GST Audit: What precaution taxpayers should take?

 

Let us have a look at What precaution taxpayers should take during GST Audit.

During a GST departmental audit, authorities focus on two primary components: Output Tax Liability (as per GSTR-1) and Input Tax Credit (ITC) as per GSTR-3B. Key areas under scrutiny include:

ITC Reversal (Rule 42 & 43): When inputs or services are used for both taxable and exempt supplies, a proportionate ITC reversal is required for common credits.

Reverse Charge Mechanism (RCM): Services from advocates, Goods Transport Agencies (GTA), and directors fall under RCM provisions.

180-Day Rule for Creditors: If the recipient fails to pay the supplier the value of the supply along with the tax within 180 days from the date of the invoice, they are required to reverse the ITC in GSTR-3B return for the tax period immediately following the expiry of 180 days from the invoice date.

Once the payment is made to the supplier, the recipient is eligible to reclaim the reversed ITC.

Importantly, the time limit specified u/s 16(4) does not apply to such re-availment of credit. This means that the ITC can be reclaimed even after the due date for furnishing the Annual return.
Additionally, the 180-day payment rule does not apply to supplies liable to tax under RCM.

Compliance with Rule 36(4): ITC claim must not be exceeding GSTR-2B and must align with the Invoice Management System (IMS).

Tax on Advance for Services: Tax liability on services arises at the time of receipt of advance, not invoicing.

ITC Restrictions (Section 17(5)): ITC is ineligible for motor vehicles, works contract services & personal expenses . Recent amendments disallow ITC on construction (under plant and machinery) with retrospective effect.

Reconciliation Checks: Authorities compare GSTR-1, GSTR-3B, GSTR-2B, and books of accounts to identify discrepancies. Corrections should be made using GSTR-1A before filing GSTR-3B. For ITC discrepancies, businesses must use the IMS facility for reconciliation.

Amendments from the 55th GST Council Meeting:
Credit Notes: The recipient must now reverse the ITC attributable to a credit note before the supplier can reduce their output tax liability.