AUDIT at a glance under the GST Law
By: – RameshKumar Patodia
Goods and Services Tax – GST
Dated:- 6-12-2018
The Goods and Services Tax regime which was introduced with effect from the 1st day of July 2017 consolidating most of the indirect taxes with a view to increasing the tax base has been considered to be the most revolutionary move in the arena of indirect taxes. The new tax law has brought about a paradigm shift in the process of levy and collection of taxes with a special emphasis on compliances in the light of which due importance has been given to self-assessment and audit procedures for ensuring proper compliance under law, similar to that as was given in the erstwhile regime.
The previous direct tax and indirect tax legislations provide for audit in various manners in order to ensure compliance of the respective laws and the GST legislation also provides for the same considering the fact that under the GST regime emphasis is given to the self assessment wit
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of an organization to ascertain as to how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concern in pursuance of the requirements of law. The auditor perceives and recognises the propositions before them for examination, obtains evidence, evaluates the same and formulates an opinion on the basis of his judgement which is communicated through his audit report.
Meaning of the term “Audit” under the GST law
Now, after understanding the general meaning of the term “audit” and its importance, it is pertinent to note that audit under the GST law is defined under sub-section (13) of Section 2 of the Central Goods and Services Tax Act, 2017 as 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 verif
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audited as specified under sub-section (5) of section 35 and he shall furnish a copy of the audited annual accounts and a reconciliation statement, duly certified, in GSTR 9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner”.
Section 44(2) of the CGST Act, 2017 – requirement to furnish annual return in Form GSTR -9, Reconciliation statement in Form GSTR-9C and a copy of the audited annual accounts
In this regard, it is further imperative to note that section 44(2) of the Central Goods and Services Tax Act, 2017 provides that “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 a
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urn as specified under sub-section (1) of section 44 electronically in Form GSTR -9 through the common portal either directly or through a Facilitation Centre notified by the Commissioner”.
Meaning of terminologies employed in the provisions referred to hereinabove
Now, after taking note of the relevant provisions of the GST law which specifically deals with audit, in order to understand the scope of the applicability of audit under the GST law, it is imperative to understand the meaning of certain terminologies as stated herein under and which have been employed in the provisions of GST law as discussed and reproduced hereinabove:
* Records
* Returns
* Other documents
* Turnover
* Aggregate Turnover
* Audited annual accounts
* Reconciliation statement
Records:
The term “records” have not been specifically defined under the Act. Hence, recourse has to be had to the general meaning of the term as given in various legal dictionaries. In this regard, the advanced law lex
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services or both;
* Stock of goods
* Input tax credit (ITC) availed
* Output tax payable and paid
* Such other particulars as may be prescribed
Return:
Further, the term “return” has been defined under section 2(97) of the Act, as any return prescribed or otherwise required to be furnished by or under this Act or the rules made thereunder.
Other documents:
The term “other documents” has again not been defined under the Act but while defining the term “audit” under section 2(13), ibid. the language used is “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” which implies that for the purposes of audit under this Act, other documents maintained or furnished under this Act or under any other law for the time being in force may also be examined in addition to documents maintained under the GST law.
Turnover:
Further, the term “turnover” has not been defined specifical
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xcludes central tax, State tax, Union territory tax, integrated tax and cess”.
Audited Annual Accounts:
The reference to 'audited annual accounts' in section 44(2) of the Act, when analysed in the light of the GST law can only be taken to mean the audited annual accounts as required to be maintained by the registered tax payer under the other laws by which the tax payer is governed in absence of any specific definition under the GST law. The relevant provisions of Section 128 and Section 134 of the Companies Act, 2013, Section 44AA and Section 44AB of the Income Tax Act, 1961 therefore assumes importance.
Reconciliation Statement:
Reconciliation Statement has been discussed in section 44(2) of the Central Goods and Services Tax Act, 2017 as a statement (which is required to be furnished in Form GSTR 9C) 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 prescrib
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een reversed along with applicable interest?
3.
Valuation and Payment of tax liability and review of GST returns filed:
a.
Whether valuation has been done in accordance with the provisions of law and applicable taxes both under forward charge and reverse charge has been correctly discharged under the correct head or not and whether there is any short payment of tax?
b.
Whether payment of GST under forward Charge as well as reverse charge has been made on time?
c.
Whether GST is paid on receipt of advances, requisite documents have been issued at the time of receipt thereof and proper adjustment thereof has been made at the time of issuance of final invoice?
d.
Whether interest liability has been discharged in case of delay in payment of taxes?
e.
Whether all the required GST returns have been filed correctly with complete particulars and within the due date?
f.
Whether GSTR 1 and GSTR 3B tallies with the books of account?
4.
Input Tax Credit:
a.
Whether ITC has been a
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T Returns?
c.
Whether e-way bill, wherever applicable has been issued and duly recorded in the books of accounts and also to verify whether there is any variance in the data recorded in the e-way bill and the corresponding tax invoice?
d.
Whether HSN code has been correctly mentioned (specifically in case of mandatory cases i.e. where the turnover exceeds ₹ 1.5 crores) in the documents issued or received under the Act?
8.
Miscellaneous
a.
Whether the reconciliation of ITC claimed in GSTR 3B with that available in GSTR 2A has been done and in case of difference to ensure whether any action has been taken to blacklist such suppliers who do not pay GST on time and/or file returns on time so as to protect the interest of the recipient of goods or services or both?
b.
Whether the provisions of Section 171 of the CGST Act 2017 i.e. Anti profiteering are followed and accordingly the benefit of the additional input tax credit as well as the benefit of the tax reduction is passe
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of section 35(5) of the Act, shall be subjected to a penalty which may extend to ₹ 25,000/-.
Offences and penalties under section 122 of the Act
Besides the above failures and their consequences, it is imperative to note that section 122 of the CGST Act provides for certain offences the penalty for which has been prescribed to be ten thousand rupees or an amount equivalent to the tax evaded whichever is higher. Such offences by a taxpayer which inter alia include:
* falsification or substitution of financial records or production of fake accounts or documents or furnishing of any false information or return with an intention to evade payment of tax due under this Act
* suppression of his turnover leading to evasion of tax under this Act;
* failure to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;
Welcome provisions under Section 126 of the Act
Section 126 of the Act is a welcome
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Changes brought about in the Direct Tax laws in the light of the GST Law
With a view to ensure improvement of compliance under the Income Tax Act, 1961, certain changes have been notified by the Central Board of Direct Taxes vide CBDT Notification No. GSR 666(E) (No. 33/2018), dated 20.07.2018 under the Direct tax Laws in the light of the new GST Law.
In this regard, it is imperative to note that the aforesaid Notification seeks to amend the FORM 3CD as appearing in the Appendix II to the Income Tax Rules, 1962, to provide for certain additional details by amending/inserting two clauses viz. clause 4 and clause 44 respectively, which have been discussed herein under:
Amendment of Clause 4 to provide for GST number
Clause 4 of Form 3CD has been amended to seek details of GST number in cases where the assessee is liable to pay GST.
In this regard, the reason for this amendment seems to be to capture the GST related details of the assessee as it was done for other indirect taxes in
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44 to seek the break-up of total expenditure
New Clause 44 has been inserted in Form 3CD to provide for the disclosure of the break-up of total expenditure in respect of the entities registered or not registered under GST in the format given herein below:
Sl. No.
Total amount of Expenditure incurred during the year
Expenditure in respect of entities registered under GST
Expenditure relating to entities not registered under GST
Relating to goods or services exempt from GST
Relating to entities falling under composition scheme
Relating to other registered entities
Total payment to registered entities
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The purpose behind insertion of the above mentioned clause may be to see whether the expenditure being claimed for deduction under the Income Tax Law has actually been reported under the GST law in the relevant columns as prescribed in the GST returns and that no expenditure which is not allowable under the Act is being claimed by the assessee. F
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the auditor while reporting in Form 3CD must bear certain points in his mind:
* Primarily the auditor has to cross verify the details of expenditure as per the books of accounts with that furnished by the assessee in his GST returns. Any variance in the expenditure reported has to be highlighted by the auditor.
* Further he has to ensure that the applicable taxes under the GST law have been discharged on the expenditure being claimed.
* Further, he has to ensure that the assessee has claimed the benefit of either input tax credit or depreciation in case of the expenditure reported and not both.
The changes which have been brought about in Form No. 3CD requiring an auditor to certify certain details in the light of GST law brings us to the following issues:
* The way the financial statements and audited accounts are required to be maintained under the Income Tax Act, 1961 which can be on cash basis as well as mercantile basis cannot at once enable any person to arrive at a con
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