tax returns
- Cost audit
- Tax and internal audit reports
- Electronic credit/cash ledger
- Abstract of output services invoices and input services
- Work order/purchase order/agreements,
- Copy of the last general audit report.

The exercise is being conducted to ensure better tax adherence. Thus, if you have been filing your returns on time and have all your documents in place, you have nothing to worry about. However, if you are a defaulter, we suggest you file your returns at the earliest and safeguard your firm from procuring hefty fines.