LAW AND PROVISION OF SPECIAL AUDIT IN GST

[Yogesh Narang]

In the present article I am going to discuss the law and procedure of Audit to be 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 law 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 document 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. That 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 has 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.

SPECIAL AUDIT

Section 66 of CGST, Act, 2017 and Rule 102 of CGST Rules, 2017 deals with law and procedure of the Audit conducted by the department, which we will discuss herein below:

WHO IS VESTED WITH THE POWER TO CONDUCT AUDIT:

As per Section 66(1) of CGST Act, 2017, the Officer not below the rank of Assistant Commissioner, may direct the registered person to get his accounts audited by a chartered accountant or a cost accountant as nominated by the Commissioner.

But law also required the Officer authorized u/s 66(1) of CGST Act, 2017 that before directing any registered person to get his books of accounts audited, it is necessary to take prior approval of Commissioner.

Here, the Rule 102(1) of CGST Rules, 2017 comes in to role which prescribed that a direction required u/s 66(1) of CGST Act, 2017, shall be issued in FORM GST ADT-03.

So, to get the special audit under GST of any registered person prior approval of Commissioner is necessary, any audit without approval of Commissioner is void ab initio.

 WHEN SPECIAL AUDIT IS REQUIRED:

 That as per Section 66(1) of the CGST Act, 2017, the Audit referred above can be directed in following circumstances:

1. It can be conducted at any stage of scrutiny, inquiry, investigation or any other proceedings before the Officer not below the rank of Assistant Commissioner.
2. If he thinks fit or if he has an opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may direct special Audit by a chartered accountant or a cost accountant by getting prior approval of Commissioner.

TIME BARRING LIMIT OF AUDIT:

1. That as per Section 66(2) of the CGST Act, 2017, the law prescribed the time limit to complete the Audit and to submit a report duly signed and certified by a chartered accountant or a cost accountant within the period of ninety days to the Assistant Commissioner.
2. Further, it is provided in law that the Assistant Commissioner is vested with power to extend the limit for a period of further ninety days, on an application of registered person or by a chartered accountant or a cost accountant or having sufficient reason to extend the same.

OPPORTUNITY OF BEING HEARD:

As per Section 66(4) of the CGST Act, 2017, the law states that any material which is gathered for special audit u/s 66(1) of CGST Act, 2017, which is proposed to be used against assessee in any proceeding against him, an opportunity of being heard to be given to assessee in respect of that material.

EXPENSES OF AUDIT:

As per Section 66(5) of the CGST Act, 2017, the law states that all the expenses including remuneration due to a chartered accountant or a cost accountant shall be determined and paid by the Commissioner and the decision of Commissioner is final. 

FINDING OF AUDIT: 

As per Section 66(6) of the CGST Act, 2017, the proper officer on completion of audit u/s 66 of CGST Act, 2017 shall give his finding of audit and if he finds that tax was not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, than the proper officer may invoke the provisions of Section 73 or Section 74 of CGST Act, 2017.

Here, the Rule 102(2) of CGST Rules, 2017 comes in to role which prescribed that on completion of audit the registered person shall be informed in FORM GST ADT-04.