An overview of Audit provisions under GST as per Model GST Law:

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1 February 25, 2017 An overview of Audit provisions under GST as per Model GST Law: The introduction of the Goods and Services Tax is a major transformation in our national taxation system which will drastically affect and impact the businesses. In order to ensure compliance with the various GST provisions and to ensure performance of audits in systematic, transparent and fair manner, audit provisions have been incorporated under the Model GST Law. Types of Audit under GST scenario Who can Conduct Audit under the GST Regime? Commissioner of CGST/SGST or any other authorised officer. Chartered Accountant authorised by the commissioner. Annual Audits by Chartered Accountant. CAG Audit by Tax Authorities Who can perform the audit? Commissioner of CGST / SGST or any other authorised officer. Who is covered? Any Taxable person. Place of Audit Tax authorities may conduct audit at the place of business of the taxable person and/or in their office.

2 Pre-requisite for Audit Taxable person shall be informed by way of notice at least 15 days prior to the conduct of audit. Time limit for Audit The audit shall be completed within a period of 3 months from the date of commencement of audit. The period of completion of audit can be further extended by a period not exceeding 6 months by the Commissioner for reasons to be recorded in writing. Power of the authorised officer During the course of audit, the authorised officer may require the taxable person To afford him the necessary facility to verify the books of account or other documents as he may require and which may be available at such place, To furnish such information as he may require and render assistance for timely completion of audit. Consequences on completion of the audit Authorised officer shall inform the taxable person, within 30 days after the completion of audit, about the audit findings and reasons of such findings. Demand and Recovery provisions may initiate where the audit conducted results in detection of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised. Key pointers: Reason to believe or evidence is not required for initiate the audit. Commissioner can initiate audit on any taxable person for such period, at such frequency and in such manner as may be prescribed.

3 Special Audit Who can order the Special Audit? Officer not below the rank of Deputy / Asst. Commissioner may direct a taxable person by communication in writing to get his accounts examined and audited by a chartered accountant. Pre- Requisite for special Audit? Prior approval of the commissioner is required to direct the special audit. Special audit can be ordered, when during the proceedings Dy. / Asst. Commissioner is of the opinion that value has not been correctly declared or the credit availed is not within the normal limits with regards to nature and complexity of the case and interest of the revenue. Who can perform the Special Audit? Chartered Accountant as may be nominated by the Commissioner. Time limit for Audit The Chartered Accountant or shall submit a report within a period of 90 days. The said period of 90 days can be further extended by 90 days on an application made in this behalf by the taxable person or the Chartered Accountant for any sufficient or material reason. Consequences where discrepancies observed The taxable person shall be given an opportunity of being heard in case of any material gathered under special audit is proposed to be used in the proceedings. Demand and Recovery provisions may be initiated where the audit conducted results in detection of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised. Key pointers: Special audit can only be initiated during the process of scrutiny, enquiry, and investigation not after the completion of the proceedings.

4 Annual Audit by Chartered Accountant Who can perform the audit? Chartered Accountant. Who is covered? Register Taxable person whose turnover during a financial year exceeds the prescribed limit (1.5 crores as per the Draft Rules on Returns). Information to be certified and reconciled: The books of accounts and other related records and registers maintained by the taxable person are sufficient for the verification of the correctness and completeness of the returns filed for the year; The total turnover of outward supplies declared in the returns includes all the outward supplies effected during the year; The deductions from the total turnover including deduction on account of sales /supplies returns claimed in the returns are in conformity with the provisions of the law; The adjustment to turnover of outward supplies and inward supplies is based on the entries made in the books of account maintained for the year; The classification of outward goods/services supplied and inward supplies, rate of tax applicable and computation of output tax and input tax and net tax payable as shown in the return is correct; The computation of classification of goods supplied, the amount of input tax paid and deductions of input tax credit claimed and reversed in the return is correct and in conformity with the provisions of law; Time line for Submission of Report and Documents: Taxable person shall submit to the proper officer the copy of the audited annual accounts, the reconciliation statement, reconciling the value of supplies as per

5 return with audited annual financial statement, and such other documents as prescribed under the format of GSTR-9B to be submitted by 31 st December of the next financial year. Power of CAG to call for information for audit The proper officer shall, upon request made in this behalf, make available to the Comptroller and Auditor General of India or an officer authorized by him, information, records and returns furnished under the Act, required for conduct of audit. Audit Provisions under Existing Indirect Taxes: Duplication: In Present laws, the audit process is really a cumbersome task on the part of the taxable person as he is required to get audited by different tax authorities for the same period. It involves the duplicity of information and work on the part of departments as well as on the part of the assessee. Summary of Number and types of Audit under present laws:- Excise Special audit by CA for valuation purposes. Special audit by CA for Cenvat credit purposes. Excise Audit by department (based on annual quantum of duty paid) Service Tax Excise Audit Special Audit by CA Sales Tax Some states have audit provisions.

6 Audit Challenges under GST Although strong audit mechanism is prescribed under the GST law, some questions still remain unanswered and are in ambiguity:- No clarity over the audit procedures for assesses having units in multiple states, whether these assesses have to undergo the multiple audits (state wise specific audits) or single centralized audit. Whether there will be a mechanism of e-audit or manual audit. Whether response to be submitted electronically or manually. Frequency at which taxable person may be audited has also not been prescribed. Conclusion Organizations needs to start preparing for a complete transparent and accurate compliance mechanism in the GST regime as all the returns and compliances are to me reconciled and matched at a monthly level and are further required to me matched by the consolidated audited financials and certified accordingly by a Professional. Audit under the GST regime would thus require robust exercise of an overall reconciled and matching mechanism between the supplier and the recipient of goods and services. DISCLAIMER This newsletter contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment,legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this newsletter is based. It is also expressly clarified that this newsletter is not a solicitation or an invitation of any sort whatsoever or a source of advertising from Mayur Batra Group or any of its entities to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this newsletter, this cannot be guaranteed, and neither Mayur Batra Group nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk