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Audit Under GST

GST Audit

A GST Audit is the process of examining a taxpayer's records, returns, and other documents maintained under the Goods and Services Tax (GST) to verify the correctness of information declared by registered taxpayers. It's essentially an examination of a taxpayer's records, returns, and other documents.

Purpose of a GST Audit:

The primary objectives of a GST audit are to verify:

  • The correctness of turnover declared.
  • The taxes paid.
  • Any refunds claimed.
  • The Input Tax Credit (ITC) availed and utilized.
  • Overall compliance with the provisions of the GST Act and rules.
Types of GST Audits in India:

There are primarily three types of GST audits:

1. Turnover-Based Audit (Self-Certified GSTR-9C):
  • Applicability : Previously, this audit was mandatory for businesses with an aggregate annual turnover exceeding ₹2 crore, requiring certification by a Chartered Accountant (CA) or Cost Accountant (CMA).
  • Current Status (from FY 2020-21 onwards) : The mandatory CA/CMA certification for GSTR-9C has been removed. Now, taxpayers with an aggregate annual turnover exceeding ₹5 crore (previously ₹2 crore) are required to self-certify their GSTR-9C (reconciliation statement) along with their annual return (GSTR-9). This reconciliation statement reconciles the value of supplies declared in the returns with the audited annual financial statements.
  • Process: The taxpayer is responsible for preparing and self-certifying GSTR-9C.
2. Departmental Audit (by Tax Authorities - Section 65 of CGST Act):
  • Applicability: The Commissioner or any officer authorized by them can conduct an audit of any registered person for a specified period. This is a general audit conducted by GST officers.
  • Process: The taxpayer receives an intimation notice (Form GST ADT-01) at least 15 working days prior to the audit.
  • The audit can be conducted at the taxpayer's business premises or at the tax office.
  • Tax authorities examine records, returns, and other relevant documents.
  • The audit must generally be completed within 3 months, extendable by 6 months.
  • Findings are communicated to the taxpayer in Form GST ADT-02 (Audit Report) or ADT-04 (if tax liability arises).
3. Special Audit (Section 66 of CGST Act):
  • Applicability: This audit is ordered by tax authorities when they find discrepancies during scrutiny, inquiry, or investigation, and believe a detailed examination is necessary in the interest of revenue.
  • Who Conducts It: A Chartered Accountant or Cost Accountant nominated by the Commissioner (not the taxpayer's own auditor) conducts this audit.
  • Process:
  • The Assistant Commissioner or any senior officer, with prior approval of the Commissioner, can direct a special audit.
  • The nominated auditor submits a report within 90 days (extendable by another 90 days).
  • The taxpayer is given an opportunity to be heard regarding any material gathered during the audit.
  • The expenses for this audit are borne by the Commissioner.
  • Findings are communicated in Form GST ADT-04.
Key Documents Likely to be Verified During a GST Audit:
  • GST Returns (GSTR-1, GSTR-3B, GSTR-9, GSTR-9C)
  • Sales and Purchase Invoices
  • Input Tax Credit (ITC) registers and claims
  • Stock registers
  • Financial statements (Profit & Loss Account, Balance Sheet)
  • Bank statements and ledger accounts
  • E-way bills, debit notes, credit notes, delivery challans, etc.
  • Reconciliation statements (e.g., GSTR-2A/2B with GSTR-3B ITC)
Penalties for Non-Compliance in GST Audit (General Offences):

While there aren't specific penalties solely for "non-compliance with GST audit" as a standalone offense, non-compliance discovered during an audit can lead to various penalties under the CGST Act, including:

  • Late Filing of Returns: ₹50 per day (₹25 CGST + ₹25 SGST) for regular returns, and ₹20 per day (₹10 CGST + ₹10 SGST) for nil returns, plus 18% p.a. interest on outstanding tax.
  • Incorrect Invoices or Underreporting: Penalty of ₹10,000 or the amount of tax evaded, whichever is higher.
  • Fraudulent Activities: Penalties can be 100% of the tax evaded or ITC wrongly availed/utilized, and in severe cases, may lead to prosecution and imprisonment.
  • Other Offences: Penalties of up to ₹25,000 for various other non-compliance issues (e.g., failure to maintain proper records, obstructing officers).
  • Consequences of not producing audit trail: If you are unable to produce the required GST audit trail (particulars of transactions, changes to books, details of individuals authorizing transactions, access to books, data backup/restoration details), it can be considered non-compliance. If deliberate, it can lead to more severe consequences.