Annexure 14: Ratio Analysis & Trend Analysis - Model All India GST Audit Manual 2023 [CBIC] - GST

Annexure 14: Ratio Analysis Trend Analysis The relative values of one data fiel d when compared with another could help to detect potential errors or areas of non- compliance. It also helps to detect wrong Input Tax Credit availed, wrong valuation, claiming of input tax credit on inputs used in exempted goods / services, availment of ITC without receipt/actual use of input, etc. Example 1 Audit Officer finds that the RTP (auditee) has a tax liability of Rs. 72 lakh out of which Rs. 70 lakh has been paid upon setting off ITC from his credit ledger and only Rs. 2 lakh has been paid in cash. In this case, the Officer should apply the ratio of [ITC availed : Total tax paid through Electronic cash ledger + tax paid through Electronic credit ledger]. In this case, The result is 70/(2+70) = 70/72 = 0.972, i.e. 97.2%. The result on such higher side may be of various reasons including accumulation of high stock resulting in accumulation of ITC. But, if the RTP is a reseller without having significant warehouses, or if the goods dealt in are perishable in nature, the issue of stock holding will not stand good. This should ring a bell in the audit officer s head that there may be a case of: wrong availment of input tax credit on goods/services in excess including claiming of input tax credit on inputs used in exempted products. under valuation of goods as value-addition should involve adequate difference between the two. or suppression of sales. Example 2 The auditee deals with both exempted goods and taxable goods. Total supply in the audit period is of Rs. 10 crore out of which exempted supplies amount to Rs. 6.5 crore. In this case, the Audit Officer should apply the ratio of [Value of exempted outward supply: value of total outward supplies made]. This ratio helps to identify: outward supplies made in the guise of exempted supplies. supply of essential parts of outward supply as exempted supplies. under valuation of outward supplies by overvaluing exempted outward supply As in this case, the ratio comes out as 0.65 or 65%. If the audit officer is satisfied that the figures pertain to actual supply of exempted goods, it should be thoroughly examined whether the supplier has availed any ITC on inputs related to such exempted supplies. In such case, including cases of availing common credit, proportionate ITC is to be reversed. Example 3 Ratio analysis for over a continuous period, say 3 years gives a holistic picture of the trend of the RTP. Taking an example, if the ratio of [Amount of input tax credit availed on inward supply : Total tax liability on outward supply] is studied over a period of 3-4 years, and if the ratio is increasing there is the possibility of the following irregularities:- Rendering of unaccounted outward supply; Under valuation of outward supply; Showing outward supply income as non-taxable outward supply income. Inflation of inward supply credit. Some of the indicative ratio analysis and trend analysis as follows may be carried out by the audit officer RATIO ANALYSIS I. BASED ON RETURN DATA Sl. RATIO 2017-18 2018-19 2019-20 i) Inward supply value : outward supply value ii) EWB value of inward supply : EWB value of outward supply iii) Non-GST Turnover : Total Turnover iv) Exempted Supply value : Total Turnover v) Value of Goods Sent for Job Work : Total Turnover vi) ITC on inward supply : Total inward supply vii) Total ITC available : Total GST payable viii) ITC availed on capital goods purchased during the years : addition to capital goods ix) ITC availed on Capital Goods : Total ITC availed x) Transitional ITC availed : ITC availed in the year xi) Tax payable: Total turnover xii) Total Ineligible Reversed ITC : Total ITC Availed xiii) Tax payment by ITC : Total Tax paid xiv) Tax paid in cash : Tax paid on setting off ITC II. BASED ON FINAL ACCOUNTS DATA Sl. RATIO 2017-18 2018-19 2019-20 i) Inward supply value : outward supply value ii) Other income : outward supplies iii) Gross profit : Gross revenue iv) Power consumption/fuel consumption (Qty) : production quantity as per P L Account v) Production of Goods : Scrap Scrap: Production of goods vi) Quantity of Actual production : installed capacity vii) Cost of Major input: Value of outward supplies viii) Consumables value: Value of taxable supplies. ix) Net profit : Value of outward supplies x) Capital employed : Value of outward supplies TREND ANALYSIS I. GENERAL TRENDS Sl. PARTICULARS 2017-18 2018-19 2019-20 a) Total Turnover b) Total Zero Rated (Exports) Supply, c) Supply to SEZ d) Deemed Export e) Total Exempted Supply f) Total NIL rated Supply g) Total Non-GST Supply h) Total Taxable Outward Supply i) Total Inward Supply subject to Reverse Charge j) Total Tax payable on Outward Supplies k) Additional Tax paid by DRC-03 (Annual Return) l) GST of a particular goods/service vis-a-vis overall growth of that industry. (%) m) Trend in proportion of value of exempted goods/services to the total value of goods/services. (%) n) Gross operating profit o) GST paid by debit in Electronic Cash ledger vis- -vis GST paid by debit in Electronic Credit Ledger p) GST paid by debit in Electronic Credit ledger vis- -vis Total GST paid q) Value of outward supplies made to related person vis-a- vis total value of supplies. (%) r) Inter unit transfers /sales to related party as per Balance Sheet s) Total refund claimed t) Total refund sanctioned u) Demand raised (if any) v) Value of EWB outward w) Value of EWB inward II. ANALYSIS FOR MANUFACTURER OF GOODS Sl. PARTICULARS 2017-18 2018-19 2019-20 a) Cost of production of major finished Goods (as per cost record) b) Quantity of inputs consumed in the production of Finished Goods c) Value of inputs consumed in the production of Finished Goods d) Production of finished goods compared to outward supplies e) Production of scrap compared to Production of finished goods f) Production of taxable outward supplies vis-a-vis exempted supplies g) Movement of inward supplies vis-a-vis total production h) Movement of inward supplies for goods manufactured on job-work vis-a-vis total production III. ANALYSIS FOR MANUFACTURER AS WELL AS RESELLER OF GOODS Sl. PARTICULARS 2017-18 2018-19 2019-20 a) Difference in ITC taken ITC available on purchase of raw materials b) Job work income as per P L Account or Trial balance c) Movement of inward supplies vis-a-vis total outward supply IV. ANALYSIS FOR SUPPLIER OF SERVICES Sl. PARTICULARS 2017-18 2018-19 2019-20 a) Difference in ITC taken ITC available on input services b) Cost of procurement of major services provided (as per books) V.ITC TREND ANALYSIS Particulars 2017-18 2018-19 2019-20 Opening balance Total ITC availed on Inputs Total ITC availed on Input Services Total ITC availed on Capital Goods Total ITC received from ISD TRAN credit claimed Total ITC eligible availed Ineligible ITC, Not availed Credit utilized for payment of tax (Debit entries in e-credit ledger) ITC reversed Closing balance VI. TURNOVER TREND ANALYSIS Year Turnover as per P L A/c or Trial Balance Other Income Value of Taxable Supplies Total GST paid GST paid in cash GST paid by setting of ITC 2017-18 2018-19 2019-20