Insight of GST AUDIT
It is almost a year since the Goods and Services Tax: one nation, one tax, was implemented on July 1, 2017. The journey has been similar to a roller coaster ride, full of excitement and blind spots at times, exactly how the largest tax reform in the country is expected to be! The aim of this new indirect tax regime was to simplify the taxes on goods and services by replacing the former and more complex forms of na.
Filing of GST returns has gone through its own share of challenges and the Annual return and GST Audit is the last stage, in completion of this journey of GST returns for FY 17-18.
Being the first year of GST audit, due date for filing the returns now stands extended to 31st march 2019, giving taxpayers more time for compiling the annual returns and getting their GST audit in a smooth manner.
In this article, we would discuss certain key aspects of GST audits, which may be of relevant to the taxpayers.
What is GST audit?
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.
Section 44 of the CGST Act, dealing with the filing of GST Annual returns, requires assessee who are subjected to GST Audit, to submit the GST Audit certificate along with Annual return, due date being 30 June 2019.
The GST Audit provisions are enshrined in Section 35 of the CGST Act, read with Rule 80 of CGST Rules, as per which, every registered person with turnover exceeding INR 2 crores, shall get the GST accounts audited by a Chartered Accountant or a Cost Accountant.
The format of GST Audit is prescribed in GSTR 9C, which needs to be submitted along with the Annual return GSTR.
Objective of a GST Audit:
The main objective of a GST Audit is to prepare a reconciliation of the particulars declared in GSTR 9 – Annual return, with the audited financial statements.
Hence, as a first step, the taxpayer should be ready with their audited financial statements. The GST Audit Certificate needs to be obtained for each GSTN number of the taxpayers. Taxpayers would hence need to identify the figures appearing in the audited financial statements, at each GSTIN level. This may be challenging task and even if such data is identified, its correctness needs to be verified with audited financial statements.
As a second step, the tax payer needs to be ready with the draft annual return, which shall form the basis of the reconciliation for the GST Auditor.
Understanding GST Audit form ‘GSTR 9C‘:
GSTR – 9C has two parts – Part A is the reconciliation statement alongwith certification by the assessee and Part B is the Certification by the auditor.
- Part A – Reconciliation
Once the draft annual return is compiled and GSTIN-wise details of financial statements are made available, various reconciliations need to be done for the purpose of filling the GST audit form.
First , reconciliation between Gross turnover as per Annual return and as per Audited financial statement. Such gross turnover shall exclude the turnover for the quarter April to June 17(Under VAT Regime). Further, adjustments relating to deemed supplies (like stock transfer), unbilled revenue, unadjusted advance, etc. needs to be done, to arrive at the adjusted gross turnover as per GSTR 9.
There is another reconciliation which is in respect of the taxable turnover between Annual return (under GST) and financials (as per Income tax). Any unreconciled differences in the turnover needs to be reported in GSTR-9C.
Next reconciliation is with respect to tax payable as per financial statements, and actual tax paid as per GSTR 9. Where tax payable is higher than taxes already paid, the difference would need to be paid in cash along with interest.
The GSTR-9C can be certified by the same CA who conducted the GST audit or it can be also certified by any other CA who did not conduct the GST Audit for that particular GSTIN.
The difference between the both is that in case the CA certifying the GSTR-9C did not conduct the GST audit, he must have based opinion on the Books of Accounts audited by another CA in the reconciliation statement. The format of Part-B for certification report will vary depending on who the certifier is.
Input reconciliation shall be done in two parts:
- One part of Reconciliation is between the total credit availed as per audited financials and total credit availed as per Annual Return for FY17-18.
- Secondly, such credit availed as per audited financials needs to be bifurcated under various heads in which such expenses have been booked in the financial statements; and then, the same would need to be reconciled with the credit availed as per annual return.
Based on the above reconciliations, the auditor needs to provide his/her recommendation on the additional liability to be discharged by the taxpayer due to non-reconciliation of turnover or non-reconciliation of input tax credit. Un-reconciled ITC would need to be paid in cash.
The auditor shall also recommend, if there is any other amount to be paid for supplies not included in the Annual Return. Any refund which has been erroneously taken and shall be paid back to the Government shall also be declared in this table.
Further, assessee is also required to provide a declaration to the effect that reconciliation statement uploaded by him / her as duly signed by the auditor has been uploaded as it is, and has not been tampered or altered.
A careful reading of GSTR 9 and GSTR 9C clearly indicates that the annual return and GST audit is not a simple task of consolidation of monthly GST returns.
There are new sets of information that need to be extracted by the tax payer – be it the need for arriving at the HSN wise summary of inward and outward supplies; or classifying the input tax credit into inputs, capital goods and input services; or identifying the adjustments required for unbilled revenue; or separate disclosure of deemed supplies in the GSTR 9C; or expense head wise bifurcation of ITC availed and so on and so forth.
One can only hope that the Government realizes the challenges and announces some relief for the tax payers, perhaps in terms of relaxing the requirement some of which may takes alot of time to be compiled.