REQUIREMENT OF DOCUMENTS FOR AUDIT BY TAX AUTHORITIES U/S 65 OF CGST ACT AND RELATED ISSUES

[Anuj Bansal]

It’s almost five years since the inception of GST Laws. During the last five years, lot many hit & trials are done, experiments have taken place, adjustments are made in GST returns either knowingly or unknowingly, either due to mistakes while filing the returns or for correcting such mistakes. The objective of every assessee has always been to do timely compliance in order to avoid penalties. Now, the stage has come when the GST department has started audit of the assessees and accordingly, sending notices for Audits U/S 65 of the CGST Act.

It has been observed that GST department has become very aggressive in conducting audit U/S 65 of CGST Act. The assesses are required to provide hefty bunch of documents by the department irrespective of the fact whether the same are relevant or not. In one of our client’s cases, the department required us to submit copies of all outward invoices i.e., running in forty thousand pages. Therefore, such kind of requirements by the department are making the assesses feel harassed. Accordingly, some kind of clarifications should be issued from CBIC to avoid such uncalled and unwarranted details / documents.

The above also inspired us to write the present article wherein we tried to analyse the documents which may be asked by the department in the course of audit U/S 65 of CGST Act or the documents which are not relevant or not required to be submitted.

In order to elaborate on the topic, we first refer to Section 65 of the CGST Act which is related to Audit by the department. As per Section 65(1) of CGST Act, “Commissioner or any officer authorized by him, by way of general or specific order,  may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.”

The term Audit has been defined under Section 2(13) of the GST which reads as follows:

MEANING OF AUDIT UNDER CGST ACT:

As per Section 2(13) of CGST Act, “‘Audit’ means the 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 verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or Rules made thereunder.” Above definition can be further dissected as follow:

‘Audit’ means detailed examination of:

• Records
• Returns
• And other documents

Maintained or furnished by registered person under:

• Under GST Act or Rules
• Any other Law

From above, it is clear that audit can be done of documents prescribed or maintained under GST Laws or any other laws. In other words, the department cannot require the assessees to prepare documents/details which are not required to be maintained.  Therefore, we need to understand what are the documents required to be maintained under GST Laws and what documents are required to be maintained under other Laws like Income Tax Act, Companies Act, etc.

DOCUMENTS TO BE MAINTAINED AS PER GST LAWS:

Accounts and other Records which are required to be maintained as per GST Act & Rules:

Section 35(1) of CGST Act enumerate list of records to be maintained by registered person at his principal place of business. Such records shall give a true and correct account of following:

• Production or manufacture of goods.
• Inward and outward supply of goods or services or both
• Stock of goods.
• Input tax credit availed.
• Output tax payable and paid.
• Such other particulars as may be prescribed.

Further, as per Section 35(3), Commissioner may notify a class of taxable persons to maintain additional accounts or document as may be prescribed.

In addition to above, Rule 56 of CGST Rules further enumerate records to be maintained by certain particular class of registered person for following specific transactions:

• Account of goods or services Imported or Exported.
• Account of Supplies attracting payment of tax on Reverse Charge.
• Account of Stock (Both finished and raw material) in respect of goods received or supplied including opening & closing balance and also details of goods lost, stolen, destroyed, written off, free samples, gift, scrap and wastage.
• Separate account of Advances received, paid and adjustments.
• Accounts of Tax Payable, Tax Collected & Paid, Input Tax and Input Tax Credit claimed.
• Records of name and address of supplier from whom goods are received.
• Records of name and address of persons to whom goods are supplied.
• Record of the premises where goods are stored.
• Agents shall maintain principal wise records of goods received or supplied.
• Manufacturer shall maintain details of monthly production records.
• Supplier of services shall maintain records of goods used in provision of services.
• Works Contractor shall maintain account of project-wise details.

Documents to be made available by the registered persons during visit of officers to business premises:

Section 71(2) of CGST Act, enumerates following documents which a person in-charge of business premises shall on demand will make available to officer during their visit to business premises:

• Such records or documents as prepared or maintained by the registered person and declared to the proper officer.
• Trial balance or its equivalent.
• Statement of Annual Financial Accounts.
• Cost Audit Report u/d 148 of the Companies Act.
• Income tax Audit report U/S 44 AB
• Any other relevant record.

As per Rule 101(3), proper officer conducting the audit shall verify the documents on the basis of which the books of accounts are maintained and returns and statements under this Act is furnished.

List of documents to be considered during audit as recommended in GST Audit Manual (GSTAM-2019) issued by the Directorate General of Audit, CBIC

GSTAM- 2019 is a very comprehensive manual published by the CBIC for internal use of the department. It is been used extensively by the GST Audit department for initiating, planning and conducting of Audit U/S 65. Annexure-GSTAM-III illustrates the list of following documents which should be reviewed at the desk review stage of audit by the department.

1. Annual Report & Director’s Report
2. Profit & Loss Account
3. Balance sheet
4. Notes to the Accounts
5. Trial balance
6. Cost Audit Report
7. Income tax TDS certificates

DOCUMENTS TO BE MAINTAINED UNDER ANY OTHER LAW

There are many Laws in India under which a registered person may be required to maintain records like Companies Act, Income tax Act, Limited Liability Partnership, Sebi guidelines, Money Laundering Act etc. GST officer may ask such records maintained under any of the Law for the purpose of Audit U/S 65.

As per the provisions of Section 2(13) and Rule 56 (18) of CGST Act, GST officer can ask documents maintained under any other Law for the purpose of Audit. Assessee should be prepared to provide any such documents in case asked by the officer.

PRACTICAL DIFFICULTIES IN PROVIDING DOCUMENTS ASKED FOR THE PURPOSE OF AUDIT BY THE GST DEPARTMENT:

1. Requirement of documents already filed and are on GST Portal:

It has been observed that department is asking for documents which are already on GST Portal e.g., monthly GST returns, copy of GSTR 9 and GSTR 9C. In compilation of such requirement unnecessary time and energy get involved.

2. Assesses are required to submit the documents which department should prepare:

Department is asking the assesses to submit the data which is primarily their responsibility to collate. For example, Annexure-GSTAM-I suggested in Audit Manual published by the Directorate General of Audit, CBIC relates to information about the registered person. This annexure should be prepared by the department but still it has been observed that assessee is unnecessary been burdened.

3. The Department is requiring the Assesses to submit the documents which the assessees are not required to maintain under GST Laws or any other Laws:

Department is asking the assessees to provide such details or documents which are not required to be maintained either in GST Laws or any other Laws. E.g., in case of single Pan with multi-registrations, it is not possible to maintain State-wise Balance sheet and Profit & Loss A/c. There are many expenses which are taken care at head office. Department in some cases is insisting to provide State-wise Profit & Loss A/c, otherwise, it intends to reject whole books of account and treat all India sale in that particular state only. As per Section 35 of CGST Act and Rule 56 of CGST Rules, there is no mention to maintain state wise Profit & Loss A/c. General trade practices should be kept in consideration while asking for information for the purpose of Audit U/S 65. It has also been observed that the department is asking for trading account from the assesses who are providing services only and they also fail to understand that trading account is not required to be prepared for assessees who are providing only services.

4. Issuance of Stereotype notices in Mechanical manner:

It has been observed that department is issuing stereotype notices in a mechanical manner without understanding the nature of business or the kind of supply the assesses are making. It has been observed on numerous occasions that details are required which are not relevant at all for the assesses e.g., the supplier of services are required to submit the stock register, etc. Therefore, such uncalled and unwarranted information is creating hassle for assesses and also resulting in wastage of time for the department as well as for the assesses.

In the light of above discussion, it is advised that the assesses should maintain all the documents as envisaged under GST Laws or any other Law. Further, the department should also understand the requirement for the documents may only be placed for the documents which are required under Law to be maintained. In other words, there cannot be any ad-hoc requirement by the department for the details/ documents which are not required to be maintained under Law. The department should also consider the nature of business and the complexities of the business while issuing notices and undertaking audits. In other words, the audits shall not be conducted in a mechanical manner i.e., without understanding the problems of the assesses.