GST Audit – Types, Provisions, Applicability & Procedure.

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Tax liability on supply of Goods and Services or both is computed buy a Registered Person under Self-Assessment Scheme of the Act. In other to ensure whether the Tax liability has been correctly computed and discharged by the Registered Person, it becomes essential for the Department to conduct an GST Audit of Records maintained by the Person.

Table of Contents

1. Types of GST Audit as prescribed in the GST Act(s)

There are three types of audit prescribed in the GST Act(s) as explained below:

(a) GST Audit by Chartered Accountant or a Cost Accountant:

Every registered person whose turnover exceeds the prescribed limit, shall get his accounts audited by a chartered accountant or a cost accountant. (Section 35(5) of the CGSTISGST Act)

(b) GST Audit by Department:

The Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered person. The frequency and manner of audit will be prescribed in due course. (Section 65 of the CGST/SGST Act)

(c) Special GST Audit:

If at any stage of scrutiny, inquiry, investigations or any other proceedings, if department is of the opinion that the value has not been correctly declared or credit availed is not within the normal limits, department may order special audit by chartered accountant or cost accountant. nominated by department. (Section 66 of the CGST / SGST Act)

2. GST Audit by Tax Authorities [Section 65 of the CGST Act, 2017]

(1) Power with the Commissioner to Undertake Audit of any Registered Person [Section 65(1)]

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.

(2) Option to conduct Audit at Place of Business or in Office of the Commissioner or Authorized Officer [Section 65(2)]

The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.

(3) Prior Intimation to the Registered Person to Conduct Audit at a Future Date [Section 65(3)]

The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.

(4) Time Limit for completion of Audit [Section 65(4)]

The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit:

Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.

Explanation.—For the purposes of this sub-section, the expression ‘commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

(5) Duty of the Registered Person to Afford Necessary Facility, Information and Assistance to the Authorized Officer [Section 65(5)]

During the course of audit the authorized officer may require the registered person,—

(i) to afford him the necessary facility to verify the books of account or other documents as he may require;

(ii) to furnish such information as he may require and render assistance for timely completion of the audit.

(6) Communication of Findings of Audit, Rights Obligations of Registered Person on Completion of Audit [Section 65(6)]

On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

(7) Initiation of Action under section 73 or 74 in certain cases [Section 65(7)]

Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

FAQ’s on GST Audit by Tax Authority

1. Whether any prior intimation is required before conducting the audit? [Question No. 14 of FAQ’s]

Ans. Yes, prior intimation is required and the taxable person should be informed at least 15 working days prior to conduct of audit.

2. What is the period within which the audit is to be completed? [Question No. 15 of FAQ’s]

Ans. The audit is required to be completed within 3 months from the date of commencement of audit. The period is extendable for a further period of a maximum of 6 months by the Commissioner.

3. What is meant by commencement of audit? [Question No. 16 of FAQ’s]

Ans. The term ‘commencement of audit’ is important because audit has to be completed within a given time frame in reference to this date of commencement. Commencement of audit means the later of the following:

(a) the date on which the records/accounts called for by the audit authorities are made available to them, or

(b) the actual institution of audit at the place of business of the taxpayer.

4. What are the obligations of the taxable person when he receives the notice of audit? [Question No. 17 of FAQ’s]

Ans. The taxable person is required to:

(a) facilitate the verification of accounts/records available or requisitioned by the authorities,

(b) provide such information as the authorities may require for the conduct of the audit, and

(c) render assistance for timely completion of the audit.

5. What would be the action by the proper officer upon conclusion of the audit? [Question No. 18 of FAQ’s]

Ans. The proper officer shall, on conclusion of audit, within 30 days inform the taxable person about his findings, reasons for findings and the taxable person’s rights and obligations in respect of such findings.

3. Special GST Audit [Section 66 of the CGST Act, 2017]

(1) Who is Authorized to Direct Special Audit and When such Direction can be made? [Section 66(1)]

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.

(2) Time Limit for completing Special Audit and Extension thereof [Section 66(2)]

The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified:

Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further period of ninety days.

(3) Special Audit May be Directed Even if Accounts are Audited under Any Other Law [Section 66(3)]

The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.

(4) Registered Person .3lust be Given Opportunity of Being Heard Prior to Using any Finding of Special Audit Against him [Section 66(4)]

The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.

(5) Expenses of Special Audit including Remuneration of Auditor to be Determined and Paid by the commissioner [Section 66(5)]

The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.

(6) Initiation of Demand & Recovery u/s 73 or 74 where Special Audit Results in Detection of Tax Liability [Section 66(6)]

Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

FAQ’s on Special GST Audit

1. Under what circumstances can a special audit be instituted? [Question No. 19 of FAQ’s]

Ans. A special audit can be instituted in limited circumstances where during scrutiny, investigation, etc. it comes to the notice that a case is complex or the revenue stake is high. This power is given in section 66 of CGST /SGST Act.

2. Who can serve the notice of communication for special audit? [Question No. 20 of FAQ’s]

Ans. The Assistant/Deputy Commissioner is to serve the communication for special audit only after prior approval of the Commissioner.

3. Who will do the special audit? [Question No. 21 of FAQ’s]

Ans. A Chartered Accountant or a Cost Accountant so nominated by the Commissioner may undertake the audit.

4. What is the time limit to submit the audit report? [Question No. 22 of FAQ’s]

Ans. The auditor will have to submit the report within 90 days or within the further extended period of 90 days. .

5. Who will bear the cost of special audit? [Question No. 23 of FAQ’s]

Ans. The expenses for examination and audit including the remuneration payable to the auditor will be determined and borne by the Commissioner.

6. What action the tax authorities may take after the special audit? [Question No. 23 of FAQ’s]

Ans. Based on the findings/observations of the special audit, action can be initiated under Section 73 or Section 74 of the CGST/SGST Act.

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