Departmental approach towards GST audits

by | Jan 5, 2021 | Insight | 0 comments

Through this update, we wish to apprise you on departmental approach under GST audits. Recently, various State Governments have issued Circulars clarifying manner in which department will conduct GST Audits under Section 65 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’). We have summarized important points emanating from these Circulars as under: 

  1. Selection of taxpayers:
  • Taxpayers would be selected in either of two manners: Wild Card Selection or Selection on Risk Based Scrutiny.
  • Factors under Risk Based Scrutiny would include following:

        – Difference in output tax declared under GSTR-1 vis-à-vis GSTR-3B;
        – Excess Input Tax Credit (‘ITC’) availed in GSTR-3B compared to GSTR-2A;
       – Aggregate turnover exceeding INR 10 crore for service industries;
       – ITC blocked cases etc. 

  1. Scope: 
  • Objective of audit will be to ensure compliance of GST laws by taxpayer. To ascertain compliance, Audit Officer would verify books of accounts maintained by taxpayer including sale invoices, purchase invoices, ledgers, cash book, e-way bills, delivery challan, bank statement etc.
  • Audit Officer can also enquire regarding compliance of other laws like payment of Professional Tax, Income Tax, Companies Act, 2013 etc.
  • Taxpayers need to collate following tentative list of documents for verification:

         – Financial Statements and Reports;
         – Inward-Outward Supply summary statement;
         – RCM ledger along with supportive documents;
         – Cancelled invoices;
         – Credit / Debit Note details along with supportive documents;
         – Inward supply register;
         – Outward supply register;
         – Record of zero-rated supply along with supportive documents;
         – Details of exempt supply;
         – Details of refund claims;
         – TRAN-1 details;
         – Credit Ledger;
         – Scrap sales;
         – Miscellaneous Income;
         – Details of advance received or paid;
         – Job work details etc.

  1. Procedure:
  • Taxpayers would be intimated regarding initiation of audit in form GST ADT-01. Along with such form, Audit Officer can also seek certain documents and information.
  • Audit proceedings would be conducted at taxpayer’s place of business. In exceptional circumstances, Audit Officer can verify documents at its office.
  • Audit will be completed within 3 months of date of initiation of audit. The audit is deemed to be initiated when documents are provided by taxpayer to Audit Officer.

NITYA Comments:

Section 73 of the CGST Act empowers proper officer to determine tax liability of taxpayers within three years from due date of furnishing of annual return. Given that due date of annual returns for FY 2017-18 and FY 2018-19 have recently passed, proper officers are expected to commence audit proceedings so that they have sufficient time to issue Show Cause Notices (SCNs). Considering GST being new law and revenue shortfall of the Government, departmental officers are likely be stringent in these audits.

Trust you find the above update useful. Please feel free to revert for any clarification.

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