GST AUDIT AN OVERVIEW · Tax officials themselves Auditor is appointed by the Tax officials (akin to special audits conducted under Service Tax and Excise regime) 1. GST Law includes,

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Like the erstwhile Indirect Tax Laws, Good and Service Tax Law ('GST Law')1is also based on the model of self-assessment. A registered person is required to assess his value of taxable supply, applicable tax rates on the same and amount of input tax credit available. A taxpayer has to compute the tax payablethereon and to discharge the computed tax liability.In order to ensure correct and effective compliance of GST laws, audit provisions are incorporated under GST Law.On the auspicious day of Ganesh Chaturthi i.e., 13th of September 2018, Central Board of Indirect Taxes& Customs ('CBIC'), has issued the notification no. 49/2018- Central Tax, to notify Form GSTR 9C to be uploaded electronically along with Annual returns in Form GSTR - 9 on or before 31st December 2018.

¢ Brief Background:In the earlier indirect tax regime, there was no provision for compulsory audit on crossing of the specified turnover threshold under taxes administered by Centre i.e Service Taxor Central Excise. However in the state wise VAT laws provision relating to audit of the books of accounts on crossing of the turnover threshold was there.Under CGST Act 2017, 'audit' has been defined under section 2(13) of the said Act.

"audit" means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder;

On quick glance of Form GSTR 9C it appears that the form is essentially a reconciliation statements which reconciles the figures reported in the audited financial statements and Annual return of a taxpayer. However, above definition of the 'audit' indicates that the GST lawmakers had envisaged very wide coverage for audit and our professional brothers may have to think about the scope and coverage of this GST Audit.

CA Mihir Shah

GST AUDIT GST AUDIT - Law Update

AN OVERVIEWAN OVERVIEW

Particulars GST Audit by Registered Persons.

GST Audit by Tax Authorities

Special Audits

Applicable to Compulsory for every registered person on crossing the threshold limit

Applicable only in cases where the tax authorities finds it necessary

Applicable only in the cases where the tax officials finds it necessary based on the complexity of the cases

Governed by Governed by sec 35(5) of the CGST Act.

Governed by sec 65 of the CGST Act.

Governed by sec 66 of the CGST Act.

Auditor appointed by

Auditor is appointed by the Registered Person himself to be conducted by Chartered Accountant or Cost Accountant

Records are Audited by Tax officials themselves

Auditor is appointed by the Tax officials (akin to special audits conducted under Service Tax and Excise regime)

1. GST Law includes, Acts passed by names such as central Goods and Service Tax Act 2017, Integrated Goods and Service Tax Act 2017, State GST Acts, Union Territory GST Acts and rules thereunder

C.V.O. CA'S NEWS & VIEWSVOL. 22 - NO. 3 & 4 - SEPTEMBER - OCTOBER 2018

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Legislative Coverage and its applicability.

Sec 35 (5) of the CGST Act 2017, prescribes "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 and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed".

Sec 44(2) of the CGST Act 2017, prescribes "Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed".

Rule 80(3) of the CGST Rules prescribes "Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner".

On perusal of the above provisions it can be observed that every registered person whose aggregate turnover during the financial year exceeds Rs. 2 crore has to get their accounts audited by Chartered Accountants or Cost Accountants and shall submit the prescribed documents.

Section 35(5) of the Act uses the term as 'turnover' and not' aggregate turnover'.However, when read with rule 80(3) of CGST Rules, it appears that turnover limit to get the accounts audited by taxpayer should be 'Aggregate Turnover'.

Aggregate turnover is defined u/s 2(6) as per which following amounts are to be included / excluded from the calculation of the turnover value to determine applicability of Audit u/s 35(5):

Inclusions Exclusions

Value of All Taxable Supplies Value of inward supplies on which tax is paid by a person on reverse charges basis

Exempt supplies (Including outward supplies where tax is to be paid by person receiving such supplies under RCM)

Value of State Tax, Central Tax, Union Territory Tax, Integrated tax and Cess under GST tax Laws.

Value of Export of Goods or Services both

The said Values are to be calculated on PAN India Basis.

Some of the examples for calculation of the Aggregate Turnover for the threshold of Audit are as follows:

Particulars

Example 1 (Rs.)

Example 2

(Rs.)

Example 3

(Rs.)

Maharashtra

Taxable

1.25 crores

0.8 crores

1.25 crores

Exempt

0.8 crores

0.25 crores

0.25 crores

Gujarat Export Supplies 1.6 crores - -

Exempt Supplies 1.2 crores 0.2 crores 0.75 crores

Total Sales 4.85 crores 1.25 crores 2.25 crores

Applicability for Audit Audit Applicable in both the state

of Maharashtra & Gujarat

Audit is not applicable in either of the state.

Audit Applicable in both the state

of Maharashtra & Gujarat


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As can be observed in Example 3 above, even though the turnover in the state of Gujarat is less than specified turnover of Rs. 2 crores, still GST Audit under section 35(5) of CGST Act has to be conducted since its aggregate turnover (PAN India) is crossing the specified threshold of Rs. 2 crores.Please note, it can be argued that a Rule (Rule 80(3) from which 'aggregate turnover' word is specified) cannot override Section (section 35(5) where only the word 'turnover' has been mentioned). The word 'turnover' is not defined anywhere in the GST Law. The words 'aggregate turnover' or 'turnover in state' are the closest definitions. Since 'turnover' has not been defined, one can interpret section 35(5) threshold by considering these two definitions.A conservative view would be what we have followed in Example 3 above.

Snapshot of FORM GSTR 9C:Below chart briefly explains the flow of the Form GSTR 9C in two major parts that is Reconciliation Statement and Certificate to be issued by the GST Auditor.

Form GSTR 9C

Part A: Reconciliation Statement

Part B: Certification

Reconciliation to be done for amounts as submitted in Annual return and that as per financial statements

Case where reconciliation statement is drawn by the person who had conducted the audit.

Case where reconciliation statement is drawn by any other person other than who has conducted the audit.

Brief comments onPart A of Form GSTR-9C:

Table reference

Particulars Remarks

1-4

Basic Details

In this tab, basic details of the person under audit are to be entered (most likely shall be auto populated).

5A to 8C

Reconciliation of Turnover declared in Annual Financial Statement with turnover declared in Annual Return (GSTR 9)

Following points should be considered while filling these fields:

Statewise revenue as entered in the audited financial statement

to be considered.

Due verification to be undertaken to ensure correct turnover is reported.

The method of revenue recognition may be

different in the financial

statement as compared to recognition of time of supply for GST. (For eg. cash system of accounting followed,revenue recognition for Construction sector etc.)

Turnover not forming part of operating income such as sale of Scrap, Sale of Fixed Assets etc.

Additional requirement for this year will be that the turnover in the financial statement will be for entire year from April 17 to March 2018, however in Annual return it will be for July 2017 to March 2018.

All such adjustments are listed in the reconciliation statement are to be explained in the reconciliation statement from points given in from rows 5A to 5N, and also an additional space is given for the items not fitting under cell 5A to 5N, as 5O.

Once the reconciliation of Gross turnover is done we have to provide reconciliation of the taxable turnover also.

Any un-reconciled

figure at the Gross level or taxable turnover level is to be explained with appropriate reason for the same.


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Table reference

Particulars

Remarks

Any un-reconciled figure at the Gross level or taxable turnover level is

to be explained with appropriate reason for the same.

9A

to 11

Reconciliation of Tax Paid

In this column, tax rate wise liability is to be given for outward supplies and also for inward supplies liable to reverse charge. If any amount which remains payable shall be shown as un-reconciled payment and the same is

to be explained with appropriate reasons.

12A to 16 Reconciliation of Input Tax Credit (ITC)

Reconciliation is to be done for the ITC availed (net of reversals) as mentioned in the Financial Statement vis -à-vis to the ITC availed as given in the GST Annual Returns.

Also the credit is to be bifurcated expense wise as per the list given inTable 14, along with its value, Total ITC and eligible ITC respectively.

Any difference of such eligible ITC with the amount of ITC as per the annual return is to be explained with appropriate reasons.

Tax Payable if any , due to difference in the eligible ITC and ITC claimed as per Annual Return has to be disclosed.

Point V Auditor’s recommendation on additional liability

The auditor is required to disclose the additional amount payable, due to reconciliation difference as mentioned in the Table 8, Table 10 and Table 16.

Verification

Auditor has to solemnly affirm and declarethe following:

1. True and correct information provided in above tables

2. No concealment of information provided in above tables

One has to be absolutely certain of information provided in Form GSTR 9C while signing the same along with Firm’s stamp

Brief comments on Part B of Form GSTR 9C:

Particulars

FORMAT 1

FORMAT 2

Applicability

Certification by Person who has conducted the audit under any other law

Certification by person other than the person who has conducted the audit under any other law

Examination of Financial Statement

To certify the examination of Balance Sh eet, Profit & Loss Account and Cash Flow Statement

To report that audit was conducted by another person and to annex the Balance Sheet, Profit and Loss Account and Cash Flow Statement.

Certification on the books of Accounts/ records maintained(please refer note below)

To certify whether all the books of accounts, records required as per the GST law are properly maintained and also to confirm the accounting treatment given for the same in the books of accounts

Certification for Form 9C

To certify whether all the information provided in form 9C are true and correct.

Additional observations to Qualification(s) to be provided here.

report


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Note: Following records needed to be verified while issuing the GST Audit report:

(a) production or manufacture of goods;

(b) inward and outward supply of goods or services or both;

(c) stock of goods;

(d) input tax credit availed;

(e) output tax payable and paid; and

(f) records / documents as prescribed under Rule 56, Rule 57 and Rule 58 of CGST Rules.

Therefore, on examining Form GSTR 9C closely, it can be observed that though major part of the said form is

about reconciliation between financial statement and annual returns filed in form GSTR 9, there is a bigger

onus on a Chartered Accountant to certify Form GSTR 9C which should be considered before starting to

conduct such audits.

Note: The above views of the author are personal and are based on the laws prevailing as on the date of article.


Documents

GST AUDIT AN OVERVIEW · Tax officials themselves Auditor is appointed by the Tax officials (akin to special audits conducted under Service Tax and Excise regime) 1. GST Law includes,