AUDIT PROVISIONS UNDER GST

[Dr. Sanjiv Agarwal]

Meaning of audit

According to section 2(13) of the GST Act, 2017, ‘audit’ means detailed examination of records, returns and other documents maintained or furnished by the taxable person under this Act or Rules made thereunder or under any other law for the time being in force to verify, inter alia, 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 there under.

Accordingly, ‘audit’ implies –

(a)   detailed examination of records, returns and other documents -

(i)   maintained/furnished by a taxable person,

(ii)  under GST law/any other law or rules;

(b)  Verification of correctness of -

(i)   turnover declared;

(ii)  taxes paid.

(iii) refund claimed, and

(iv) input tax credit availed;

(v)  Assessment of compliances with provisions of GST law and rules.

The relevance of audit is much more where self assessment is resorted to. Every information disclosed in a record or any return or document has to be assessed, cross verified and tested in terms of the internal and external evidence available. Internal evidence includes such documents or records as are maintained by the person being audited while, external evidence means such documents or records regarding the person being audited as are generated by other persons with whom he has business dealings. Audit involves examining the evidence, ascertaining its reliability and establishing the relevance or applicability of such evidence to the affairs of the person being audited and testing or verifying the information disclosed in the records, accounts or returns of the person. Thus, audit is an activity that calls for the application of specialized skills.

Action for non-compliance with law

According to section 61(3) of the GST Act, 2017 where –

●     no explanation is furnished, or

●     explanation furnished is not found satisfactory, or

●     taxable person fails to take corrective action/measures after accepting the discrepancies,

proper officer may initiate appropriate action against such taxable person which may include –

●     audit by tax authorities under section 65

●     special audit under section 66

●     inspection, search or seizure under section 67

●     proceed to determine tax and other dues under section 79 providing for recovery of dues.

Audit by tax authorities

According to section 65 of the GST Act, 2017 in relation to audit in GST regime, following points are worth noting –

(i)     who can authorize/conduct audit – commissioner of GST or commissioner of SGST or officer authorized by him by an order (general or specific);

(ii)    audit of what – business transactions of any taxable person;

(iii)   audit when - after at least 15 days advance notice;

(iv)   how audit will be done – to be carried out in a transparent manner. Period to be covered, frequency and manner to be prescribed;

(v)    where audit may be conducted - at place of business of registered person or their office (revenue department);

(vi)   audit period to be completed - within three months of date of commencement of audit (may be extended by further period of six months);

(vii)  what is expected from auditee taxable person – auditee is required:

(a)   to afford officer auditing, the necessary facility to verify books of accounts/other documents as he may require at such place,

(b)  to furnish information which he may require,

(c)   to render assistance for timely completion of audit;

(viii) what auditing officer should do on completion of audit – to inform the taxable person about –

(a)   audit findings without delay,

(b)  taxable person’s rights and obligations,

(c)   reasons for audit findings.

Issue of order of audit

As per section 65(1), an Order directing audit of a taxable person –

(a)   shall be issued by Commissioner of GST or SGST;

(b)  shall be in writing;

(c)   may authorize any officer to undertake audit;

(d)  may be general order or specific order;

(e)   shall specify period of audit;

(f)   shall specify frequency of audit;

(g)   shall prescribe manner of undertaking audit.

Surprise element in audit

As per section 65(3), it has been stipulated that for the audit, taxable person shall be informed, by way of a notice, sufficiently in advance, not less than fifteen working days, prior to the conduct of audit in the manner prescribed.

Information regarding audit

As per sub rule (2) of rule 101 of the GST Rules, 2017 where it is decided to undertake the audit of a registered person in accordance with the provisions of section 65, the proper officer shall issue a notice in FORM GST ADT-01 inaccordance with the provisions of sub-section (3) of the said section.

Audit - mandatory or discretionary

Audit under section 65 of the GST Act, 2017 is a discretionary audit and shall be carried out only in cases where such audit of business transaction as is deemed proper, in the given set of facts and circumstances.

The audits carried out or ordered under any order provision, i.e. section 35(5) or 66 of the GST Act, 2017 are mutually exclusive and these audits can be carried out on the auditee (registered taxable person) simultaneously. Further, each such audit has different objective. However, unlike section 66(3) dealing with special audit which contains a non-obstante clause, section 65 does not have any such over-riding provision.

Time for completion of audit

Audit has to be completed within a stipulated period of three months (subject to extension) from the date of commencement.  ‘Commencement of audit’ shall imply that date on which the records and other documents, called for by the tax authorities, are made available by the taxable person or date of actual institution of audit at the place of business, whichever is later. The period of three months can be extended by six months for reasons to be recorded in writing.

Example:

Date on which documents requested	1 December 2017
Date of which documents/records made available	20 December 2017
Date of actual institution of audit at auditee’s place	5 January, 2018
The date of commencement of audit will be taken as	5 January, 2018
Date by which audit should be completed in normal course	4 April, 2018
Last date by which audit should be completed (including extended period)	4 October, 2018

Outcome of audit under section 65

On completion of audit under section 65, proper officer is required to do the following without delay –

(a)   inform the audit findings to the taxable person whose records have been audited

(b)  Inform the taxable person of his rights and obligations

(c)   Inform the taxable person the reasons for the audit findings

(d)  Initiate action under section 73, ie determination of tax not paid or short paid or erroneously refunded, if the audit results in detection of (i) tax not paid or short paid, or (ii) tax erroneously refunded, or (iii) input tax credit erroneously availed.

Time limit for disclosing the audit findings to auditee

As per section 65(6) of the GST Act, 2017, on conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

Action on Audit

Section 65 of the GST Act, 2017 only provides for audit of business transactions of a taxable person. Only when the audit results in detection of tax evasion or wrong input credit availed, proper officer may initiate action under section 73 of the GST Act, 2017.

Section 73 provides for determination of tax in the following situations–

1. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts.
2. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful-misstatement or suppression of facts.

It may be noted that in Central Excise and Service Tax, Excise Audit and Service Tax audit was carried out by way of verification and scrutiny by audit Commissionerate, though there was no specific provision for audit by departmental officers. Rule 5A of Service Tax Rules, 1994 provides that commissioner or audit team of Comptroller and Auditor General of India can visit the assessee’s premises for audit purposes.

Difference between the two audit under sections 65 and 66

Following comparison can be made out between audits under sec 65 and 66 of the GST Act, 2017:

Issue	Audit under section  65	Audit under section 66
Statutory provisions	65	66
Trigger point	General audit; audit of business transactions, no specific reason to be cited	Nature & complexity of case, interest of revenue, incorrect value of supply or abnormal availment of credit
Nature of audit	Departmental audit	Special audit
Conducted by	Officers of department authorized by commissioner	Chartered accountant/cost accountant appointed by commissioner
Frequency	Discretionary	Discretionary
Prior notice to auditee	Yes, 15 days’ notice is required	No such notice/intimation envisaged
Time for conclusion of audit	3 months, further extension of 6 months allowed	90 days, further extension of 90 days allowed
Audit findings/report	To be intimated soon on completion of audit	Report to deputy/assistant commissioner
Audit expenses	Borne by department	Borne by department
Opportunity of being heard	No specific provision	Yes, where material gathered during audit is to be used in any proceedings against the auditee
Action based on report	Yes, under section 73 by issuance of SCN	Yes, under section 73 by issuance of SCN