- Introduction:Auditmeans the examination of records maintained by the registered person. The audit aims to verify the correctness of information declared and to assess compliance with the provisions of the CGST Act.
- Types of Audit under GST:There are three types of Audit under the GST Act 2017. Details are as indicated below:-
|Sr. No.||Statutory Provision||Initiated by||Audit performed by|
|(a)||Section 35(5) of CGST Act, 2017;read with Rule 80(3) of CGST Rules,2017.||Turnover during relevant financial year exceeds Rs 2 crores||Chartered Accountant or Cost Accountant appointed by the taxpayer|
|(b)||Section 65 of CGST Act, 2017 read with Rule 101 of CGST Rules, 2017.||The Commissioner||Commissioner of CGST/SGST or any officer authorized by him|
|(c)||Section 66 of CGST Act, 2017 read with Rule 102 of CGST Rules, 2017.||Deputy/ Assistant Commissioner with prior approval of Commissioner||Chartered Accountant or Cost Accountant nominated by the Commissioner|
(a)Turnover Based Audit:Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a Chartered Accountant or a Cost Accountant. He will be required to submit a copy of the audited annual accounts.
- Exception- GST audit under Sec 35(5) is not required for Central Government/ State Government/ Legislative Assembly in case they are subject to audit by CAG or any Statutory Auditor appointed for auditing the accounts of Legislative Assembly. (proviso to section 35(5) of CGST Act inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019.)This exception does not apply to Government Companies as they are not departments of Government, even if their accounts are subject to audit by C&AG.
- As per Rule 80(3) of CGST Rules, every registered person whose aggregate turnover during a financial year exceeds two crores rupees shall get his accounts audited. He shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in form GSTR-9C, electronically.
- Auditor will be appointed by proprietor in case of sole-proprietor, a partner in case of LLP or Partnership Firm and the Board of Directors (BOD) in a case of a company.
- Relaxtion has been provided by government in relation to filing of GSTR-9C for the financial year 2018-19 it has been provided that; no asseesse having turnover less than Rs. 5 Crore is required to file GSTR-9C and further last date of filing annual return i.e. GSTR is waived for businesses with an annual turnover of less than Rs. 5 crores.
- The total turnover calculation must be PAN-based, which means that once the turnover under the PAN is more than Rs. 2 crores, all business entities registered under GST for that PAN will be liable for GST audit for a financial year.
- Further, government has also clarified vide press release dated 3 July, 2019 clarified that for computing the turnover for F.Y. 2017-18, the period should be taken from 1 July 2017 to 31 March 2018, i.e., the First Quarter shall be excluded.
(b)Audit initiated by the Commissioner– Section 65 of CGST Act:-
|Section 65(1) Rule 101(1)||The Commissioner or any officer authorized by him, by way of a general or a specific order, may undertake the audit of any registered person.|
The period of audit to be conducted shall be a financial year or part thereof.
|Section 65(2)||The tax authorities may conduct audits at the place of business of the taxable person and/or in their office.|
|Section 65(3) Rule 101(2) Rule 101(3)||The registered person shall be informed, by way of a notice, sufficiently in advance, i.e. atleast 15 days prior notice will be required. The said notice will be issued notice in form GST ADT-01|
The proper officer will verify the documents [based on which the books of account are maintained and the returns and statements furnished] to check the correctness of following – (a) the turnover (b) exemptions and deductions claimed (c) the rate of tax applied in respect of the supply of goods and/ or services (d) the input tax credit availed and utilized (e) refund claimed. He will examine other relevant issues and record the observations in his audit notes.
|Section 65(4) Provision to section 65((4) Explanation to section 65(4)||The audit shall be completed within three months from the date of commencement of the audit.Where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months. ‘Commencement of audit’ shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.|
|Section 65(5)||During the audit, the authorized officer may require the taxable person – (i) to afford him the necessary facility to verify the books of account or other documents as he may require (ii) to furnish such information as he may require and render assistance for timely completion of the audit.|
|Section 65(6) Rule 101(4) Rule 101(5)||On the conclusion of the audit, the proper officer will inform the registered person, within 30 days, regarding findings, his rights and obligations and the reasons of the findings. The proper officer may inform the registered person of the discrepancies, if any, noticed as observations of the audit and the said person may file his reply and the proper officer will finalize the findings of the audit after due consideration of the reply furnished and proper officer will inform the findings of the audit to the registered person in form GST ADT-02|
|Section 65(7)||Where the audit conducted results in the detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed or utilized, the proper officer may initiate action under section 73 ( Instance where no Fraud is Involved) or 74(Instance where it involves fraud).|
(c) Special Audit : A Special Audit under GST can be initiated by the Assistant Commissioner of CGST/SGST, considering the nature and complexity involved in the case and interest of revenue. Section 66 of the CGST Act and Rule 102 of CGST Rules covers the relevant provisions of Special Audit.
|Section 66(1) Rule 102(1)||During any stage of scrutiny/ inquiry/investigation, if the Assistant Commissioner is of the opinion that the value of the taxable supplies declared by the registered person is incorrect or the input tax credit has been wrongly availed then special audit can be initiated.|
The Assistant Commissioner 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 chartered accountant or a cost accountant as may be nominated by the Commissioner
The officer shall issue a direction in form GST ADT-03 to the registered person to get his records audited by the chartered accountant or cost accountant.
|Section 66(2) The proviso to section 66(2)||The chartered accountant or cost accountant so nominated will, within ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner.|
|Section 66(4)||The registered person shall be given an opportunity of being heard in respect of any material gathered based onthe special audit.|
|Section 66(5)||The expenses of the examination and audit of records, including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.|
|Rule 102(2)||On conclusion of the special audit, the registered person shall be informed of the findings of special audit in form GST ADT-04.|
|Section 66(6)||Where the special audit conducted results in the detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.|
- Question that may arise
Question:While deciding applicability of audit whether turnover of individual entity is to be seen?
Answer: No, as per definition; aggregate turnover will be seen i.e. if the total turnover calculation must be PAN-based, which means that once the turnover under the PAN is more than Rs. 2 crores, all business entities registered under GST for that PAN will be liable for GST audit for a financial year.
Question:What is the main difference between audit intiated by commissioner under section 65 as statutory audit and audit intiated under section 66 as special audit?
Answer:The major difference between is one undertaken under section 65 can be initiated even when, the commissioner or any officer authorized by him, by way of a general or a specific order, may undertake the audit of any registered person there is no need of any pendency but if audit is to be intiated under section 66 thenDuring any stage of scrutiny/ inquiry/investigation, Assistant Commissioner mustbe of the opinion that the value of the taxable supplies declared by the registered person is incorrect or the input tax credit has been wrongly availed then special audit can be initiated.
Question:Whether there is any relaxation in relation to Annual Return date and date of Reconciliation? If yes what are they.
Answer: Relaxtion has been provided by government in relation to filing of GSTR-9C for the financial year 2018-19 it has been provided that; no asseesse having turnover less than Rs. 5 Crore is required to file GSTR-9C and further last date of filing annual return i.e. GSTR is waived for businesses with an annual turnover of less than Rs. 5 crores.
Question: Who will appoint the auditor under various types of audit?
Answer: For audit to be conducted under section 35 i.e. based on turnover auditor will be appointer by proprietor in case of sole-proprietor, a partner in case of LLP or Partnership Firm and the Board of Directors (BOD) in a case of a company. For audit intiated during any stage of scrutiny/ inquiry/investigation it will be nominated by the commissioner; and in case of audit intiated by commissioner then in that case there is no specific guidelines but it has been stated that audit may be conducted by tax authorities.