Departmental audits under GST

The departmental audits under Indirect Tax laws, has always been a great discomfort for taxpayers. Under erstwhile regime, multiple wings of the department used to conduct separate audits for the same taxpayer for the same period (CERA audits, MLU audits, CAG audits etc.). The distinct wings of the department used to interpret same transactions in a different manner. Invariably, the department used to dispute the taxpayer’s positions which culminated into litigations.

Importantly, the departmental audits will continue under GST regime as well (though under different nomenclature) with the same mindset. While it was expected that the department would rely on mandatory GST audits undertaken by Chartered / Cost Accountants and reduce their audits, the audit plan for 2019-20 (‘Plan’) issued by CBIC indicate to the contrary.

GST Audit Plan

CBIC has enumerated various parameters to be adopted by an Audit Commissionerate for selecting taxpayers for audit. These are high turnover, profit and loss, input tax credit availed and utilised, refund etc. of a taxpayer. A business entity with multiple branches and diverse activities, will also be focussed for selection. The specific industries like hospitality, car rental, chemicals, telecommunication etc. will also be targeted. The complete Plan is available at http://gstsutra.com/news/8151/Audit-Plan-for-GST-released-process-similar-to-erstwhile-Central-Excise-and-Service-Tax.

Notably, the Plan states that the audits will commence after filing of GST Annual Return. As the last date of filing of annual return is August 31, 2019, the taxpayers can expect departmental audits to commence soon.

NITYA Comments:

Since inception of GST, the department has not undertaken any audits and has sought data in exceptional cases only. Further, the department has conducted site visits only in evasion cases.

GST is a new tax regime where the taxpayers faced challenges in transition and implementation. There were numerous amendments, clarifications and rulings in last two years. Apart from that, there are multiple issues in GST that are susceptible to diverse interpretations. To that extent, the first departmental audit will be critical for every taxpayer being the first one post GST implementation.

It is advisable that the taxpayers analyse their tax positions and compliance levels before commencement of such audits, to avoid any unpleasant surprises later.