GST Departmental Audit is the process of examining a taxable person’s records, returns, and other documentation. The goal is to ensure that the turnover is declared, taxes paid, refunds claimed, and input tax credits claimed are valid, as well as to check compliance with GST regulations.

There are 3 types of audits as mandated by the GST law, they are – Statutory
GST Departmental Audit, and Special Audit. You can read all about them here – Audit under GST.

In this article, we will cover the GST departmental audit and how you can handle it better.

What is GST Departmental Audit?

As per section 65 and Rule 101(3) of GST Audit Rules, the commissioner or an officer authorized by him can conduct a GST audit to verify the details of the ‘records’ and the ‘books of account’ of the registered person, along with the assistance of the team of officers and officials accompanying him.

Upon the conclusion of the GST audit, the authorized officer shall inform the findings, rights and obligations, and the reasons for the given findings to the registered person, within a period of 30 days in FORM GST ADT-02. If the registered taxpayer is found at fault, such as wrongly availed/utilized ITC, the authorized officer can proceed as per the procedure laid down under section 73 or Section 74 of GST Audit Rules.

Why is a GST Departmental Audit Conducted?

A GST Departmental Audit is conducted to ensure that a business is in compliance with GST laws and regulations. The GST Department may conduct an audit if it suspects that a business is not reporting its GST liability accurately or if it is concerned that the business may not be in compliance with GST laws and regulations.

6 Key Points to Keep in Mind for a GST Departmental Audit

1. Prior notice: The Audit Officer (AO) needs to issue a Prior Notice in the recommended form at least 15 days (or as may be prescribed) before the proposed visit, requesting documents/information such as returns, books of accounts, agreements, invoices, and details of tax payments and returns filed under other acts such as Income Tax, Professional Tax, and others.
2. Location of audit: The audit will always have to take place at the company’s location.
3. Documents: The registered person needs to provide a self-certified copy of the documents asked for by the Audit Officer. This may differ from case to case.
4. Liability: If returns are not filed or are found erroneous, the audit officer will calculate the proper liability and seek recovery using the authorities granted to him by the Commissioner.
5. Stock Verification: The stock of goods can also be verified by the Audit Officer.
6. Premise Search: The audit officer cannot carry-out-search of the premises.

How to prepare for a GST Departmental Audit?

If you are preparing for a GST departmental audit, there are a lot of things that are required to be taken care of. Below are some of the important points to note.

1. Review your GST returns and documentation: Before the audit, it is important to review your GST returns and documentation to ensure that they are accurate and complete. Check for any errors or discrepancies and make sure that all required information is included.
2. Organize your records: Make sure that all of your GST records and documentation are organized and easily accessible. This will make it easier for the auditor to review your records and will save time during the audit.
3. Train your staff: Train your staff on GST laws and regulations and make sure that they understand the importance of accurate reporting. This will help to ensure that everyone is on the same page and will reduce the likelihood of errors or inaccuracies in your GST returns.
4. GST Know-How: Ensure that the overall portfolio of the company is captured and stored in one place – in which overall details about the company’s product, applicable taxes, tax rates, exemption notification, capital goods, reverse charge applicability, how the tax credit is taken, etc are captured. It helps the representative of the company or the registered person to gain the details of the overall GST position of the company and prepare himself to present in a better manner in front of the GST Officer.
5. Keeping Track: Track the progress of audits across GSTINs, divisions, and legal entities (in a group) by capturing all relevant details right up to the time it becomes tax litigation. Also, provide the overall position of audits closed and Show Cause Notice issued or audit is under progress. The history of all documents submitted at the time of audit should be easily trackable.
6. Review all legal positions: Maintain a repository of all the tax positions along with the facility to archive the judicial precedence or legal opinion based on which such tax position has been taken.
   For example:
   • The transactions on which GST has not been discharged (GST on transactions covered under Schedule – I of the CGST Act i.e. supplies made without consideration).
   • Cases where incorrect/wrong input tax credit has been availed.
   • Circumstances in which improper GST advantages have been claimed (for example, seeking a refund of IGST paid on exports that are covered by Rule 96(10) of the CGST Rules).

Considering the plethora of changes in GST Rules over the years, businesses need to be prepared and also understand every minute detail required for departmental audits and litigation under the GST umbrella. It is also important to maintain and track the information, data, and documents pertaining to audits because they could have a serious impact on the management, operations, and even the solvency of the organization.

Introducing IRIS LMS!

IRIS LMS (Litigation Management Solution) is here to solve all your GST audit and litigation problems which includes keeping a track of due dates, and notices, facing audits, and managing cases. The solution has been designed to assist you in facing the GST audits efficiently and managing GST litigations effectively.

How can IRIS LMS help you?

• Face departmental audits seamlessly by providing:
  • Transaction matrix – Map all types of supplies with the tax implications thereby creating a matrix of transactions that would serve as the GST profile of the company.
  • Tax position repository – Maintain a repository of all the tax positions along with the facility to archive the judicial precedence or Legal opinion based on which such tax position has been taken. Revalidate your tax positions at regular intervals with the help of automatic updates on such tax positions provided by LMS.
  • Checklist-driven data archival system – Proactively collate and archive data/documents required for facing a departmental audit with the help of an exhaustive checklist-driven archival system with a one-touch retrieval mechanism.
  • Audit tracking system – Track the progress of audits across GSTINs, divisions, and legal entities (in a group) by capturing all relevant details right up to it becomes litigation.
• Streamline and manage litigation effectively by providing:
  • Single repository of all pre-GST regime and GST litigations – LMS serves as a single repository of all Pre-GST Regime and GST litigations for monitoring them across various adjudication/appellate forums across multiple GSTINs, Divisions, and legal entities.
  • Analytics dashboard – Intelligent Analytics Dashboard to provide decision-makers with various crucial analytics data like Issue wise analysis, Aging analysis, Divisional analysis, etc.
  • Dataflow design – Data flows that capture internal processes for litigation management as well as any possible scenario throughout the life of litigation including department appeal, cross objections, Writ petitions, and Remand back proceedings.
  • MIS reports – Master Report comprising of extensive details which are useful for decision making in litigations such as demand of tax, interest, and penalty; Pre-deposit, Amount admitted and paid, Risk portfolio, Case status, remarks, etc.
  • User access controls – Manage unlimited users at PAN and GSTIN levels with detailed access controls to manage permissions and access levels across the organization.
  • Contingency liability reporting and so much more – LMS provides a Contingency liability report consistent with the format adopted by listed companies providing for quarterly movement in provisions made in books of accounts, Contingency liability disclosure, CARO disclosure, Last hearing date, etc.

A GST departmental audit is an important part of ensuring compliance with GST laws and regulations. Preparing for the audit is an important step in ensuring that your business is in compliance and avoiding any penalties or fines. By reviewing your GST returns and documentation, organizing your records, training your staff, and hiring a GST consultant, you can help to ensure the success of the audit and protect your business from any potential problems.