Executive Summary

Sandeep kumar & Associates has been one of the prominent Chartered accountancy firms in
Delhi and NCR providing wide array financial and advisory services to numerous MNCs as well
as reputed Indian companies.

This report aim toward providing an overview on GST audit of fireballindia . while preparing
this report it has been tried to reveal the insights of the accounts. The objective of study is to
verify the correctness of the turnover declared and the tax paid or refund claimed and input tax
credit availed and to assess the compliance with the provision of GST.
 INTRODUCTION
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service
Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July
2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based
tax that is levied on every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods
and services. This law has replaced many indirect tax laws that previously existed in India.
GST is one indirect tax for the entire country.
GST is considered as an indirect tax for the whole nation that would make India one unified
common market. It is a tax which is imposed on the sale, manufacturing and the usage of the
goods and services. It is a single tax that is imposed on the supply of the goods and services,
right from the manufacturer to the customer. The credits of the input taxes that are paid at each
stage will be available in the subsequent stage of value addition which makes GST essentially a
tax only on the value addition on each stage. The final consumers will bear only the tax charged
by the last dealer in the supply chain with the set of benefits that are at all the previous stages.
Meaning Of Goods and Service Tax (GST)
Clauses 366 (12A) of the constitution Bill defines GST as “ goods and service tax” mean any
tax on supply of goods, or services or both except taxes on the supply of the liquor for human
consumption. Further the clause 366 (26A) of the Bill defines Services means anything other
than Goods.
Thus it can be said that GST is a comprehensive tax levy on manufacture , sale and consumption
of goods and services at a national level . The proposed tax will be levied on all transactions
involving supply of goods and services, except those which are kept out of its
preview.

DEFINITION OF GST • Goods and services tax (GST) is a tax on goods and services with
value addition at each stage having comprehensive and continuous chain of set of benefits from
the producer’s / service provider’s point up to the retailers level where only the final consumer
should bear the tax.

Types of Categories under GST rate

The GST tax is levied based on Revenue Neutral Rate . For the purpose of imposing GST tax in
India, the goods and services are categorized in to four.

These are four categories of goods and services are follows :

Exempted Categories under GST in India : The GST and council and other GST authorities
notifies list of exempted goods. Such goods are not fallen under payment of GST tax. The
authorities may modify or amend the list time to time by adding deleting any item if required by
notification to public.
Essential Goods and Services for GST in India :

Essential Category of goods and services are charged very lower GST rate. Essential goods and
services are the goods and services for necessary items under basic importance.

Standard Goods and services for GST in India :

A major share of GST tax payers falls under this category of Standard Goods and Service. A
Standard rate is charged against the goods and services under this category.

Special Goods and Services for GST tax Levy :

Under special category of goods and services, GST rates would be high. Precious metals
including luxury items of goods and services fall under special goods and services for GST rate
implementations.

GST rates in India at a glance :

Exempted categories: 0

Commonly used Goods and Services: 5%

Standard Goods and Services fall under 1st Slab: 12%

Standard Goods and Services fall under 2nd Slab: 18%

Special category of Goods and Services including Luxury Goods: 28%

TYPES OF GOODS AND SERVICE TAX IN INDIA.

1. CGST (Central Goods and Service Tax): GST to be levied by the center.

2. SGST (State Goods and Service Tax): The GST is to be levied by the states is State GST
(SGST).

3. IGST (Integrated Goods and Service Tax) : Integrated GST will be levied by the center and
the states concurrently .

Different Taxes are Cover under GST :

1. State taxes which will be subsumed in SGST :

VAT/ Sales Tax.

Luxury Tax.

Entertainment Tax ( unless it is levied by local bodies)

Taxes on Lottery, betting, and gambling.

2. Central Taxes which will be subsumed in CGST :

Central Excise Duty.

Additional Excise Duty.

Service Tax.

The Excise duty levied under the medical and toilet preparation Act.

Additional Customs Duty.

Education Less.

Surcharges.

3. Taxes that will not be subsumed:

Stamp Duty.

Electricity Duty.

Other Entry taxes and Octori Entertainment Tax ( levied by local bodies.)

Basic Customs duty and safeguard duties on import of goods in to India.

Professional Tax.

Challenges of GST implementations:

1. With respect to Tax Threshold

The threshold limit for turnover above which GST would be levied will be one area which would have to
be strictly looked at. First of all, the threshold limit should not be so low to bother small scale traders and
service providers. It also increases the allocation of government resources for such a petty amount of
revenue which may be much more costly than the amount of revenue collected. The first impact
of setting higher tax threshold would naturally lead to less revenue to the government as the
margin of tax base shrinks; second it may have on such small and not so developed states which
have set low threshold limit under current VAT regime. not well regonized authority

2 With respect to nature of taxes

The taxes that are generally included in GST would be excise duty, countervailing duty, cess,
service tax, and state level VAT among others. Interestingly, there are numerous other states and
union taxes that would be still out of GST.
3 With respect to number of enactments of statutes

There will two types of GST laws, one at a center level called ‘Central GST (CGST)’ and the
other one at the state level - ‘State GST (SGST)’. As there seems to have different tax rates for
goods and services at the Central Level and at the State Level, and further division based on
necessary and other property based on the need, location, geography and resources of each state.

4 With respect to Rates of taxation

It is true that a tax rate should be devised in accordance with the state’s necessity of funds.
Whenever states feel that they need to raise greater revenues to fund the increased expenditure,
then, ideally, they should have power to decide how to increase the revenue.

5 With respect to tax management and Infrastructure

It depends on the states and the union how they are going to make GST a simple one. Success of
any tax reform policy or managerial measures depends on the inherent simplifications of the
system, which leads to the high conformity with the administrative measures and policies.

Opportunities of GST
1. An end to cascading effects

This will be the major contribution of GST for the business and commerce. At present, there are
different state level and center level indirect tax levies that are compulsory one after another on
the supply chain till the time of its utilization.

2 Growth of Revenue in States and Union

It is expected that the introduction of GST will increase the tax base but lowers down the tax
rates and also removes the multiple point This, will lead to higher amount of revenue to both the
states and the union.

3 Reduces transaction costs and unnecessary wastage's

If government works in an efficient mode, it may be also possible that a single registration and
single compliance will suffice for both SGST and CGST provided government produces
effective IT infrastructure and integration of such infrastructure of states level with the union.

4 Eliminates the multiplicity of taxation

One of the great advantages that a taxpayer can expect from GST is elimination of multiplicity
of taxation. The reduction in the number of taxation applicable in a chain of transaction will help
to clean up the current mess that is brought by existing indirect tax laws.
5 One Point Single Tax

Another feature that GST must hold is it should be ‘one point single taxation’. This also gives a
lot of comforts and confidence to business community that they would focus on business rather
than worrying about other taxation that may crop at later stage. This will help the business
community to decide their supply chain, pricing moralities and in the long run helps the
consumers being goods competitive as price will no longer be the function of tax components but
function of sheer business intelligence and innovation.

6 Reduces average tax burdens

Under GST mechanism, the cost of tax that consumers have to bear will be certain, and GST
would reduce the average tax burdens on the consumers.

7 Reduces the corruption

It is one of the major problems that India is overwhelmed with. We cannot expect anything
substantial unless there exists a political will to root it out. This will be a step towards corruption
free Indian Revenue Service.

Impact of Goods and Service Tax

I. Food Industry

The application of GST to food items will have a significant impact on those who are living
under subsistence level. But at the same time, a complete exemption for food items would
drastically shrink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and
dairy products, fruits and vegetables, candy and confectionery, snacks, prepared meals for home
consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such
sales would largely remain exempt due to small business registration threshold. Given the
exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate
would lead to a doubling of tax burden on food.

II. Housing and Construction Industry

In India, construction and Housing sector need to be included in the GST tax base because
construction sector is a significant contributor to the national economy.

III. FMCG Sector

Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has grown
consistently during the past three – four years reaching to $25 billion at retail sales in 2008.
Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are
expected to fuel the growth and raise industry's size to $95 Billion by 201835.
IV. Rail Sector

There have been suggestions for including the rail sector under the GST umbrella to bring about
significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the
added benefit of ensuring that all inter – state transportation of goods can be tracked through the
proposed Information technology (IT) network.

V. Financial Services

In most of the countries GST is not charged on the financial services. Example, In New Zealand
most of the services covered except financial services as GST. Under the service tax, India has
followed the approach of bringing virtually all financial services within the ambit of tax where
consideration for them is in the form of an explicit fee. GST also include financial services on
the above grounds only.

VI. Information Technology enabled services

To be in sync with the best International practices, domestic supply of software should also
attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through
electronic form, it should be considered as Intellectual Property and regarded as a service. And if
the software is transmitted on media or any other tangible property, then it should be treated as
goods and subject to G.S.T. 35 According to a FICCI – Technopak Report. Implementation of
GST will also help in uniform, simplified and single point Taxation and thereby reduced prices.

Benefits of GST
(A) Make in India

(i) Will help to create a unified common national market for India, giving a boost to Foreign
investment and “Make in India” campaign

(ii) Will prevent cascading of taxes as Input Tax Credit will be available across goods and
services at every stage of supply;

(iii) Harmonization of laws, procedures and rates of tax;

(iv) It will boost export and manufacturing activity, generate more employment and thus
increase GDP with gainful employment leading to substantive economic growth;

(v) Ultimately it will help in poverty eradication by generating more employment and more
financial resources;
 (vi) More efficient neutralization of taxes especially for exports thereby making our products
more competitive in the international market and give boost to Indian Exports; Improve the
overall investment climate in the country which will naturally benefit the development in the
states;

(vii) Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate
arbitrage between neighboring States and that between intro and inter-state sales;

(viii) Average tax burden on companies is likely to come down which is expected to reduce
prices and lower prices mean more consumption, which in turn means more production thereby
helping in the growth of the industries . This will create India as a ” Manufacturing hub”.

(B) Ease of Doing Business

(i) Simpler tax regime with fewer exemptions;

(ii) Reductions in the multiplicity of taxes that are at present governing our indirect tax system
leading to simplification and uniformity;

(iii) Reduction in compliance costs - No multiple record keeping for a variety of taxes - so lesser
investment of resources and manpower in maintaining records;

(iv) Simplified and automated procedures for various processes such as registration, returns,
refunds, tax payments, etc;

(v) All interaction to be through the common GSTN portal- so less public interface between the
taxpayer and the tax administration

(vi) Will improve environment of compliance as all returns to be filed online, input credits to be
verified online, encouraging more paper trail of transactions;

(vii) Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax
return, common tax base, common system of classification of goods and services will lend
greater certainty to taxation system;

(viii) Timeliness to be provided for important activities like obtaining registration, refunds, etc;

(ix) Electronic matching of input tax credits all-across India thus making the process more
transparent and accountable.

(C) Benefit to Consumers:

(i) Final price of goods is expected to be lower due to seamless flow of input tax credit between
the manufacturer, retailer and service supplier;
 (ii) It is expected that a relatively large segment of small retailers will be either exempted from
tax or will suffer very low tax rates under a compounding scheme- purchases from such entities
will cost less for the consumers;

(iii) Average tax burden on companies is likely to come down which is expected to reduce
prices and lower prices mean more consumption.

(vi) Trust in Simpler Tax System The previous indirect tax structure was very complicated to
understand for a layman. GST will increase the level of transparency and trustworthiness of the
Consumer on Tax Administrators as well as Business because everything is computerized. This
shall boost the trust of consumers in a simplified tax system.

(v) Better accessibility of goods and services As all the goods and services are charged one rate
across the nation, the consumer does not to travel across the states to make purchases for the
purpose of saving tax. Further, the online shopping companies will plan their operations to
reduce the lead time, while managing the warehousing facilities, which today are contingent on
filling complexities of present tax structure.

Type of gst returns and there due dates:

GSTR-1 Return – Due on 10th of Every Month

Form GSTR-1 or return of outward supplies is normally due on the 10th of every month. For the
month of July 2017, GSTR 1 is due on the 10th of October. The GSTR 1 due date for all other
months will be announced by the GST Council shortly.

In GSTR 1 return, details of Invoices, debit notes, credit notes and revised invoices issued in
relation to outward supplies made during the tax period must be provided. This e-return can be
filed online on the GST portal or using LEDGERS GST Software within 10 days from the end of
the tax period. The registered person shall not be allowed to furnish any details of outward
supplies during the period from the eleventh day to the fifteenth day of the month succeeding the
tax period. Content of GSTR-01 (a) GSTN, Name & Period (b) Aggregate turnover in previous
FY (c) Invoice/ consolidated level details of outward supply Supply to RD: Invoice Level Supply
to URD (Inter

In GSTR 1 return, the details of all invoices issued by the taxpayer that are B2B or B2C large
must be uploaded to the GSTN. Know more about procedure for uploading invoices to GSTN.

The details of FORM GSTR-1 furnished by the supplier will be made available to the recipients
in PART-A of FORM GSTR-2A, Form GSTR 4A and in Form GSTR-6A.

GSTR-2 Return – Due on 15th of Every Month

GSTR 2 or return of inward supplies must be filed before the 15th of each month. In GSTR 2,
the return for outward supplies filed by the supplier the receiver is required to match his receipts
with the details of supplies filed by the supplier. The receiver is required to – verify, validate,
modify or even delete, if necessary – the details furnished by the suppliers.

Any modification, deletion or inclusion of inward supplies by the receiver in his inward return
i.e. FORM GSTR-2 will be communicated to the Outward supplier which will be visible to them
as GSTR 1A.

GSTR-3 Return – Due on 20th of Every Month

GSTR 3 or monthly GST return is due on the 20th of every month. Part A of GSTR 3 return will
be automatically generated based on information furnished through FORM GSTR-1, FORM
GSTR-2 and based on other liabilities of preceding tax periods. The taxpayer can discharge his
liability towards tax, interest, penalty, fees or any other amount payable under the Act or the
provisions of this Chapter by debiting the electronic cash ledger or electronic credit ledger and
include the details in Part B of the return in FORM GSTR-3.
GSTR-4 Return – Quarterly Return for Composition Suppliers Due on 18th

GSTR 4 or GST quarterly return for composition supplier is due 18 days from the end of quarter.
Hence, GSTR 4 return will be due on 18th April, 18th July, 18th October and 18th January.
Based on details contained in FORM GSTR-4A, and where required, after adding, correcting or
deleting the details, the taxpayer can file the quarterly return in FORM GSTR-4.

GSTR-5 Return – Monthly Return for Non-Resident Taxable Persons

GSTR 5 return must be filed by persons registered under GST as a non-resident taxable person
before the 20th and within 7 days from last day of registration. In GSTR-5, the taxpayer must file
information and details of outward supplies and inward supplies.

GSTR-6 Return – Monthly Return for Input Service Distributors

GSTR-6 return must be filed by persons registered as an Input Service Distributor on or before
the 13th of every month. Based on FORM GSTR-6A, the taxpayer can file the return after
adding, correcting or deleting the details, furnish return, containing the details of tax invoices on
which credit has been received and those issued.

GSTR-7 Return – Monthly Return for Tax Deductors

GSTR-7 return must be filed by persons registered under GST for TDS. GSTR-7 return is due on
or before the 10th of every month. The details furnished in Form GSTR-8, will be made
available in Part C of Form 2A and Form 4A to other taxpayers.

GSTR-8 Return – Monthly Return for E-Commerce Operator

GSTR-8 return must be filed by E-Commerce Operator on or before the 10th of every month. E-
Commerce operators must provide details of outward supplies of goods or services or both made
through it, including the supplies returned through it and the amount collected by it. Details
furnished by ecommerce operators will be made available to each of the suppliers in Part C of
FORM GSTR-2A.

GSTR-9 Return – Annual GST Return

GSTR-9 return or annual GST return must be filed by taxpayers on or before the 31st of
December. GSTR-9 return need not be filed by those registered under composition scheme, non-
resident taxable persons, casual taxable persons, TDS deductors, TCS collectors. In case the
annual turnover is more than Rs.2 crores the annual return filed by the taxpayer must be audited
by a Chartered Accountant or Cost Accountant
 INTRODUCTION

(GST AUDIT)

Auditing Introduction

The audit is an intelligent and critical examination of the books of accounts of the business.

Auditing is done by the independent person or body of persons qualified for the job with the help
of statements, papers, information and comments received from the authorities so that the
examiner can confirm the authenticity of financial accounts prepared for a fixed term and report
that:

 The balance sheet exhibits an accurate and fair view of the state of affairs of concern;
 The profit and loss accounts reveal the right and balanced view of the profit and loss for the
financial period;
 The accounts have been prepared in conformity with the law.

Thus, it will be seen that the duty of an auditor is much more than a mere comparison of the
balance sheet and accounts with the books.

But, apart from doing this, he has to satisfy himself according to his information and the
explanations given to him.

Meaning of Auditing

The term audit is derived from a Latin word “audire” which means to hear authenticity of
accounts is assured with the help of the independent review.

Audit is performed to ascertain the validity and reliability of information. Examination of books
and accounts with supporting vouchers and documents to detect and prevent error, fraud is the
primary function of auditing.

Auditor has to check the effectiveness of internal control systems for determining the extent of
checking out the audit.

Initially its meaning and use were confined merely to cash audit, and the auditor has to ascertain
whether the persons are responsible for the maintenance of accounts had adequately accounted
for all the cash receipts and the payment on behalf of this principle.

But the word audit has an extensive usage, and it now means a thorough scrutiny of the books of
accounts and its ultimate aim is to verify the financial position disclosed by the balance sheet and
profit and loss accounts of a company.
In short, an audit implies an investigation and a report. The process of checking and vouching
continues until the study is completed and the auditor enables himself to report under the terms
of his appointment.

Definition of Auditing

“An audit is an examination of accounting records undertaken with a view of establishing

whether they correctly and completely reflect the transactions to which the purport to relate.” –
Lawrence R. Dickey

“Audit is defined as an investigation of some statements of figures involving examination of

certain evidence, so as to enable an auditor to make a report on the statement.” –Taylor and
Perry

“An audit denotes the examination of balance sheet and profit and loss accounts prepared by
others together with the books of accounts and vouchers relating thereto such in such a manner
that the auditor may be able to satisfy himself and honestly report that in his opinion such
balance sheet is properly drawn up so as to exhibit a true and correct view of the state of affairs
of a particular concern according to the information and explanations given to him and as
shown by the books.” -F.R.M De Paula

“Auditing is a systematic examination of the books of records of business or other organization

in order to ascertain or to verify and to report upon the facts regarding its financial operations
and the result thereof.” –Prof. Montgomery

“Audit such an examination of the books of accounts and vouchers of a business as will enable
the auditor to satisfy himself that the balance sheet is properly drawn up so as to give a fair and
true view of the state of affairs of the business and the whether the profit and loss of accounts
gives a true and fair view of profit and loss for the financial period according to the best of his
information and explanations given to him and as shown by the books and if not in what respect
he is not satisfied.” –Spicer & Pegler

“Audit may be said to be verification of the accuracy and correctness of the books of accounts by
an independent person qualified for the job and not in any way connected with the preparation of
such accounts.” -J.B. Bose

“Audit is not an inquisition and its mission is not one of fault finding. Its purpose is to bring to
the notice of the administration lacunae in his rules, regulations and lapses, and to suggest
possible ways and means for the execution of plans and projects with greater expedition,
efficiency and economy.” –A.K. Chandra
 GST AUDIT

GST Audit: (Introduction)

Audit basically refers to examination of related records to verify compliance with related law. In
same order a GST Audit is performed to verify the correctness of tax declaration and payment
and refunds claimed and input tax credits availed by an assessed as per provisions under GST.
The GST Audit have been defined under section 2(13) of Central Goods and Services Tax Act,
2017. The introduction of the Goods and Services Tax regime is a revolutionary step in the
domain of commodity and services tax, which has brought about a paradigm shift in the
methodology of levy and collection of taxes. It is an internationally recognized multipoint tax
system, providing for levy of tax on goods as well as services on the value addition occurring at
every stage of business activity. Today, it can be said that the GST, being a self-assessment tax,
requires the introduction of audit procedures for ensuring its proper compliance. The audit of
accounts in Corporate Sector has been made compulsory by legislation over decades. In addition
to the above, the specific legislations governing different types of entities also mandates audit
under the respective statutes. Realizing the importance of audit of businesses which are
essentially not governed by the Companies Act or any other special statutes, the Income-tax Act
introduced audit of businesses that have crossed the turnover limit provided in Section 44AB of
the Income-tax Act. This has always helped the Government to ensure its statutory compliance
under the provisions of the Income Tax Act. Under the Central Excise Act, 1944 and Service Tax
Laws (vide Finance Act, 1994), special audit was prescribed under Section 14A and 14AA of
Central Excise Act, 1944 and Section 72A of Finance Act, 1994. Special Audit was required to
be conducted by a Chartered Accountant or a Cost Accountant in cases where the Commissioner
of Central Excise had reasons to believe that the credit of duty availed of and utilized under the
rules are not within normal limits or that there is a case of under valuation. However, there was
no general provision for audit by Chartered Accountants based on the turnover limit. Goods and
Services Tax was introduced to consolidate most of the indirect taxes and also to increase the tax
base with emphasis on compliance. At the same time, thrust was given to self-assessment
processes whereby the tax payers are required to assess their tax liability and pay taxes. While
doing so and also considering the challenges which the government may face in handling the
volume of tax payers and transactions, technology support has been taken right from the time of
its introduction.
In the self-assessment regime, it becomes essential to have checks and balance to protect the
revenue’s interest. The existing bureaucratic machinery would certainly be better placed if
professionals are roped in. Because of this, the Government always looks for professional help.
Invariably, they take the help of trained Chartered Accountants who are experts in accounting,
statutory provisions, financial transactions, etc., and being a part of the ICAI set up by an Act of
Parliament. This time, in addition to the Chartered Accountants the Government has also sought
the help of Cost Accountants for the same. Another , question related to the audit of records
under any other law is whether one more audit is required, in terms of Section 35(5). According
to the considered view of some experts, there is no need for conducting another audit of the
financial statement, which is also supported by the requirement to issue certificate in Part II of
GSTR 9C.It requires that only some , documents specified in clause (a) to (d) of the said
certificate, are to be enclosed.
Objective of Audit under GST Law
The objective of the GST audit can be ascertained from the definition of Audit given in Section
2(13) of Central Goods and Services Tax Act, 2017(CGST Act). The said definition reads as
follows:
“audit means the examination of records, returns and other documents maintained or furnished
by the registered person under this Act or the rules made thereunder or under any other law for
the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed
and input tax credit availed, and to assess his compliance with the provisions of this Act or the
rules made there under.”
From the above, it can be deduced that:
(a) Audit is examination of records, returns and other documents;
(b) Those records. returns and documents might have been maintained or furnished under GST
Law or any other law;
(c) The examination is to verify the correctness of
(i) Turnover declared;
(ii) Taxes paid;
(iii) Refund claimed; and
(iv) Input tax credit availed;
(d) The examination is also to assess auditee’s compliance with the provisions of GST Act and
Rules.
All this makes it clear that the objective of GST is to ensure the correctness of Turnover
declared, Taxes paid, Refund claimed, and Input Tax Credit availed in addition to compliance of
the GST Act and Rules. The intent is that the compliance of the GST law has to be confirmed by
the GST audit.

Need for GST Audit and meaning

Audit under GST involves examination of records, returns and other documents maintained by a
GST registered person. It also ensures correctness of turnover declared, taxes paid, refund
claimed, input tax credit availed and assess other such compliances under GST Act to be checked
by an authorized expert.
GST is a trust-based taxation regime wherein a taxpayer is required to self-assess his tax liability,
pay taxes and file returns. Thus, to ensure whether the taxpayer has correctly self -assessed his
tax liability a robust audit mechanism is a must. Various measures are taken by the government
for proper implementation of GST and audit is one amongst them.
Legal provisions of GST Audit
In order to understand the gamut of the GST Audit and its requirement, it is relevant for us to
understand the legal provisions related to the GST audit. Two important provisions which are
relevant and important in this context are Section 35(5) and Section 44(2) of the CGST Act.
In terms of Section 35(5) “every registered person whose turnover during a financial year
exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost
accountant and shall submit a copy of the audited annual accounts, the reconciliation statement
under sub-section (2) of Section 44 and such other documents in such form and manner as may
be prescribed”.
In terms of section 44(2) “every registered person who is required to get his accounts audited in
accordance with the provisions of sub-section (5) of Section 35 shall furnish, electronically, the
annual return under sub-section (1) along with a copy of the audited annual accounts and a
reconciliation statement, reconciling the value of supplies declared in the return furnished for the
financial year with the audited annual financial statement, and such other particulars as may be
prescribed”.
In terms of Rule 80(3) of the CGST Rules “every registered person whose aggregate turnover
during a financial year exceeds two crore rupees shall get his accounts audited as specified under
sub-section (5) of Section 35 and he shall furnish a copy of the audited annual accounts and a
reconciliation statement, duly certified, in GSTR 9C, electronically through the common portal
either directly or through a Facilitation Centre notified by the Commissioner”
Comment: Section 35(5) begins with the expression “every registered person whose turnover
during a financial year exceeds the prescribed limit” whereas the relevant Rule 80(3) uses the
expression “every registered person whose aggregate turnover during a financial year exceeds
two crore rupees”. It must be noted that the word turnover has not been defined whereas the
expression aggregate turnover has been defined. One may note that the expression turnover in
State or turnover in the Union territory is defined. In this backdrop the following understanding
is relevant:
(a) Aggregate turnover is PAN based while turnover in a State / UT, though similarly worded ,
is limited to turnover in a State / UT, which is limited to a State;
(b) It is therefore, reasonable to interpret that the word turnover used in Section 35(5) ought to
be understood as aggregate turnover.
(c) For the financial year 2017-18, the GST period consists of 9 months whereas the relevant
Section 35(5) uses the expression financial year; Therefore, in the absence of clarification from
the government, and to avoid any cases of default, it is reasonable to understand that to reckon
the turnover limits prescribed for audit i.e., Rs. 2 crores one has to reckon the turnovers for the
whole of the financial year which would also include the first quarter of the financial year 2017-
18.
 It can be seen that Section 35(5) read with Section 44(2) of the CGST Act provides that the
following documents shall be furnished electronically by the assessee upon conclusion of the
audit:
(a) Annual Return;
(b) Copy of the audited annual accounts;
(c) Reconciliation statement, reconciling the value of supplies declared in the return furnished
for the financial year with the audited annual financial statement in FORM GSTR 9C, duly
certified;
(d) Such other particulars, as may be prescribed
By Rule 80(3) the reconciliation statement shall be furnished in the GSTR 9C. The provisions of
Section 44(2) require reconciliation of the figures declared in ‘return furnished for the financial
year’ with the ‘audited financial statement’. It appears that the return furnished for the financial
year refers to the annual return furnished.
In addition to the three provisions mentioned above, there are number of provisions which are
relevant for carrying out audit or reconciliation.

Type of GST audit

GST Audit performed by Chartered Accountant:
As per provision in section 35(5) of GST Audit Rules, when turnover of a registered dealer goes
over Rs.2 crores in a said financial year, then he needs his accounts and returns audited by a
professional Chartered Accountant and must submit the copy of such a GST audit along with his
GST annual returns.

Here is the GST Audit checklist of values to be maintained by a registered person to comply with
GST Audit Rules -

• The production or manufacture of goods

• Inward supply of goods or services or both

• Outward supply of good or services or both

• Stock of goods

• Input tax credit availed

• Output tax that is payable or already paid

• Books of accounts pointx

GST Audit by Tax Authorities:

Commissioner of CGST/SGST or any other GST Officer performs this kind of GST audit, who
have been authorized by the commissioner. The frequency and manner of such a GST audit can
be prescribed later. To start this kind of GST audit, a notice will be sent out to auditee, at least 15
days in advance and such a GST audit shall be completed within 3 months from the date of
commencement of an audit. However, a commissioner can extend the period of such a GST audit
further by six months with valid reasons which must be recorded in writing.

Such a GST audit brings certain obligations on the auditee as mentioned below-

• The auditee must facilitate the related books of accounts and other documents which must be
maintained as per provisions under GST Audit Rules.

• The auditee also must give information and all the necessary assistance to complete the timely
audit.
The findings of such a GST audit are notified to auditee by a GST Officer within 30 days of
commencement with details including the findings, the reasons and the rights and obligations of
the taxable person arising out of such a GST audit in Form ADT-02. When the GST audit results
find an unpaid or short paid tax or wrong return filing of wrong input tax credit being availed,
then GST Audit process of demand and recovery actions are initiated.

In this form of GST audit, the officer generally audits the -

• Documents on basis of which the accounts were maintained, the returns were filed under GST
Audit Rules

• Correctness of the turnover

• Exemptions of deductions of claims

• Rate of tax applied in respect to supply of goods and service

• Input tax credits availed and utilized

• Refunds claimed

• Any other related issue.

Special Audits:
A chartered accountant does this kind of GST audit as per directions received from the GST
Officer of not below the rank of Assistant Commissioner, if he declares that the values have not
been declared correctly and/or credits availed in not within the normal limits. The CA or CMA
for such a GST audit is nominated by the commissioner.

The officer shall issue such direction in Form GST ADT-03 to the registered dealer to get his
records including his books of accounts to be examined and audited by a professional CA or
CMA within a period of ninety days from the day of passing such an order. This period could
further be extended by additional ninety days.

The commissioner pays the expense of such a GST audit and examination. On conclusion of this
special GST audit the findings are communicated the auditee in Form GST ADT-04.
Preparation for the GST Audit
Since the GST Audit would be undertaken for the first time, it demands significant preparation
from both the auditor and the auditee. While the statutory audit (under the Companies Act) and
tax audit (under the Income-tax Act) primarily rely on the financial records, the GST audit would
require coverage of a larger cluster of records. The GST audit requires deep understanding of the
GST laws, IT infrastructure of the auditee, the method in which the GST portal operates,
applicability of the various notifications, circulars, clarifications, classification of goods and / or
services, the nature of supplies, the manner of availment of credits together with its allowability
or otherwise, maintenance of various records and documents specified therein, requirements of
reporting and source of information, understanding of the business of the auditee etc. Apart from
these issues, it is imperative that an auditor understands the basic functioning of the e-
governance model. The audit coverage of all these records and documents would need
substantial amount of preparation and time.

To start with, the following (among others) are the various steps an auditor can take in
connection with the forthcoming GST audit:

(a) Inform the concerned assessee about the applicability of the GST audit;

(b) Confirm the eligibility to be the GST auditor under the related legislation and the guidelines
issued by the ICAI;

(c) Understand the nature of business, the products or services, requirements of records to be
maintained, and advise the auditee to maintain accounts and records so required, beforehand;

(d) Prepare a questionnaire to understand the operations / activities of the auditee, and
specifically develop questions on those issues on which the GST law would have a bearing

(e) Preparation of the detailed audit program and list of records to be verified;

(f) Host of relevant reconciliations.

Consequences of failure to submit the annual return and not getting the
accounts audited Section
47(2) provides that in case of failure to submit the annual return within the specified time, a late
fee shall be leviable. The said late fee would be Rs. 100 per day during which such failure
continues subject to a maximum of a quarter percent of the turnover in the State/UT. There
would be an equal amount of late fee under the respective State/UT GST law.

However, there is no specific penalty prescribed in the GST Law for not getting the accounts
audited by a Chartered Accountant or a Cost Accountant. Therefore, in terms of Section 125 of
CGST Act he shall be subjected to a penalty of up to 25,000/-. This section deals with the
general penalty that gets attracted where any person, who contravenes any of the provisions this
Act, or any rules made thereunder for which no penalty is separately provided. Similar provision
also exists under the State/UT GST law as well. It is possible that since the return is to be
accompanied with the report, if not done it may amount to non-filing of return and late fee also
may be levied.

Audit of non-filers and Unregistered Persons

1. The word or expression non-filer has not been defined in the GST laws. A Non-filer is a
Registered Person who is liable to file the return or statement periodically but has failed to do so.
The heading in Section 62 of the CGST Act reads Assessment of nonfilers of returns. It must be
understood that headings are words placed at the head of a chapter, Paragraph etc., or at the front
or top of anything. They do not have any legal significance.

2. A non-filer is a taxpayer who has not met his tax filing obligation by t due date of the return /
statement or the approved extended due date. Non-filers and unregistered noncompliant persons
are normally misunderstood to be of the same class, but they are different. The differences are
given below:

 An unregistered non-compliant person under GST is the person liable to apply and
obtain registration but has failed to do so.

 Non-filer is a person who is already registered and is therefore liable to file the return/
statement but has failed to do so.

3. Under Section 62 of the CGST Act, where a registered taxable person fails to furnish the
return (non-filer), the proper officer may, after allowing a period of 15 days from the date of
service of the notice under 46 of the CGST Act 2017, proceed to assess the tax liability of the
person to his best judgment, taking into account all the relevant material which is either available
on records or which he has gathered.

4. Under Section 63 of the CGST Act, where a taxable person (i.e. a person liable to take
registration) fails to obtain registration, the proper officer may decide to assess the tax liability of
the said taxable person to his best judgement for the relevant tax periods and issue an assessment
order within a period of five years from the due date for fil ing of the annual return for the year
to which the tax not paid relates to.

5. Best Judgement Assessments are made either ex-parte or by rejecting the accounts or plea of
the Registered person. In such cases, no records or documents are furnished and claims are not
substantiated. Records and evidence produced before the proper officer are rejected, whether
wholly or partly, due to unreliability, incorrectness or incompleteness.
6. Unregistered Persons otherwise liable to take registration

If any person liable to pay tax has failed to apply for registration, though liable to get himself
registered, the proper officer shall assess the tax payable by such person during the period he /
she remains unregistered. Such order shall be passed under Section 63 of the CGST Act, after:

 Serving a notice on and giving an opportunity of being heard to the said person according to
the best judgment of the assessing officer.

 Within 5 years from the due date for filing of the annual return of the relevant year.

7. Non-filers

If a registered taxable person fails to file:

 The monthly return prescribed for a person liable to pay tax;;

 The quarterly return for a person opting for composition;

 The monthly return for a person deducting tax at source;

 The monthly return in case of an Input Service Distributor;

 The final return in the case of a person who has applied for cancellation even after the notice
has been served to him.

 Then the proper officer can proceed under Section 62 of the CGST Act 2017 to assess such
person to his best judgment after a period of 15 days after the date of serving notice under
Section 46 of the CGST Act 2017. Such assessment order can be passed within a period of 5
years from the due date of the annual return for that year.

8. Whether audit under Section 35(5) is applicable to Non-Filers or un-registered Persons

liable to take registration?

The audit under Section 35(5) of the CGST Act to be conducted by CA or CWA is applicable
only to a Registered Person. A non-filer is a Registered Person under Section 25 of the CGST
Act; the audit is required to be conducted under Section 35(5) of the said Act, if it satisfies the
condition stated in the section. Practically such a person would not have filed his returns at all
and therefore Form 9 & 9C would not be possible. Therefore, there may be no audit for him.
ANNUAL AUDIT AND RECONCILATION STATEMENT UNDER GST

What is GSTR-9C?
Every registered person whose turnover during a financial year exceeds the prescribed limit of
rupees two crores shall get his accounts audited by a chartered accountant or a cost accountant.
GSTR-9C is a statement of reconciliation between:

 the Annual Returns in GSTR-9 filed for a FY, and

 the figures as per the audited annual Financial Statements of the taxpayer.

It can be considered to be similar to that of a tax audit report furnished under the Income tax act.
It will consist of gross and taxable turnover as per the Books reconciled with the respective
figures as per the consolidation of all the GST returns for an FY. Hence, any differences arising
from this reconciliation exercise will be reported here along with the reasons for the same.
The certified statement shall be issued for every GSTIN. Hence, for a PAN there can be
several GSTR-9C forms to be filed.

Who must prepare & submit GSTR-9C?

GSTR-9C must be prepared and certified by a Chartered Accountant or Cost Accountant. It must
be filed on the GST portal or through a facilitation centre by the taxpayer, along with other
documents such as the copy of the Audited Accounts and Annual Return in form GSTR-9.
This statement is applicable to all those taxpayers who must get their Annual Accounts audited
under the GST laws. Audit under GST applies to those registered persons whose Annual
aggregate turnover exceeds rupees two crores in that FY.

What are the contents of form GSTR-9C?

The GSTR-9C consists of two main parts:
Part-A: Reconciliation statements
Part-B: Certificate

Part-A: Reconciliation Statement

The figures in the audited financial statements are at PAN level. Hence, the turnover, Tax paid
and ITC earned on a particular GSTIN( or State/UT) must be pulled out from the audited
accounts of the organisation as a whole.
The Reconciliation Statement is divided into five parts as follows:
Part-I: Basic details:
Consists of FY, GSTIN, Legal Name and Trade Name. The taxpayer must also mention if he is
subject to audit under any other law.
Part-II: Reconciliation of turnover declared in the Audited Annual Financial Statement
with turnover declared in annual return:
This involves reporting the gross and taxable turnover declared in the Annual return with the
Audited Financial Statements. One must note that most often, the Audited Financial statements
are at a PAN level. This might require the break up of the audited financial statements at GSTIN
level for reporting in GSTR-9C.
Part-III: Reconciliation of tax paid:
This section requires GST rate-wise reporting of the tax liability that arose as per the accounts
and paid as reported in the GSTR-9 respectively with the differences thereof. Further, it requires
the taxpayers to state the additional liability due to unreconciled differences noticed upon
reconciliation.
Part-IV: Reconciliation of input tax credit (ITC):
This part consists the reconciliation of input tax credit availed and utilised by taxpayers as
reported in GSTR-9 and as reported in the Audited Financial Statement. Further, it needs a
reporting of Expenses booked as per the Audited Accounts, with a breakup of eligible and
ineligible ITC and reconciliation of the eligible ITC with that amount claimed as per GSTR-9.
This declaration will be after considering the reversals of ITC claimed, if any.
Part-V: Auditor’s recommendation on additional liability due to non-reconciliation:
Here, the Auditor must report any tax liability identified through the reconciliation exercise and
GST audit, pending for payment by the taxpayer. This can be non-reconciliation of turnover or
ITC on account of :

 Amount paid for supplies not included in the Annual Returns(GSTR-9)

 Erroneous Refund to be paid back
 Other Outstanding demands to be settled

Lastly, the instructions to the format of GSTR-9C specifies that an option will be given to
taxpayers to settle taxes as recommended by the auditor at the end of the reconciliation
statement.

Part-B: Certification
The GSTR-9C can be certified by the same CA who conducted the GST audit or it can be also
certified by any other CA who did not conduct the GST Audit for that particular GSTIN.
The difference between the both is that in case the CA certifying the GSTR-9C did not conduct
the GST audit, he must have based opinion on the Books of Accounts audited by another CA in
the reconciliation statement. The format of Part-B for certification report will vary depending on
who the certifier is.
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