The concept of audit under Indirect tax is not new to Indian legislation. Earlier under the Central Excise, Service tax, VAT and other indirect tax regime, there were various requirements of audit. However there was no mandatory turnover based audit provisions under Central Excise and Service tax provisions.
Although there is concept of self-assessment under GST, there are various assessments and audit provisions under GST regime. Under GST Act there are 3 types of audit prescribed:
- Audit if the turnover exceeds a specified limit.
- General audit on an order by the commissioner
- Special Audit during any scrutiny, inquiry, investigation or any other proceedings as mandated by any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue
In this article, our scope is to cover the turnover based mandatory audit under GST regime.
Section 35(1) CGST Act read with rule 80 (3) of CGST rules casts liability upon a registered person having aggregate turnover more than Rs. 2 Crores to get the accounts audited. The audited accounts along with a reconciliation statement (as per form GSTR-9C) shall be uploaded on GST portal.
Hence any registered person whose aggregate turnover exceeds Rs. 2 Crores in a financial year shall get its accounts audited.
Since the word used is “aggregate turnover” the definition as given under section 2(6) of CGST Act is to be considered. Consequently PAN India Turnover of all supplies including the exempt supplies and export of goods and services will be considered for the applicability limit.
It is pertinent to note that the limit of aggregate turnover is to be seen PAN India wise. Hence if the PAN wise turnover crosses the limit, a view may arise that the registered person is required to get the accounts audited of all the states for which the GST registration has been obtained. So if the aggregate turnover crosses the PAN India Limit, audit will be required also for a unit in a state even if the turnover is Nil in that state.
Also the value of the exempt supplies are to be covered in the aggregate turnover, so Nil rated, exempt from GST and even Non GST supplies are to be clubbed for the checking of the applicability limit.
Pending: Whether separate audit is required for all of the locations
- Due date for the audit and audited accounts uploading
The audited accounts along with the reconciliation statement must be submitted along with the annual return. Since the due date for filing of annual return as per Section 44(1) of CGST Act is 31st December of the next year, the due date for filing of Reconciliation Statement and the audited accounts is 31st December of next year.
Although the due date for the audit is 31st December, but is suggested that the taxable person should get the accounts audited before the filing of annual return so that any inconsistencies could be identified at earlier stage. So as soon as the books of accounts are ready, the same be provided to the auditor.
- Form of audit report and reconciliation statement
If we go by the nomenclature as given in the GST Rules, there is no concept of and Audit report under GST Provisions. Section 35(5) read with rule 80 requires the submission of audited accounts along with the “reconciliation statement” as per Form GSTR-9C. But, there is no format of GSTR-9C given in the GST rules. However in September 2016 a draft audit report was released with a reconciliation statement. So the final format of the audit report/ reconciliation statement is still awaited.
- Audit by whom
The accounts are to be audited either by a Chartered Accountant or a Cost Accountant.
- What needs to be done by the Auditor
The draft reconciliation statement is quite extensive and requires various details to be furnished by the auditor. This report is not less than a marathon. Following are the major considerations in relation to GST Audit.
- Details furnished in the Return filed under GST Provisions matches with the books of accounts.
- The taxes as payable under the GST provisions have been paid timely and in case of late payment appropriate interest has been paid.
- Whether the value of supplies on which gst has been paid is as per the provisions of GST Law.
- Whether the rate applied on the supplies for the payment of gst is as per the GST provisions.
- Whether the place of supply has been determined correctly.
- Whether the input tax credit has been availed and utilized properly.
While carrying out the audit, the auditor must consider the compliance rating assigned to the auditee as per section 149 of CGST Act. As of now, there are no ratings being assigned by the Government.
Powers of Auditors
There are no detailed guidance under the GST rules in relation to the powers provided to auditor for carrying out the GST audit. Hence normal audit are to be followed for establishing the contours of the power allowed to the auditor.
These will include:
- Right of access to all the returns and GST related compliance documents filed.
- Right of access to books of accounts
- Right of access to the Cash Ledger, Credit Ledger and Liability ledger.
- To ask for the information as necessary for carrying out the audit.
- What needs to be done by the Auditee
- Provide access to books to accounts to the auditor
- Maintain the books and records as required Section 35 of CGST Act
(A major issue related to the books of accounts is that under GST Statewise books are required to be audited. Hence State wise financials and trial balance is to be provided by the Auditee which may become quite difficult)
- Provide the annual accounts to the auditor and get the accounts audited
- To provide the information and explanations as may be necessary to carry out the audit
- Uploading of the Annual return along with the audited accounts and the reconciliation statement