LAW AND PROVISIONS FOR AUDIT TO BE CONDUCTED BY DEPARTMENT IN GST

[Yogesh Narang]

In the present article I am going to discuss the law and procedure of Audit conducted by the department and special audit as prescribed under GST law. The concept of Audit is not a new concept, the tax payers are already required to get his books of accounts audited under various laws like Income Tax Act, 1961, VAT Act, 2005 and Companies Act, 2013.

INTRODUCTION:

Section 2(13) of the CGST Act, 2017 defines “Audit” means the examination of records, returns and other documents maintained or furnished by the registered person under the GST Acts 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 the GST Acts or the rules made thereunder.

NEED OF AUDIT:

1. That to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed by assessee.
2. That to examine the record of return and other documents maintained or furnished by the assessee.
3. That as GST is a self assessment based tax, so, to keep an eye to prevent the frauds in GST  a robust audit mechanism to measure and ensure compliance of the provisions of law by the taxable person.

TYPE OF AUDIT:

GST Act, 2017 envisages three types of Audit and the same are as follows:

1. Audit by chartered accountant or a cost accountant:

Section 35(5) of CGST Act, 2017 states that “Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.

“Provided that nothing contained in this sub-section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”

The first audit is by a chartered accountant or a cost accountant. Every registered person whose aggregate turnover during a financial year exceeds two crore rupees is required to get his accounts audited by a chartered accountant or a cost accountant and furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C.

It is noteworthy to mention here that for businesses with an annual turnover of less than ₹ 5 crore, filing of GSTR-9C for FY 2018-19 has been waived off.

2. Audit by department:

Section 65(1) of CGST Act, 2017, states that “The Commissioner or any officer authorized by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.”

In the second type which is the normal audit, GST law vested power of Audit to the Commissioner or any officer authorized by him, can undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

3. Special Audit:

Section 66(1) of CGST Act, 2017, states that  “If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.”

The third type of audit is called the Special Audit. In Special Audit, the registered person can be directed to get his records including books of account examined and audited by a chartered accountant or a cost accountant during any stage of scrutiny, inquiry, investigation or any other proceedings; depending upon the complexity of the case.

AUDIT BY DEPARTMENT

Section 65 of CGST, Act, 2017 and Rule 101 of CGST Rules, 2017 deals with law and procedure of the Audit to be conducted by the department, which we will discuss herein below:

WHO IS VESTED WITH THE POWER TO CONDUCT AUDIT:

As per Section 65(1) of CGST Act, 2017, the Commissioner and any Officer authorized by him can conduct an Audit under GST of any registered person by passing a general or specific order.

Therefore, law vested the power with Commissioner to conduct audit and also vested the power that Commissioner can authorize any other officer to conduct the Audit of any taxable person under GST Act.

 WHERE THE AUDIT CAN BE CONDUCTED:

 That as per Section 65(2) of the CGST Act, 2017, the Audit referred above can be conducted by the Commissioner or any Officer authorized by him, either at the business place of assessee or registered person (whose audit is to be conducted) or in his office.

PRIOR NOTICE OF AUDIT: 

That as per Section 65(3) of the CGST Act, 2017, the law bounds to the Commissioner or Officer authorized by him for conducting the Audit under GST law shall inform to the registered person by issuing notice for not less than 15 working days.

Here, the Rule 101(2) of CGST Rules, 2017 comes in to role which prescribed that a notice required u/s 65(3) of CGST Act, 2017, shall be issued in FORM GST ADT-01.    

TIME BARRING LIMIT OF AUDIT:

1. That as per Section 65(4) of the CGST Act, 2017, the law prescribed the time limit to complete the Audit i.e three months from the date of commencement of Audit.
2. Further, it is provided in law that the Commissioner is vested with power to extend the limit for a period not more than six months by recording a reason in writing. Here, it is necessary to mention that the Commissioner can use his power only if he is satisfied that the Audit cannot be completed with the period of three months as prescribed in law.
3. That commencement of audit means when the record and documents called by tax authorities are provided by a registered person or actual institution of Audit at business place of registered person which ever is occurred later.

FINDINGS OF AUDIT: 

As per Section 65(6) of the CGST Act, 2017, the Officer who conduct the audit u/s 65 of CGST Act, 2017 shall bound to give his findings within the period of thirty days from the completion of audit stating therein his rights and obligations and reasons for his finding.

Here, the Rule 101(2) of CGST Rules, 2017 comes in to role which prescribed that on completion of audit the finding as required u/s 65(6) of CGST Act, 2017, shall be made in FORM GST ADT-02.

As per Section 65(7) of the CGST Act, 2017,  if at the end of the audit, it is concluded or finds that tax was not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, than the Officer may invoke the provisions of Section 73 or Section 74 of CGST Act, 2017.