Taxman has another trick up his sleeve under GST Act; here’s all you need to know

February 20, 2021 2:49 PM

The objective of GST Audit is to ensure and promote the correctness of turnover declared, taxes paid, refund claimed & input tax credit availed, and to assess the compliance of Registered Taxpayers (RTP) with the provisions of the GST Act and rules made thereunder.

GST collectionsAt times AO’s exercise powers beyond their jurisdiction taking benefit of the lack of awareness of registered persons.

By Saurabh Malpani, Shreyash Agrawal

With more than three years into GST, the Maharashtra Goods and Services Tax Department (MGSTD) on December 22, issued a trade circular informing that the department is going to initiate audits for selected registered persons under Section 65 of the Maharashtra Goods and Services Tax Act, 2017 (MGST Act).

Since it is the first time that the GST Department would be conducting audits, the Department in the aforesaid circular has mentioned the objectives, procedure and scope of GST Audit. It also specifies the rights and duties of the registered person. Further, it provides for an indicative list of documents that are required to be kept ready or submitted by the assessee for the purpose of GST Audit.

The objective of GST Audit is to ensure and promote the correctness of turnover declared, taxes paid, refund claimed & input tax credit availed, and to assess the compliance of Registered Taxpayers (RTP) with the provisions of the GST Act and rules made thereunder.

The major takeaways:

  1. Prior Notice in Form ADT-01 to be issued at least 15 days prior to the date of proposed visit. 
  2. Audit to be conducted at the place of business
  3. AO can ask for a detailed list of documents ranging from returns, books of accounts, agreements, invoices etc, an indicative list of documents is provided in the circular.
  4. Details of tax payments and returns filed under other acts such as Income Tax, Professional Tax etc can also be demanded.
  5. The registered person must provide a self-certified copy of the documents asked for by AO.
  6. If returns are not filed or are incorrectly filed, then the audit officer will quantify the correct liability and enforce recovery.
  7. AO can use the powers delegated to him by Commissioner under Section 70 of the MGST Act, 2017 i.e. AO can ask for providing affidavit, summoning and enforcing of attendance of any person, examination on oath and affirmation, compelling production of documents etc.
  8. AO can also verify the stock of goods.
  9. AO on no account shall remove or caused to be removed from the place of business any books of accounts, other documents, cash or stock.
  10. AO cannot carry out search of the premises

Points to be kept in mind:

  1. At least 15 days must be given for collection, compilation, preparation and arrangement of documents for audit from receipt of an audit notice
  2. Adjournment can be sought in case of unavoidable circumstances
  3. The registered person can submit his say throughout the audit proceedings in written form
  4. The opportunity of hearing must be provided
  5. Audit must be completed within prescribed time limit i.e. 3 months
  6. Findings of the Audit must be informed within 30 days of conclusion of audit in Form ADT-02
  7. In case any non-payment of tax is found out, such tax can be paid prior to issuance of Show Cause Notice along with interest. No penalty can be imposed in such cases.

Preparedness for GST Audit

Since it is the first time that GST Audit is going to be carried out by the Department, the registered person would be clueless about the modus operandi of the Department in analyzing the documents of the registered person. In the state of Odisha, the GST department has clarified that it would reconcile details of GSTR-9 vs. trial balance, ITC reconciliation etc. The Department would also carry on trend analysis and ratio analysis of different figures. It was also clarified that the GST Department would also check apparent weakness in internal control system. However, there is no such clarity in the state of Maharashtra. It is expected that a uniform way of analyzing documents is followed nation-wide. For this, the Directorate General of Audit under CBIC has issued a detailed GST Audit Manual in 2019 which provide for the detailed manner in which GST Audit would be conducted.

It is generally experienced that the first audit of any entity forms a basis for subsequent audits and demands. Hence, it is of utmost importance that all registered persons are fully prepared for the GST audit. 

The preparedness includes:

  • Making of internal reconciliation statements, 
  • Ensuring that all relevant documents are present in proper form; and 
  • Most importantly, taking a review of legal positions taken under GST. A few instances in this regard are as under:
  • the transactions on which GST has not been discharged (for instance, GST on transactions covered under Schedule – I of the CGST Act (i.e. supplies made without consideration) may not have been discharged); 
  • cases where incorrect/wrong input tax credit has been availed (for instance, Input tax credit on goods/services covered under Section 17(5) of the CGST Act has been inadvertently availed)
  • whether input tax credit, wherever required has been reversed and if reversed, whether quantum of reversal is correct (for instance reversals of input tax credits to the extent of making exempted supplies under Rule 42 and 43 of the CGST Rules)
  • cases where incorrect benefits under GST have been availed (for instance, claiming refund of IGST paid on exports which are covered under the provisions of Rule 96(10) of the CGST Rules)

Further, an authorized representative of the said registered person (who is aware of all facts and legal positions) must be identified so as to represent before the GST Department at the time of Audit.

A registered person must also be fully aware of his rights as well as the limitations of powers of AO. At times AO’s exercise powers beyond their jurisdiction taking benefit of the lack of awareness of registered persons.

We advise readers to take the GST Audit with utmost seriousness and devote time to ensure that you are fully prepared for the upcoming tornado in form of GST Audit. 

(Saurabh Malpani is Principal Associate & Shreyash Agrawal is a Senior Associate at Lakshmikumaran & Sridharan Attorneys. The views expressed by the authors are their own.)

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