Departmental Audit under GST

Article broadly speaks on how to handle Departmental audit under GST, document and the risk parameter to avoid the notices and penalties in GST. As we know, GST (Goods and Services Tax) works on the ‘trust-based system’. Accordingly, the registered taxable person himself carries out the following compliances/ tasks under GST –

  • Measures the tax liability on a self-assessment basis;
  • Pays the said self-assessed tax liability; and
  • Prepares and files the requisite GST annual return.

As all the above compliances/ tasks are performed by the registered taxable person, it becomes highly important to verify the correctness of the same.

However, practically it is not possible to carry out the GST audit of each and every registered person by the departmental officers. Thus, by and large, the department carries out the GST audit on the basis of specific pre-fixed parameters.

In the present article, let us thoroughly understand the different types of Departmental audit under GST; selection parameters based on which departmental audit is done; illustrative list of documents/ information generally sought during audit and also the manner in which the departmental audit should be handled.

What is Departmental audit under GST?

The term ‘Audit’ is defined under section 2(13) of the Central Goods and Services Tax Act, 2017 read with rule 101(3) of the Central Goods and Services Tax Rules, 2017. Accordingly, under GST, the term ‘Audit’ means –

  • Examination of records, returns and other documents which are maintained/ furnished by the registered taxable person;
  • Such examination will be done to verify the correctness of the declared aggregate turnover for GST audit; input tax credit availed and utilized; taxes paid; exemptions and deductions claimed; refund claimed and various compliances undertaken by the registered taxable person under the CGST Act and CGST Rules.
In nut-shell, an audit means scrutinizing and verifying the accuracy of the compliance/ task which is performed by the registered person. Accordingly, when such scrutiny is done by the GST departmental officer, the same is termed as a ‘Departmental audit under GST’. 

How Many types of Departmental audit under GST

Departmental Audit provisions

There are two types of departmental audit under GST. The briefing of the same is tabulated hereunder

Type of departmental audit under GST

Provisions governing the same

Audit by tax authorities

  • Section 65 of the Central Goods and Services Tax Act, 2017 read with;
  • Rule 101 of the Central Goods and Services Tax Rules, 2017

Special audit by the Chartered Accountant or the Cost Accountant

  • Section 66 of the Central Goods and Services Tax Act, 2017 read with;
  • Rule 102 of the Central Goods and Services Tax Rules, 2017

Let us one by one understand both of the above referred departmental audits –

1. Audit by the tax authorities

The following table simplifies the audit by the tax authorities as per section 65 read with rule 101

Particulars

Details

Designation of the officer who will undertake the audit

The Commissioner or any other officer authorized by the Commissioner.

Place of the conduct of an audit

The audit can be conducted by the tax authorities –

  • At the place of business of the registered person; or
  • In the office of the tax authority.

The manner in which the registered person will be informed about the conduct of the audit

The proper officer will issue a notice in Form GST ADT-01 informing the registered person about the conduct of the audit

The time limit within which the registered person needs to be informed about the conduct of an audit

The proper officer needs to inform the registered person by issuing notice in Form GST ADT-01 within 15 working days prior to the conduct of the audit.

Period within which the audit is to be completed

The audit commenced under section 65 read with rule 101 needs to be completed within a period of 3 months. The period can be extended to a further period of maximum of 6 months.

Duty of the registered person

On being asked, the registered person needs to –

  • Afford the proper officer necessary facility to verify the books of accounts or any other documents as may be required;
  • Furnish necessary information as and when required by the proper officer;
  • Assist in the timely completion of the audit.

The action of the proper officer

  • In case any discrepancies are noticed during the audit, the same is to be informed to the registered person for an adequate reply;
  • Based on the reply from the registered person, the proper officer will finalize the findings;
  • The findings of the audit will be informed to the registered person via Form GST ADT-02.

2. Special audit

The following table simplifies the special audit conducted by the Chartered Accountant or the Cost Accountant as per section 66 read with rule 102

Particulars

Details

When can a special audit be conducted

For the conduct of a special audit, the following conditions are to be satisfied –

  • Any officer not below the rank of Assistant Commissioner opines for the conduct of a special audit;
  • Such opinion is formed at any stage during scrutiny or inquiry or investigation or any other proceedings before the registered person;
  • Such opinion is based on the nature and complexity of the case and also the interest of revenue;
  • Prior approval from the Commissioner is obtained for the conduct of a special audit.

How will the registered person be informed about the conduct of a special audit

The direction of conduct of the special audit will be given to the registered person in Form GST ADT-03.

The manner in which special audit will be conducted

  • The special audit will be conducted by the Chartered Accountant or the Cost Accountant;
  • Such Chartered Accountant or Cost Accountant will be nominated by the Commissioner;
  • An appointed Chartered Accountant or Cost Accountant will examine all the records including books of accounts of the selected registered person;
  • A report will be submitted by the appointed Chartered Accountant or Cost Accountant to the Assistant Commissioner stating all the particulars. Such report is to be submitted within a period of 90 days;
  • An opportunity of being heard will be given to the registered person against any material gathered during the audit;
  • After giving an opportunity of being heard and concluding the audit, the registered person will be informed about the findings of the special audit via Form GST ADT-04.

Who will bear and pay the expense of the special audit

Expenses relating to the examination of records and also relating to an audit of records, including remuneration of nominated/ appointed Chartered Accountant or Cost Accountant, will be determined and paid by the Commissioner.

In both the above types of departmental audit, the proper officer may initiate action under section 73 [non-fraud cases] or under section 74 [fraud cases] of the Central Goods and Services Tax Act, 2017, if it is concluded post audit that –

  • There is any tax not paid or short paid; or
  • Amount is erroneously refunded; or
  • Input tax credit is wrongly availed or utilized.

You can find the complete GST audit checklist for procedure and required documents through our article, to avoid discrepancies during audit go through this article.

Departmental audit under GST : Risk Parameters

Departmental Audit under GST risk parameters

Generally, the registered person under GST is selected for departmental audit based on the risk parameters. Some of the probable risk parameters are highlighted hereunder –

  • Size of the turnover;
  • Change in turnover as compared to previous year’s turnover;
  • High difference in input tax credit availed and input tax credit reflected in Form GSTR-2B;
  • Failure in filing periodical returns or payment of tax;
  • Size of the refund claim;
  • Registered person who requested waiver or is declared bankrupt;
  • Financial ratio analysis;
  • Based on specific information received from other governmental authorities for example income tax; RBI; ROC etc.

The GST audit tool identifies mistakes in GST returns and suggests ways to fix them so that businesses can mitigate risks before they become costly.

What documents are required for GST audit?

Before going into the nitty-gritty of handling of Departmental audit under GST, firstly let us check the illustrative list of documents which are generally sought by the department during the conduct of an audit.

Here, it is important to note that it is the basic duty of any registered person to provide required documents, information as well as records, as needed by the proper officer, during the conduct of the audit.

The illustrative document list is highlighted hereunder –

  • Copy of balance sheet, income tax return, audit report, annual return report, Form 26AS, etc.;
  • Copy of relevant GST returns i.e. Form GSTR-1, Form GSTR-3B, Form GSTR-2B, Form GSTR-9, GSTR 9C applicability or any other applicable returns;
  • Copy of invoices issued by the registered person;
  • Copy of invoices based on which input tax credit is availed by the registered person;
  • GST Reconciliation of Turnover reflected in Profit & Loss account as against Turnover reflected in GST returns;
  • GST Reconciliation of input tax credit availed in GST return as against input tax credit reflected in auto-populated Form GSTR-2B;
  • The sample copy of purchase orders, work orders, agreements, etc.

How to Handle Departmental audit under GST

Departmental Audit handling procedure

Because of the past experience, it has become a general perception that the ‘departmental audit’ is super scary. The registered person thinks that they will be trapped and will have to accept, declare and deposit the tax as determined by the officer during the audit by department. However, surprisingly the departmental audit is not so scary if the same is handled vigorously.

There cannot be any specific step by step method which can be adopted to handle the departmental audit. However, the probable manner in which it can be dealt with is summarized hereunder –

  • First and foremost, don’t panic when you receive the notice informing conduct of audit by tax authorities under section 65 or a special audit under section 66 of the Central Goods and Services Tax Act, 2017.
  • Check the notice informing audit thoroughly and confirm the designation of issuing officer.
  • Ensure that no parallel audit or investigation is being conducted for the same period as specified/ covered in the notice.
  • Prior to submitting any documents/ information to the audit team, the said documents/ information should be thoroughly vetted.
  • As and when any documents/ information is submitted to the audit team, it should always be submitted along with a covering letter. Always take acknowledgement of the submission on the o/c i.e. office copy of the covering letter for record purpose.
  • Be ready with all the necessary GST reconciliation and appropriate replies for any differences thereof.
  • In case any discrepancies are observed and the same is not acceptable, draft an appropriate reply and submit the same along with all the relevant proofs. Make it a point to provide a reply only and only in the written form.
  • However, if the discrepancies are acceptable and you are ready to pay the differential amount. Deposit the said differential amount via Form DRC-03 and communicate the same to the proper officer.
  • Never accept and deposit any amount under pressure.

Your GST
Super-Audit Tool 
Is Here!

Power to pinpoint every single GST risk exposure and potential loss in the future, right now


CA Poonam Gandhi

About the author

Poonam Gandhi is a Chartered Accountant and a Lawyer. She is a Professional Freelance Content Writer/ Editor and an Educator.

She masters in creating result-oriented as well as Search Engine Oriented Content. Currently, she is associated with some of the topmost leading sites of India.

She holds more than 3 years of experience in the content field. Before entering the content writing field, she possessed a wide practice experience of more than 9 years, specifically, in the field of Indirect Taxation.

Follow us:

Leave a Reply

Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}