Audit Under GST

Audit under GST is the process of examination of records, returns and other documents maintained by a taxable person. The purpose is to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the provisions of GST.

Audit under GST is the process of examination of records, returns and other documents maintained by a taxable person. The purpose is to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the provisions of GST.

Threshold for Audit

Every registered taxable person whose turnover during a financial year exceeds the prescribed limit [as per the latest GST Rules, the turnover limit is above Rs 1 crore] shall get his accounts audited by a chartered accountant or a cost accountant. He shall electronically file:

  • an annual return using the Form GSTR 9B along with the reconciliation statement by 31st December of the next Financial Year,
  • the audited copy of the annual accounts,
  • a reconciliation statement, reconciling the value of supplies declared in the return with the audited annual financial statement,
  • and other particulars as prescribed.

Rectifications after Return Based on Results of Audit under GST

If any taxable person, after furnishing a return discovers any omission/incorrect details (from results of audit), he can rectify subject to payment of interest. However, no rectification will be allowed after the due date for filing of return for the month of September or second quarter, (as the case may be), following the end of the financial year, or the actual date of filing o the relevant annual return, whichever is earlier.

For example, X found during audit that he has made a mistake in Oct 2017 return. X submitted annual return for FY 2017-18 on 31st August 2018 along with audited accounts. He can rectify the Oct 2017 mistake within-

20th Oct 2018 (last date for filing Sep return)

or

31st August 2018 ( the actual date of filing of relevant annual return)

-earlier, ie., his last date for rectifying is 31st August 2018.

This rectification will not be allowed where results are from scrutiny/audit by the tax authorities.

Audit by Tax Authorities

  • The Commissioner of CGST/SGST (or any officer authorized by him) may conduct audit of a taxpayer. The frequency and manner of audit will be prescribed later.
  • A notice will be sent to the auditee at least 15 days before.
  • The audit will be completed within 3 months from date of commencement of the audit.
  • The Commissioner can extend the audit period for a further six months with reasons recorded in writing.

Obligations of the Auditee

The taxable person will be required to:

  • provide the necessary facility to verify the books of account/other documents as required
  • to give information and assistance for timely completion of the audit.

Findings of Audit

On conclusion of an audit, the officer will inform the taxable person within 30 days of:

  • the findings,
  • their reasons, and
  • the taxable person’s rights and obligations

If the audit results in detection of unpaid/shortpaid tax or wrong refund or wrong input tax credit availed, then demand and recovery actions will be initiated.

Special Audit

When can a special audit be initiated?

The Assistant Commissioner may initiate special audit, considering the nature and complexity of the case and interest of revenue. If he is of the opinion during any stage of scrutiny/enquiry/investigation that the value has not been correctly declared or the wrong credit has been availed then special audit can be initiated.

Special audit can be conducted even if the tax payers books have already been audited before.

Who will order and conduct special audit?

The Assistant Commissioner (with the prior approval of the Commissioner) can order for special audit (in writing). The special audit will be carried out by a chartered accountant or a cost accountant nominated by the Commissioner.

Time limit for special audit

The auditor will have to submit the report within 90 days. This may be further extended by the tax officer for 90 days on an application made by the taxable person or the auditor.

Cost

The expenses for examination and audit including the auditor’s remuneration will be determined and paid by the Commissioner.

Findings of special audit

The taxable person will be given an opportunity of being heard in findings of the special audit.

If the audit results in detection of unpaid/shortpaid tax or wrong refund or input tax credit wrongly availed then demand and recovery actions will be initiated.

Thus, GST is a completely new tax regime already taking India by storm. Businesses will face challenges in transition and application of GST. To know more about GST, feel free to read more of our articles on our blog.

Frequently Asked Questions (Faq)

  • What is GST? How does it work?

    GST is one indirect tax for the entire nation, which will make India an unified common market.

  • How will GST benefit industry, trade and agriculture ?

    GST will give more relief to Indian industry, trade and agriculture through a more comprehensive and wider coverage of input and service Tax set-off, involvement of several Central and State taxes in the GST and phasing out of CST.

  • How will GST benefit the exporters?

    The involvement of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax would reduce the cost of locally manufactured goods and services.

  • Why is Dual GST required?

    India is a country where both the Center and the States have been assigned the powers to duty and collect taxes through appropriate legislation.

  • How will GST benefit the small entrepreneurs and small traders?

    The present edge prescribed in different State VAT Acts below which VAT is not applicable and varies from State to State. The existing edge of goods under State VAT is Rs. 5 lakhs for a majority of big States and a lower edge for North Eastern States and Special Category States.

  • How will GST benefit the common consumers?

    The tumbling effects of CENVAT and service tax will be more extensively removed with a continuous chain of set-off from the producer’s end to the retailer’s end than what was possible under the prevailing CENVAT and VAT system.

  • What are the other legislative requirements for introduction of the GST?

    Suitable legislation for the levy of GST (Central GST Bill, Integrated GST Bill and State GST Bills) drawing powers from the Constitution would need to be passed by the Parliament and the State Legislatures. Unlike the Constitutional Amendment which requires 2/3rd majority, the GST Bills would need to be passed by a simple majority. Obviously, the levy of the tax can commence only after the GST law has been enacted by the Parliament and respective Legislatures.

  • How are the disputes going to be resolved under the GST regime?

    The Constitution (one hundred and first amendment) Act, 2016 provides that the Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute

    1. between the Government of India and one or more States; or
    2. between the Government of India and any State or States on one side and one or more other Sates on the other side; or
    3. between two or more States, arising out of the recommendations of the Council or implementation thereof.
  • What is GSTN and its role in the GST regime?

    GSTN stands for Goods and Service Tax Network (GSTN). A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for implementation of GST. The functions of the GSTN would, inter alia, include: (i) facilitating registration; (ii) forwarding the returns to Central and State authorities; (iii) computation and settlement of IGST; (iv) matching of tax payment details with banking network; (v) providing various MIS reports to the Central and the State Governments based on the tax payer return information; (vi) providing analysis of tax payers’ profile; and (vii) running the matching engine for matching, reversal and reclaim of input tax credit. The GSTN is developing a common GST portal and applications for registration, payment, return and MIS/ reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for tax payers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal etc. for 19 States and UTs (Model II States). The CBEC and Model I States (15 States) are themselves developing their GST back-end systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth.

  • What is the scope of composition scheme under GST?

    Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

  • How will Exports be treated under GST?

    Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available as refund to the exporters.

  • How will imports be taxed under GST?

    Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

  • How will the goods and services be classified under GST regime?

    HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST regime. Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2 digit code and the taxpayers whose turnover is Rs. 5 crores and above shall use 4 digit code. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices. Services will be classified as per the Services Accounting Code (SAC).

  • What are the benefits available to small tax payers under the GST regime?

    Tax payers with an aggregate turnover in a financial year up to [Rs.10 lakhs] would be exempt from tax. [Aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover shall be computed on all India basis. For NE States and Sikkim, the exemption threshold shall be [Rs. 5 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

  • Who is liable to pay GST under the proposed GST regime?

    Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the threshold exemption, i.e. Rs.10 lakhs (Rs. 5 lakhs for NE States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all inter- State supply of goods and/or services. The CGST /SGST and IGST are payable at the rates specified in the Schedules to the respective Acts.

  • How will decisions be taken by GST Council?

    The Constitution (one hundred and first amendment) Act, 2016 provides that every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted votes of the Members present and voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all the State Governments taken together shall have a weightage of 2/3rd of the total votes cast in that meeting. One half of the total number of members of the GST Council shall constitute the quorum at its meetings.

  • What is the guiding principle of GST Council?

    The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States. It has been provided in the Constitution (one hundred and first amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be guided by the need for a harmonized structure of GST and for the development of a harmonized national market for goods and services.

  • What would be the role of GST Council?

    A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers to make recommendations to the Union and the States on

    (i) the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed under GST;

    (ii) the goods and services that may be subjected to or exempted from the GST;

    (iii) the date on which the GST shall be levied on petroleum crude, high speed diesel, motor sprit (commonly known as petrol), natural gas and aviation turbine fuel;

    (iv) model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;

    (v) the threshold limit of turnover below which the goods and services may be exempted from GST;

    (vi) the rates including floor rates with bands of GST;

    (vii) any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster;

    (viii) special provision with respect to the North- East States, J&K, Himachal Pradesh and Uttarakhand; and

    (ix) any other matter relating to the GST, as the Council may decide.

  • Who will decide rates for levy of GST?

    The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.

  • What is IGST?

    Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter- State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

  • What are the benefits which the Country will accrue from GST?

    Introduction of GST would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved 10 tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer

  • How a particular transaction of goods and services would be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

    The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, 8 both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State. Illustration I: Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST. Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of 9 Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

  • Why was the Constitution of India amended recently in the context of GST?

    Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax. Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 recently for this purpose. Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.

  • Which authority will levy and administer GST?

    Centre will levy and administer CGST & IGST while respective states will levy and administer SGST.

  • Why is Dual GST required?

    India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

  • What type of GST is proposed to be implemented?

    It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

  • What will be status of Tobacco and Tobacco products under the GST regime?

    Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.

  • What will be the status in respect of taxation of above commodities after introduction of GST?

    The existing taxation system (VAT & Central Excise) will continue in respect of the above commodities.

  • Which are the commodities proposed to be kept outside the purview of GST?

    Alcohol for human consumption, Petroleum Products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel& Electricity.

  • What principles were adopted for subsuming the above taxes under GST?

    The various Central, State and Local levies were 5 examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

    (i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

    (ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

    (iii) The subsumation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.

    (iv) Revenue fairness for both the Union and the States individually would need to be attempted.

  • Which of the existing taxes are proposed to be subsumed under GST?

    The GST would replace the following taxes:

    (i) taxes currently levied and collected by the Centre:

    • Central Excise duty
    • Duties of Excise (Medicinal and Toilet Preparations)
    • Additional Duties of Excise (Goods of Special Importance)
    • Additional Duties of Excise (Textiles and Textile Products)
    • Additional Duties of Customs (commonly known as CVD)
    • Special Additional Duty of Customs (SAD)
    • Service Tax
    • Central Surcharges and Cesses so far as they relate to supply of goods and services

    (ii) State taxes that would be subsumed under the GST are:

    • State VAT
    • Central Sales Tax
    • Luxury Tax
    • Entry Tax (all forms)
    • Entertainment and Amusement Tax (except when levied by the local bodies)
    • Taxes on advertisements
    • Purchase Tax
    • Taxes on lotteries, betting and gambling
    • State Surcharges and Cesses so far as they relate to supply of goods and services

    The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.

  • What exactly is the concept of destination based tax on consumption?

    The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.

  • What is Goods and Service Tax (GST)?

    It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

  • Will there be any communication related to the application disposal?

    The applicant shall be informed of the fact of grant or rejection of his registration application through an e-mail and SMS by the GST common portal. Jurisdictional details would be intimated to the applicant at this stage.

  • Who is a ‘non-resident taxable person’?

    As per Section 2(69), ‘non-resident taxable person’ means a taxable person who occasionally undertakes transactions involving supply of goods and/or services whether as principal or agent or in any other capacity but who has no fixed place of business in India.

  • Who is a Non-resident Taxable Person?

    A taxable person residing outside India and coming to India to occasionally undertake transaction in the country but has no fixed place of business in India is a non-resident taxable person in terms of Section 2 (69) of the MGL.

  • Who is a Casual Taxable Person?

    Casual Taxable Person has been defined in Section 2 (21) of MGL. It means a person who occasionally undertakes transactions in a taxable territory where he has no fixed place of business.

  • Is it necessary for the Govt. organization to get registration?

    A unique identification number (ID) would be given by the respective state tax authorities through GST portal to Government authorities / PSUs not making outwards supplies of GST goods (and thus not liable to obtain GST registration) but are making inter-state purchases.

  • What is the responsibility of the taxable person supplying to UN bodies?

    The taxable supplier supplying to these organizations is expected to mention the UIN on the invoices and treat such supplies as supplies to another registered person (B2B) and the invoices of the same will be uploaded by the supplier.

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