Various measure have been taken by the government to ensure compliance of GST law and audit is one them. Audit conducted under GST law is the examination of records maintained by a taxable person to verify the correctness of information furnished, taxes discharged, refund claimed and input tax credit availed. It is a way to analyse the compliance of taxpayer with the provisions of the GST Act.
Every registered entity whose aggregate turnover during a financial year exceeds Rs. 2.00 crore has to get audit by Chartered Accountant & Cost Accountant. Such a person has to furnish a copy of annual accounts (audited) and a reconciliation statement, duly certified in FORM GSTR-9C.
The concept of audit by a Chartered Accountant or Cost Accountant in the earlier regime was confined only to VAT laws of certain states. The Central Excise and Service-tax laws had no provision for this annual audit.
It is important to note that audit provisions are not applicable 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 turnover shall be computed on all India PAN basis, which means if a taxpayer is registered in more than one State and aggregate of turnover from all such states exceeds Rs. 2 crore, then he is liable to get the state-wise accounts audited under GST law. Aggregate turnover includes value of all exempt supplies and exports under the same PAN, on all India basis.
There may be cases where multiple GSTINs (State-wise) registrations exist on the same PAN. This is common for registered dealers with presence over multiple States. Such dealers will have to internally derive their GSTIN wise turnover and declare the same in Form-9C.
GSTR-9C – Design
A look at GSTR-9C makes it clear that it is essentially a reconciliation statement for reconciling turnover, input tax credits and tax payments reported in GST returns (annual return) vis-a-vis annual books of accounts.
The details for the period between July 2017 to March 2018 are to be provided in this statement for the financial year 2017-18. The reconciliation statement is to be filed for every GSTIN separately.
Government has prescribed 2 different certifications as part of GST Audit Format – one where reconciliation statement is drawn and audited by statutory audit and the other wherein it is drawn and audited by a person other than statutory auditor.
GSTR-9C is broadly segregated into the following:
a) Reconciliation of gross turnover (including taxable and non-taxable turnovers) declared in annual audited financial statements with turnover declared in annual return (Form-9)
b) Reconciliation of taxable turnover with taxable turnover declared in annual return (Form-9)
c) Reconciliation of tax liability with total tax paid declared in annual return- rate wise (Form-9)
d) Reconciliation of Input tax credit availed in audited financial statement with ITC claimed in annual return (Form -9)
e) Reconciliation of ITC declared in annual return with ITC availed on expenses as per audited financial statement.
f) Auditor’s recommendation on additional liability due to non-reconciliation (other than above)
The reconciliation is to be accompanied with certification from the auditor (can be statutory auditor as well but not the internal auditor).
Any liability arising due to non-reconciliation need to be paid in cash (no option to utilize input credit)
Taxpayers should note that any liability arising due to non-reconciliation need to be paid in cash (no option to utilize input credit).
Reconciliation for ITC availed on expense in audited financials vis a vis annual return
The format prescribes indicative sub-heads under which the expenses are generally booked in the financials (like freight, purchases, imports, employee cost, repair & maintenance, capital goods etc.). Tax payer may add/ delete the sub-head as per relevancy and against these sub-heads, the amount of input tax credit as reported in financials is to be reconciled with annual return. However, this is a new requirement and could be challenging for most taxpayers.
GST auditor can recommend on additional liability due to non-reconciliation
The format prescribes a section wherein the auditor can recommend any additional liability to be discharged by the taxpayer due to non-reconciliation of turnover or non-reconciliation of input tax credit. The auditor shall also recommend if there is any other amount to be paid for supplies not included in the annual return.
Any refund which has been erroneously taken and shall be paid back to the government shall also be declared in this table. Lastly, any other outstanding demands which is recommended to be settled by the auditor shall be declared in this section.
Appointment of GST auditor
With the audit format being released and 31st December 2018 deadline for the financial year 2017-18 approaching, it would be prudent on part of the taxpayers to quickly appoint their GST auditor and initiate the pre-audit process by collating information and documents required for the purpose of Audit.