Preparing for GST audit: Taxpayers face penalty up to 0.25% of turnover

The GST laws provide for a mandatory audit to be carried out by every GST registered taxpayer whose turnover during a financial year surpasses Rs 2 crore. Such an entity should get its accounts audited as specified under sub-section (5) of Section 35 of the GST Act. The taxpayer has to submit a copy of audited annual accounts and a reconciliation statement, duly certified, in Form GSTR-9C. Vinod Subramaniam, CEO, Logo Infosoft, explains the criteria, requirements, processes for filing GSTR-9C and its importance in the context of GST audit

What is Form GSTR-9C?

Form GSTR-9C is a statement that reconciles the values presented in the annual return form GSTR-9 and the annual audited accounts. It has two main parts: Reconciliation Statement and Certification.

The GSTR audit is required to be carried out, duly verified, and signed by a practising cost accountant or a chartered accountant. The certification of GST auditor is mandatory and should also be attested through a digital signature.

According to the GST Act, ‘audit’ implies detailed examination of records, returns and other documents maintained/furnished by a taxable person under the GST law or any other law or rules; and verification of correctness of turnover declared, taxes paid, refund claimed, input tax credit availed and assessment of compliance within provisions of GST law and rules.

GST audit not only signifies reconciliation of tax liability and payment, but also evaluating and sharing observations on the GST process at the client’s place of business, adherence to all the provisions and compliance with the provisions of the GST laws.

What is GSTR-9 filing due date?

As of now, the taxpayer has to file Form GSTR-9, along with GSTR-9C, on or before the mandated due date of November 30, 2019, for the financial year 2017-18 (for the period from April 1, 2017 to March 31, 2018)

What are the responsibilities of a GST auditor?

The role of a GST auditor is not limited to the preparation of reconciliation statements. The auditor has to verify the correctness of the turnover declared, taxes paid, input tax credit availed, refund claimed, and compliance of the taxpayer under the various provisions of the GST Act and notifications released from time to time.

One of the roles of a GST auditor is to reconcile the audited financials with the annual returns (Form GSTR 9 and Form GSTR-9B). He/she has to determine whether any amount is to be paid by the taxpayer as a result of non-reconciliation between the audited financials and the annual return. The auditor also has to unveil any leakage in revenue which may result in non-payment or lower payment of the liable tax.

A GST auditor’s responsibility is to audit the details included in GSTR-9C to ensure that they are free from any material anomaly. The auditor should also take into consideration the purpose of planning an audit and determining the nature, timing and extent of the audit procedures, and internal control systems of the enterprises.

What are the documents, procedures that are assessed during the audit?

The auditor is accountable for finding of non-compliance, procedural abnormalities, and leak of revenue by examining tax invoices, e-waybills, delivery challans, stock ledger, GST Returns filed during the audit period, trial balance, journal, ledger, annual financial accounts, and other such reports. The auditor has to determine if there is any additional tax which may be payable by the taxpayer. He/she also has to verify whether the company is maintaining its accounts in the ERP/accounting system appropriately, and whether the maintenance procedure of the accounting system by the enterprise is dependable.

During these verifications, the auditor has to classify goods and services, along with their corresponding tax rates, among other things. Trade documents which need to be verified include tax invoices, debit and credit notes, receipt vouchers, and e-way bills.

What are the penalties in the case of a default?

There is a penalty of Rs 200 per day (Rs 100 of CGST and Rs 100 for SGST) for non-filing of GSTR–9C, and capping for the penalty is 0.25 per cent of the turnover. Besides, based on the auditor’s observations, the department can issue notices under Sections 73 or Section 74 of the CGST Act.

What are the key precautions that the taxpayer needs to take?

This is the first instance of GSTR-9 filing this year. Many taxpayers may not have complete data like input tax credit separately for inputs, services, capital goods, import of services or tax rate-wise liability, HSN summary for inward supplies, etc. To make filing simple, with all the required data, a taxpayer could make use of technology tools available in the market.

The taxpayer must keep in mind that:

• The basis for the preparation of GSTR–9C is GSTR–9. The taxpayer has to ensure that GSTR-9 is prepared for all the registrations

• A reconciliation statement has to be prepared, along with reasons for reconciliation, and duly signed by a practising cost accountant or practising chartered accountant 

• A new offline utility has been released by the GSTN for filing of GSTR–9C for the ease of the process.