THEMATIC AUDIT- AN OVERVIEW - Handbook of GST Law & Procedures (CBIC) [October 2024] - GST

7. THEMATIC AUDIT- AN OVERVIEW The purpose of Theme-based audit is to conduct a focused audit instead of a comprehensive audit , so that available resources are directed to check/verify compliance of sensitive issues or sectors. The results obtained from theme-based audit assists the policy makers to assess compliance level of a particular type of service/industry or trade sectors or areas so that compliant sectors may be extended greater facilitation and special focus may be directed to ensuring compliance on sectors with relatively low compliance scores. It is a value-adding approach that helps the Auditors to determine, consolidate and report high-level insights in the business transactions and practices prevalent in a particular type of industry/service sector. Theme-based audit may have both compliance and performance audit objectives. 7.1 The following scenarios may lead to a thematic audit- Taxpayers in the same supply chain registered in same/different states. Simultaneous audit of taxpayers which have same modus operandi of tax evasion and are registered across states. Taxpayers dealing in supply of some goods/services which have also been determined as evasion prone. Thematic audit may also extend to specificity like trends in availment and utilization of ITC in any given sector. 7.2 Administrative arrangement for selection of themes for thematic audit (i) For conducting thematic audit, GST Council has formed an All-India Coordination Committee at all India level which shall select themes for conducting theme-based audit at all India level in a coordinated manner. (ii) The All-India Coordination Committee shall constitute a Committee of Officers in each state/UT for selecting taxpayers in a state for conducting thematic audit, coordinate among various Audit Authorities for evolving a common minimum audit plans for a given theme, monitor actual audit by the field formations and disseminate audit outcome to appropriate stakeholders. 7.3 Administrative arrangement for conduct of Thematic Audits For coordination of actual audit, the All-India Coordination Committee has constituted a Committee of Officers (CoO) for each State/UT composed of the following two members- State GST Commissioner CGST Audit Commissioner preferably located at the same station. The Committee of Officers shall select the taxpayers based on the themes which have been finalized by the All-India Coordination Committee. The details of the taxpayers so selected, will be shared with Audit formations of the Central and State Tax Authorities for conducting audit proceedings. 7.4 Role of Audit field formations (of Central and State Tax) for conducting thematic audit Theme-based audit of a selected taxpayer shall be conducted by the concerned GST audit authority, i.e., the jurisdictional Central or State Audit Officer. Considering the importance of thematic audit, it is imperative to allocate appropriate resources/staff in each of the Audit formation. Audit groups dealing with Thematic Audits should be given proper training to deal with audit of records of the taxpayers of the selected themes. 7.5 Standard Operating Procedure (SOP) for conducting Thematic Audit a. The All-India Coordination Committee shall select the themes for Audit and communicate the Themes to the Committee of Officers responsible for Audit. b. For a given theme, the Committee of Officers shall select the taxpayers to be audited in that State. c. Audit groups earmarked for conducting the theme-based audit shall request the selected taxpayer(s) for providing necessary documents viz. Balance sheet(s), 3 CD report (Statement of particulars required to be furnished under Section 44AB of the Income Tax Act, 1961, profit and loss statement, income tax returns etc. The concerned audit group shall also take out various GST returns filed by the said taxpayer and examine/scrutinize them. They will accordingly prepare the Desk Review (DR) and the Audit Plan (AP). As with entity-based audit discussed in the earlier section above, as much data as possible may be gathered from the documents/returns already available in the system. d. All such Audit groups (both under Centre and State Tax Authorities) shall forward the proposed audit plan so prepared by them, to the Committee of Officers which shall examine these audit plans to ensure uniformity in approach and provide further inputs, if any. After this exercise, a common minimum Audit Plan shall be prepared and communicated to all Audit Groups for conduct of audit. e. The Committee of Officers for conduct of thematic audit shall also indicate a date on which audit of all such taxpayers irrespective of their jurisdiction (whether under Centre or State) shall commence. f. After conducting an audit, all the Audit Groups shall prepare their observations and convey to the taxpayer (s) for their written response to these observations. In their written response, the taxpayer is expected to communicate their agreement or disagreement, as the case may be, to the observations pointed out by the Audit Group. After considering the written response from the taxpayer, the Audit Group shall prepare the draft audit para(s). g. The Audit Group shall forward their draft audit para(s) to the Committee of Officers for approval. Before approving the draft audit para(s), the Committee of Officers may hold a meeting (physical/virtual) with concerned audit groups. This Committee may also point out certain additional areas which need to be looked into by the audit groups before finalizing the audit paras. h. Once draft audit para(s) are approved by the Committee of Officers, the audit group(s) shall present their draft audit report before their respective Audit Authorities for approval. The Audit Authorities may adopt a practice of holding monthly meetings of the monitoring committee for approval of audit paras presented by their audit groups. i. Once audit para(s) are finalized after approval of the Monitoring Committee, the concerned audit officers/groups shall issue Final Audit Report (FAR), a copy of which shall also be endorsed to the coordination committee for dissemination to Central Tax Audit Commissionerates / State Audit Officers across India for information. j. The audit paras which have been agreed upon by the taxpayer shall be closed after payment of the due tax amount along with appropriate interest and penalty, if any. k. As regards unpaid/short paid GST is concerned where the taxpayer is not in agreement with the audit para and is not willing to pay outstanding GST along with interest and penalty, the audit groups shall prepare demand cum show cause notice to be adjudicated by the appropriate Tax Officer. Before the issue of demand cum show cause notice, the taxpayers may be given pre-consultation so as to give them one more opportunity to explain their point of view before a final decision is arrived at. This will reduce unnecessary litigation which is good for both the taxpayer as well as the government. l. After adjudication proceedings, recovery action against the taxpayer shall be taken by the appropriate jurisdictional tax authority (i.e. Central Tax Commissionerates or State Tax Jurisdictional Authority) in accordance with Section 79 of the CGST/SGST Act, 2017 read along with relevant rules and provisions issued therein. m. The jurisdictional tax authorities shall upload the audit findings (in a predetermined format), in an Audit Utility which shall be accessible to all the Audit formations across the country. These findings may be helpful in detecting similar types of anomalies in similar cases across the country.