Audit under GST is compulsory for all registered dealers whose annual turnover is more than 2 crores. GST Audit is the examination of records maintained by a registered dealer. The audit will mainly focus on three key areas namely i) correctness of data declared by the taxpayer, ii) taxes paid and iii) compliance with GST law. GST Audit must be conducted by a practicing CA or a CMA.
The Government has notified the GSTR-9C form for annual GST audit under which every taxpayer above Rs 2 crore turnover in a financial year would need to fill up a reconciliation statement and also obtain a certification of an audit.
According to section 35 of CGST Act, 2017, every taxpayer whose turnover exceeds Rs 2 crore during a financial year, is required to submit audited annual accounts and a reconciliation statement in GSTR-9C.
Design of GST Audit Report:
GSTR-9C 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.
GSTR-9C is broadly divided into the following:
a) Gross turnover (including taxable and non-taxable turnovers)
b) Taxable turnover
c) Tax liability and payments (rate-wise)
d) Input tax credit availement
The reconciliation is to be accompanied with certification from the auditor (can be statutory auditor as well). Further, there is a separate table for auditor’s recommendation on additional liability to be discharged on account of non-reconciliation of turnover and input tax credit. The auditor may also recommend on erroneous refunds, outstanding demands etc.
There is a separate table for disclosing additional amount payable on account of un-reconciled amount as per Sr. No. 1, 2, 3 and 4. Taxpayers should note that it appears that the said amount is to be paid in cash (and not credit).
Some Points for Consideration:
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.
Fortunately, the 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.
It would, however, be interesting to see if the auditors would be comfortable with the prescribed language for certifications and if any changes in the language would be allowed while certifying the reconciliation statement. At the moment, Part B provides the format of the certification.
Check List for Companies:
- Reconciliations: Ensure reconciliations of output tax/input tax between the books of accounts, returns and e-waybills issued (output side) / tax discharged by the vendors (input side).
- Tax positions: Review the tax positions adopted by the company and also whether these are correctly reflected in documentation.
- Credits: Review if any ineligible credits have been availed (include the ng review of credits availed) and in the process also ensure completeness of credits.
- Applicability of other provisions like free of cost services/goods, valuation, and cross-charges between related persons/distinct persons.
