GST Audit Manual 2019 : by CBIC : Download

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

GOODS AND SERVICES TAX AUDIT MANUAL 2019

GSTAM-2019

Download GST Audit Manual 2019

Directorate General of Audit

TABLE OF CONTENTS

Government of India
Department of Revenue 
Central Board of Indirect Taxes & Customs
Directorate General of Audit

Foreword

It is indeed a great pleasure to provide the GST Audit Manual 2019, after approval by the Board. As you are aware, GST regime commenced w.e.f 1^st July 2017. However, the audits under GST had been put on hold primarily for the reason so that the database of returns including Annual Return is available for one full accounting period.

2. The Board vide its letter F. No. 221/03/2013 – CX 6 dated 30th August 2018 requested this Directorate General to prepare a manual on Audit in GST for the consideration of the Board. Accordingly, a committee consisting of officers from the zonal units of this Directorate General and other officers from the Headquarters was constituted to get feedback on the proposed audit manual from the Audit Commissionerates in their jurisdiction. Inputs were also informally obtained from GSTIN for the manual.

3. I would like to emphasize that the manual does not deal with legal interpretations and rulings on GST matters. Future changes in the CGST ACT 2017 and the Rules made thereunder, administrative policies and procedures may require changes to this manual. Experience gained during the conduct of audit would also necessitate periodic updating of the manual to maintain its utility.

Some of the highlights of GSTAM, 2019 are as under:-

i. Formation of Audit Commissionerates and Cadre Restructuring has brought new designations and roles of officers. Hence necessary changes have been carried out with regard to the designations like Principal Chief Commissioner and Principal Commissioner and the new roles and responsibilities of the officers of Executive Commissionerate and Audit Commissionerate. These have been suitably incorporated.

ii. The norms for selection of units for conducting audit were revised effecting a paradigm shift in the existing criterion for selection of units based on amount of duty paid to total The new norms include, selection of units based on risk parameters, days for audits and formation of audit parties. These have been incorporated in this manual. Role of DGARM in running the Risk Analysis Programme has been emphasised

iii. The audit process beginning from the Assessee Master File, desk review, revenue risk analysis, trend analysis, gathering of information, evaluation of internal controls, scrutiny of annual financial statement, audit plan, audit verification, working papers, apprising the Taxpayer about irregularities noticed and ending with suggestions for future compliance have been streamlined and brought under one chapter. The repetitions in the earlier audit manuals have been removed.

iv. Separate Annexures have been prepared containing detailed verification checks pertaining to GST. The annexures have been developed in consultation with field formations which also include capturing the results of Desk Review. The annexures containing lengthy information to be filled in by taxpayers have been discontinued.

4. Due care has been taken in drafting the GSTAM, 2019 and suggestions and feedbacks received from field formations and Zonal Units of this Directorate General were extensively deliberated and suitably incorporated.

However, the possibility of minor inaccuracies and errors creeping in the Manual cannot be ruled out, especially in view of the fact that a small team of officers in the Headquarters under the able guidance of Shri Chetan Kumar Jain, Additional Director General and Shri R. K. Kapur, Assistant Director were entrusted with this onerous task.

Feedback, inputs and suggestions pertaining to this manual may be provided to the zonal units of this Directorate General.

(ARCHANA PANDEY TIWARI)
Principal Directors General

New Delhi
July 2019

CHAPTER 1

INTRODUCTION & LEGAL AUTHORITY

1. Purpose:

1.1 The purpose of this manual is to outline the principles and policies of audits conducted under the CGST ACT, 2017 and the Rules made there under. Guidelines provided herein are intended to ensure that the audit of taxpayers is carried out in a uniform, efficient and comprehensive manner, adhering to the stipulated principles and policies and as per best international practises.

1.2 Provisions of CGST Act, 2017 for Audit:-

Section 2(13) of the CGST Act, 2017, defines ‘Audit’ as “the examination of records, returns and other documents maintained or furnished by the registered person under this Act or Rules made thereunder or under any other law for the time being in force to verify, inter alia, 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 rules made thereunder”.

Accordingly, ‘Audit’ implies –

(a) Detailed examination of

i. records,

ii. returns and

iii. other documents –

maintained / furnished by a registered person, under GST law/any other law or rules;

(b) For verification of correctness of –

(i) turnover declared;

(ii) taxes paid;

(iii) refund claimed;

(iv) input tax credit availed; and

(v) assessment of compliances with provisions of GST law and rules.

Thus, GST audit is not only for reconciliation of tax liability and payment thereof but, it also encompasses the verification of compliance of the provisions of the GST Acts, laws etc. by a registered person.

Relevant Statutory Provisions:

A) General Audit: Audit by tax authorities

Sec. 65 of CGST Act, 2017:

(1) The Commissioner or any officer authorized by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

(2) The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.

(3) The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.

(4) The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit:

Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.

Explanation.^––For the purposes of this sub-section, the expression “commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

(5) During the course of audit, the authorised officer may require the registered person,^—

(i) to afford him the necessary facility to verify the books of account or other documents as he may require;

(ii) to furnish such information as he may require and render assistance for timely completion of the audit.

(6) On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

(7) Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.

C) Provision for access to business premises and records of taxpayer for Audit:

Sec. 71 of CGST Act, 2017

(1) Any officer under this Act, authorized by the proper officer not below the rank of Joint Commissioner, shall have access to any place of business of a registered person to inspect books of account, documents, computers, computer programs, computer software whether reinstalled in a computer or otherwise and such other things as he may require and which may be available at such place, for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

(2) Every person in charge of place referred to in sub-section(1)shall, on demand, make available to the officer authorized under sub-section(1) or the audit party deputed by the proper officer or a cost accountant or chartered accountant nominated under section 66^—

i. such records as prepared or maintained by the registered person and declared to the proper officer in such manner as may be prescribed;

ii. trial balance or its equivalent;

iii. statements of annual financial accounts, duly audited, wherever required;

iv. cost audit report, if any, under section 148 of the Companies Act, 2013;

v. the income-tax audit report, if any, under section 44AB of the Income-tax Act,1961; and

vi. any other relevant record.

for the scrutiny by the officer or audit party or the chartered accountant or cost accountant within a period not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by the said officer or the audit party or the chartered accountant or cost accountant.

D) Prescribed Rules for Audit:

Rule 101 of The Central Goods And Service Tax Rules, 2017:

(1): The period of audit to be conducted under sub-section (1) of section 65 shall be a  financial year or part thereof or multiples thereof.

(2): Where it is decided to undertake the audit of a registered person in accordance with the provisions of section 65, the proper officer shall issue a notice in FORM GST ADT-01 in accordance with the provisions of sub-section (3) of the said section.

(3): The proper officer authorised to conduct audit of the records and the books of account of the registered person shall, with the assistance of the team of officers and officials accompanying him, verify the documents on the basis of which the books of account are maintained and the returns and statements furnished under the provisions of the Act and the rules made thereunder, the correctness of the turnover, exemptions and deductions claimed, the rate of tax applied in respect of the supply of goods or services or both, the input tax credit availed and utilised, refund claimed, and other relevant issues and record the observations in his audit notes.

(4): The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished.

(5): On conclusion of the audit, the proper officer shall inform the findings of audit to the registered person in accordance with the provisions of sub-section (6) of section 65 in FORM GST ADT-02.

E) Maintenance of Accounts and Records: Section 35 of CGST Act, 2017 read with Rule 56 of CGST Rules 2017 provides for maintenance of accounts and records by registered person. Further Section 36 of CGST Act and Rules 57 and 58 of CGST Rules may also be referred in this regard.

1.3 Calling for documents from the Registered Taxpayer:

The auditor shall intimate the date of conduct of audit by writing a letter in form GST AD01 (Annexure II) atleast fifteen days prior to the conduct of audit and also request for providing records / documents which are necessary for conducting audit. In case the Registered Person does not respond to the letter, a reminder should be issued within reasonable time. In case the registered person is not volunteering to submit the same on the basis of letters issued by the auditor, another letter should be issued giving details of penal provisions contained in Section 122, 123 and 125 of the CGST Act, of not complying with the request of the department to facilitate conduct of Audit. However, in case the Registered Person fails to comply then action under above sections of CGST Act may be taken and a self-contained note may be sent to the Executive Commissionerate for taking appropriate/necessary action against the Registered Person. Further the details of such registered persons should be forwarded to the respective zonal units of Directorate General of Audit for inclusion in the Risk Parameters, so that in future the said person may be identified for audit on priority. Details of said person may also be provided to the concerned authorities to downgrade his GST compliance ratings.

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CHAPTER 2

OBJECTIVES & PRINCIPLES OF AUDIT

2.1 The objective of audit of taxpayers is to measure the level of compliance of the taxpayer in the light of the provisions of the CGST Act 2017 and the rules made there under.

2.1.1 Audit examines the declarations of taxpayers to not only test the accuracy of the declaration and the accounting systems that produce the declared liability, but also evaluate the credibility of the declared or assessed tax liability. The taxpayer’s anticipation of such actions has preventive and deterrent effects. The deterrent effect is the extent to which audit actions discover and stop taxpayers from continuing to under-declare or manipulate their tax liability. The preventive effect is the extent to which registered persons decide not to evade tax, because they are aware of audit activity and fear of detection by the tax auditors.

2.1.2 An effective audit program generally results in the discovery of under-declared liabilities either by omission, error or deliberate deception. The amount of additional revenue raised depends not only on the level of compliance by the taxpayers, but also on the effectiveness of the auditors and the audit planning and implementation. An efficient and effective audit system will assist the government in its pursuit of increasing taxpayer’s voluntary compliance and facilitate the tax administration’s aim of getting “the right tax at the right time.”

2.2 Principles of audit:

The basic principles of audit are –

i. Conducting audit in a systematic and comprehensive manner.

ii. Emphasis on the identified risk areas and scrutinizing the records maintained in the normal course of business.

iii. Applying audit techniques on the basis of materiality i.e. degree of scrutiny and application of an audit tool depending upon the identified nature of risk factors.

iv. Proper recording of all checks and findings made during the entire audit.

v. Identifying the unexplored compliance verification

vi. Educating the taxpayer for voluntary compliance.

2.3 General Guidelines for Auditor:

While conducting audit, the auditors are required to keep in view, the prevalent trade practices, the economic realities as also the industry and business environment in which the Registered person operates. Therefore, the auditor should take a balanced and rational approach while conducting the audit. Besides, the auditor is expected to play a key role in promoting voluntary compliance by the Registered persons. During the course of the audit, if certain technical infractions, without any revenue implications, arising due to bona fide oversight or ignorance of the Registered person, are noticed, the Registered person should be guided for immediate correction. Such cases should also be mentioned in working papers. An auditor is responsible for conduct of audit and should endeavour to take a final view on all issues raised by him during the audit. The working papers for each of the step of audit should be filled in as soon as that step is completed. They should be ‘speaking documents’ that clearly explain why a particular area was included in the audit plan as well as the basis for arriving at every objection that goes into the draft audit report after audit verification. The documentary  evidence which has been relied upon in arriving at certain conclusion should invariably be cited and included.

Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the registered person in the present era of self-assessment. In keeping with the principles of audit outlined above, audit has to be conducted in a transparent and systematic manner with focus on business records of the registered person and according to the audit plan for each registered person.

2.4 Confidentiality should be maintained in respect of sensitive and confidential information furnished to an auditor during the course of audit. All records submitted to the audit parties in an electronic or manual format, should be used only for verification of levy of GST or for verification of the tax compliance. These shall not be used for any other purposes without the written consent of the registered person. Maintaining the confidentiality is necessary to secure the trust and co-operation of the registered person.

2.5 Period to be covered during audit

The period to be covered under audit is prescribed in Rule 101 (1) of The Central Goods and Service Tax Rules, 2017 as financial year, or part thereof or multiples thereof to cover the retrospective period up to the previous audit or the limitation period specified in Section 73 or 74 of the CGST Act, 2017.

2.6 Duration of audit

2.6.1 Efforts should be made to complete each audit within the following general time limits:-

The indicative duration for conduct of Audit that is inclusive of desk review, preparation and approval of audit plan, actual audit and preparation of audit report wherever necessary, for each category would be as under:

i. Large taxpayers – 6 to 8 working days

ii. Medium taxpayers – 4 to 6 working days.

iii. Small taxpayers – 2 to 4 working days (including audit of the Deductor, who fall under the provisions of Section 51 of CGST Act, 2017 {who pay TDS} and operators who collect tax at source as per provisions of Section 52 of CGST Act, 2017)

The above mentioned working days are indicative and applicable for conduct of GST audit covering one year period. In case the audit coverage is for five years, the number of days may be increased to maximum of 16/12/8 days for Large, Medium and Small taxpayers respectively. In other words the number of days for conduct of audit may be increased proportionately, with an increase of 25% of working days for every additional year of coverage.

The duration, as above, covers the effective number of working days spent by the audit group for the audit of a particular registered person from desk review to preparation of audit report (i.e. days spent in office as well as at the premises of the registered person). In exceptional cases, the aforesaid period may be extended with the approval of Deputy/Assistant Commissioner of the Circle. Further, in accordance with the requirements of the audit of a particular registered person such duration can suitably be reduced with the express, prior concurrence of the Additional/Joint Commissioner, provided the verification as per the audit plan has been completed in the prescribed manner.

2.7 Stage wise action for audit

The processes involved in conducting GST audit are enumerated below for the ease of the officers involved in the auditing.

i. Creation of Audit teams.

ii. Preparation of schedule on the basis of the risk assessment list provided by DG (Audit). The same is divided into annual and quarterly audit schedules.

iii. Allotment of taxpayers to the audit groups.

iv. Intimation to the Registered Person (GST ADT-01).

v. Reviewing the taxpayer data – Tax Payer at a Glance (TAG), Registration, Returns, Payments, Dispute Resolution, Audit Report Utility, E-way bills & Third Party data if available.

vi. Conducting desk review in offline / online mode (wherever available) and uploading the result of desk review.

vii. Preparing the audit plan in offline / online mode (wherever available) and uploading the audit plan.

viii. Carrying out verification and uploading the verification report, within twenty four hours of completion of audit.

ix. Uploading the draft audit report (DAR) for the MCM, within 10 – 15 days

x. Examining the audit paras in MCM.

xi. Uploading the minutes of the monthly monitoring committee meetings (MCM), within twenty four hours of the meeting.

xii. Uploading final audit report, within thirty days of the Meeting.

xiii. Communicating the audit report to taxpayer (ADT-02).

xiv. Communicating to the Registered Person the future course of action in case of contested paras.

A Process Flow Diagram for the above mentioned processes is as under:

AMF – Assessee Master File

CHAPTER 3

MANAGEMENT OF GST AUDIT

Audit management requires planning and effective execution of the audit process. Structurally and functionally, this is to be undertaken at two levels – Apex level and Local level. In order to monitor, co-ordinate and guide the effective implementation of the audit system, the Board has set up the Directorate General of Audit as the nodal agency. At the local level, management of audit is entrusted to GST Audit Commissionerates, which are supervised by Principal Chief Commissioners/Chief Commissioners.

3.1 Management at Apex level

The Directorate General of Audit, Indirect Taxes and Customs, New Delhi (headed by Principal Director General/ Director General) with its Seven Zonal Units at Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Mumbai (each headed by an Additional Director General) is required to ensure the efficient and effective implementation of the audit system (based on EA 2000 methodology) and also to evolve and improve audit techniques and procedures through a periodic review. With the help of its Zonal units, the Directorate General of Audit regularly monitors GST audits conducted by the GST Audit Commissionerates to ensure that the coverage of the registered persons is adequate in number and is reflective of their risk profile and to ensure that these audits are conducted in accordance with provisions of law by following the procedure enunciated in this manual. To achieve this, the Directorate needs to interact closely with Principal Chief Commissionerates/ Chief Commissionerates to eliminate the deficiencies and to improve the performance of the GST Audit Commissionerates.

3.1.1 As an advisor to the Board, the Directorate General of Audit is required to suggest measures for enhanced tax compliance, to gauge the level of audit standards and to ascertain the views of the Registered persons on the existing audit system. It should also interact with selected Registered persons to take a holistic view of the internal audit and to formulate proposals to remove bottlenecks and obviate the scope of irregularities.

3.1.2 The selection of Registered persons would be done based on the risk evaluation method prescribed by the Directorate General of Audit. The risk evaluation method would be separately communicated to the GST Audit Commissionerates during the month of February/ March of every year. The risk assessment function will be jointly handled by the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management and the Risk Management section of Audit Commissionerates. It helps the GST Audit Commissionerates in selection of units for audit during the audit year.

3.2 Role of Zonal Principal Chief Commissioner/Chief Commissioner, Central GST:

3.2.1 The office of the Principal Chief Commissioner/Chief Commissioner is not an operational formation for the conduct of audit, but it provides an important link between the Directorate General of Audit and the GST Audit Commissionerates of the zone. The role of this office in the overall management of audit is as follows:

i. Collection, compilation and analysis of the data received from GST Audit Commissionerates and communication of the same to the respective Zonal Additional Director General (Audit) and to the Director General (Audit) wherever specifically asked for.

ii. Review of performance of the GST Audit Commissionerates.

iii. Dissemination of information pertaining to audit to the GST Audit

iv. Resolving problems in implementation of audit system at local level and providing feedback to the Directorate General of Audit.

v. Ensuring implementation of guidelines, issued by the Directorate General of Audit, as pertaining to the GST Audit Commissionerates.

vi. Monitoring the training for auditors and the officers of the Zone, in techniques of GST audit and accountancy.

vii. Assisting and providing information to the officers of the Directorate General (Audit) in regularly examining the conduct of audits and results thereof.

viii. Posting/allocating the officers with requisite experience and expertise in conducting audits/analysing financial statements, to the GST Audit Commissionerates, ensuring equitable distribution of officers for improving coverage.

ix. To take a final decision in cases, other than finalisation of audit objection, where there is difference of opinion between GST Audit Commissioner and Executive Commissioner.

x. To resolve issues that may arise between Executive and GST Audit Commissionerates.

xi. Selection of theme, planning and execution of Theme based

xii. Approving the 20% of the taxpayers to be audited as selected by the Audit Commissionerates based on local risk factors.

3.3 Functions of a GST Audit Commissionerate:

The GST Audit Commissionerate comprises of the following sections:

i. Planning and coordination section:

To maintain and to keep a copy of Registered person’s master file (TAG) and update it in coordination with the audit groups of circles; to maintain database of officers’ profile, to look after formation/constitution of audit groups; deployment of officers, matching skills with audit requirement;, to plan the audit schedule in such a way as to make optimum use of available resources and ensuring proper desk review before commencement of audit etc., to communicate to the Executive Commissioners seven days in advance of MCM the details of audit paras, to schedule and to provide support in conduct of Monitoring Committee Meetings (MCM); to maintain records/registers and to submit reports.

ii. Administration, Personnel & Vigilance section:

To look after administrative matters, transfer, leave, allowances, budgetary grants, vigilance matters etc.

iii. Technical section & Legal Section:

To attend to draft show cause notices, audit follow up, court cases, and maintain Board’s circulars, instructions etc. To provide legal interpretation of issues raised in MCM and requiring interpretation.

iv. Risk Management and Quality Assurance section:

To attend to risk-based selection of units, use of third-party source of information, to maintain Audit database of units to be audited, to identify themes/issues for audit, to evaluate and scrutinize working papers and to look after the work related to performance appraisal and quality assurance etc., and to implement the risk-based selection advisory received from DGARM / DG (Audit) and to carry out selection of units after applying local risk parameters. Obtaining the approval of the Chief Commissioner in respect of such selection by applying local risk parameters.

v. Circles:

Actual conduct of audit and subsequent follow up till the logical conclusions of the audit objections approved in MCM by way of recovery or issuance of Show Cause Notice up to DC/AC level, forwarding of draft SCN of the competency level of above DC/AC along with relied upon documents.

3.4 Role of senior officers of GST Audit Commissionerate:

3.4.1 Principal Commissioner/Commissioner

i. To ensure selection of assessees/taxpayers, to be audited during the year, on the basis of risk assessment in consultation with the Directorate of Audit. To also ensure that 20% of the taxpayers to be audited are selected based on local risk factors and obtain the approval of the Chief Commissioner.

ii. To approve the Desk Review and Audit Plan, in respect of top 5 assessees/taxpayers of each audit circle mentioned in the Annual Plan for audit coverage, after ensuring that all the steps have been completed and review few draft plans approved by the ADC/JC to ensure quality of audit.

iii. To hold either circle-wise (or any number of circles together as deemed necessary), Monitoring Committee Meeting (MCM), once a month to take decision about the acceptability of all audit objections and to determine as to whether larger period is invokable in respect of the accepted objections.

iv. To ensure that MCM is held by using the offline Audit Report Utility and no paper based audit report is prepared. Also to ensure that after the MCM, each Audit Report Utility is uploaded in the Systems.

v. To liase with DG (Systems) to ensure that EDW/ADVAIT data and GST data is available to the auditors

vi. To ensure that requisite follow-up action i.e. recovery, issue of show cause notice is taken.

vii. To review audit performance and to take steps for

viii. To take remedial measures based on the report of audit group on performance appraisal and quality assurance.

ix. To review the performance and participation of the Additional/ Joint Commissioner and Deputy/ Assistant Commissioner of audit circles.

x. To interact with the major assessees/trade associations, to obtain feedback on the audit system.

xi. To assess the training needs of the auditors and organize training programmes.

xii. To submit periodical reports to various formations including Zonal ADG (Audit) or Director General (Audit) as prescribed from time to time.

xiii. To send a list containing details of show cause notices issued by the Audit Commissionerate (including Circles), during the month, to each of the Executive Commissionerates, on monthly

xiv. In cases where further investigation is required, the matter may be forwarded to the Executive Commissionerates with a self-contained note for further investigation and necessary action like recording statements under summons etc.,

3.4.2 Additional/Joint Commissioner

i. Co-ordination, planning and overall management of the audit sections and circles including supervision of work relating to theme based audit, etc.

ii. To approve the desk review and audit plan, in respect of all the large and medium units, other than the top 5 units that are to be approved by the Commissioner, after ensuring that all the steps have been completed.

iii. To review audit plans of small units approved by the Deputy/Assistant Commissioners of circles and to communicate results of such review if any to the Circle DC/AC before taking up audit verification.

iv. To interact with the management of the large units at the time of audit in order to share major audit findings and compliance

v. To approve and issue SCNs which are to be adjudicated by ADC/JC as per the Monetary limits prescribed by CBIC from time to time, on receipt of DSCN and other documents from Circles,

vi. To organize training programmes for auditors.

vii. To review the follow-up action.

viii. To ensure selection of units for audit as per the risk-based list received from DGARM / DG (Audit) and to provide justification for tweaking the lists.

ix. To ensure that the Audit Report Utility is used in MCM and the reports are uploaded in system and no paper based audit reports are prepared.

x. To ensure scrutiny of NIL DARs files received from audit circles.

3.4.3 Deputy/Assistant Commissioners in-charge of Sections of Audit Commissionerate Headquarters

To supervise the work relating to the respective sections of  Headquarters viz., Planning and Co-ordination Section, Administration, Personnel and Vigilance Section, Technical Section and Risk Management and Quality Assurance Section and theme based audit. To ensure that the Audit Report Utility is used for uploading of Audit reports finalised in MCM and no paper based audit reports are prepared.

3.4.4 Deputy/Assistant Commissioners in-charge of Circles:

i. Co-ordination, planning and overall management of the audit circle.

ii. To monitor maintenance of Registered person’s master files and

iii. To approve the desk review and audit plan, in respect of all the small units, after ensuring that all the steps have been completed and forward a copy to JC/ ADC for review.

iv. To interact with registered persons at the time of audit in order to share major audit findings and compliance issues.

v. To approve and issue draft audit reports before placing the same in MCM meeting.

vi. As in-charge of Circle, to attend MCM and to represent the Circle in case of all DARs taken up for discussion during MCM.

vii. To issue final audit reports after approval in the MCM meeting.

viii. To issue show cause notices falling under his purview as per monetary limits fixed by CBIC from time to time both under Section 73 and 74 of CGST Act.

ix. To ensure timely preparation and forwarding of DSCNs along-with relevant documents to the Audit Commissionerate, which are falling within the monetary limits for SCN and adjudication by ADC/JC.

3.5 Role of GST Executive Commissionerate:

i. To represent in MCM;

ii. To respond to the draft audit objections, within 7 days of receipt from Audit Commissionerates;

iii. To provide detailed comments with a justification on the disputed audit paras including the details of Board’s Circulars, case laws (if any) or any point of law;

iv. To attend to the litigation after adjudication proceedings and to defend the order before the appellate fora – viz., Commissioner (Appeals)/ Tribunals/ Courts, with the help of inputs from Audit Commissionerates, wherever required;

v. To attend to the work related to pre-audit, post audit of refunds, rebates;

vi. To attend to the work related to CERA;

vii. To pursue recovery of amounts in respect of pending paras admitted by the party (in writing), based on the reference received from the Audit Commissionerate.

viii. To ensure immediate intimation to the jurisdictional Audit Commissionerates regarding any cases booked/investigation carried out by Anti-Evasion wing of the Executive Commissionerate or by DGGI and any audit conducted by A copy of the CERA objection shall also be sent.

ix. To ensure timely adjudication of show-cause notices issued by the Audit Commissionerates.

x. To carry out investigation and necessary action like recording statements under summons etc. in respect of cases forwarded by Audit Commissionerates.

3.6 Staffing norms for GST Audit Commissionerate:

i. Headquarters shall be headed by one Principal Commissioner / Commissioner with the assistance of two Additional or Joint Commissioners and three or four Assistant Commissioners/ Deputy Commissioners.

ii. Normally, officers selected and posted to the Audit Commissionerate should be allowed to continue to function in the Commissionerate for a minimum period of two years and maximum of four years.

iii. The supervising officer of the rank of Additional / Joint / Deputy / Assistant Commissioner must frequently (especially in important and sensitive units) associate with the actual audit and attend to the areas of risks identified during desk-review.

iv. Each audit circle shall be headed by a Deputy or an Assistant Commissioner.

v. Deputy/Asst. Commissioner of the circles should be associated with all major audits. Senior Officers of the cadre of Additional / Joint Commissioners should interact with the senior management of large units after conducting audit.

vi. Audit circle comprises of one stationary audit group (MIS) to look after the work relating to planning and co-ordination section of Hqrs. Office, such as MCM, maintenance of Registered person’s Master Files, attending to follow up work and deployment of audit groups for conduct of audit.

vii. The Audit Groups deployed for audit of large units may comprise of 2-3 Superintendents and 3-5 Inspectors. For medium units, the audit group may include 1 – 2 Superintendents and 2 – 3 Inspectors. For small units, the Audit Group may include 1 Superintendent and 1 – 2 Inspectors.

viii. Groups for large units, medium units and small units should be in such numbers that the following distribution of manpower deployment in audit groups is achieved.

a. 40% of manpower for large units including audits of Multi Locational Supplier (MLS), and theme-based audits

b. 30% of manpower for medium units

c. 20% of manpower for small units

d. 10% of manpower for planning, coordination and follow

3.7 Auditors’ Profile:

Profile of each of the auditor posted in the groups should be available in  the Audit Planning and Coordination Cell of Circle, in the following proforma.

i. Name of the officer.

ii. Designation.

iii. Experience in the department.

iv. Professional qualification, if any.

v. Experience in Central Excise Range/ Service Tax formation or Divisional office (in years).

vi. Whether undergone training in audit.

vii. Experience in audit wing.

viii. Number of major audit points raised by him on his own (to be taken from working papers) in his career. Amounts involved in such cases.

ix. Any commendation/awards, rewards, etc. received.

3.7.1 Each auditor should furnish a self-appraising resume containing the above information immediately upon joining the audit section, which should be updated on yearly basis so long as the officer continues to be posted in the Audit Groups. Auditor’s profile facilitates effective deployment of auditors to units by considering appropriate skill levels, training, educational background of the auditor etc.

3.7.2 The formation of audit groups is a critical component of audit management. The cadre controlling authority in-charge of the Audit Commissionerate shall ensure that the officers with the requisite skill and experience are posted to Audit Commissionerates depending on the availability and other administrative constraints. Audit Commissioners should ensure that the skill and experience available is evenly distributed across the audit groups. As far as possible there should be at least one officer with commerce or accounts background in each party. It is also useful to assign officers with computer skills to each party to deal with units that keep computerized accounts. For efficient functioning of the MIS section of Audit Commissionerate/Circle, officers with computer skills and some prior audit experience are required. Similarly, the skill sets and experience available with an audit group should govern the size and complexity of audits that it handles. For optimal results, there should be matching of these two factors.

3.7.3 Officers, when posted to the GST Audit Commissionerate for the first time, should invariably be sent for training in GST Audit process and financial accounting so that they have the basic skills to handle audit work. Compulsory in-house training programmes should also be organized in the Audit Commissionerates for the benefit of new entrants soon after the annual transfers. The GST Audit Commissioner should also ensure to organise special training programmes for major industrial sectors in the jurisdiction of an Audit Commissionerate so that auditors have the necessary specialization and sufficient number of auditors specializing in major industries are available. Officers, who have worked in audit sections earlier, should also be imparted with refresher course on the latest techniques of audit and changes in the statutory provisions, if any.

CHAPTER 4

SELECTION OF REGISTERED PERSONS FOR AUDIT

4.1 Objective:

Selection of registered persons for audit means selection of registered persons to be audited during a specified period, taking the available resources into account. Given the large number of registered persons under GST, it is impossible to subject every registered person to audit each year with the available resources. Further, emphasis placed merely on coverage of more number of registered persons would dilute the quality of Audit.Selection of units for audit in a scientific manner is extremely important as it permits the efficient use of audit resources viz. manpower and skills for achieving effective audit results. Selection of units for audit based on revenue risk leads to deployment of audit resources where they are most needed, i.e., in the audit of less compliant units. Such selection is finally subject to the availability of administrative resources. These registered persons should be selected on the basis of assessment of the risk to revenue. This process, which is an essential feature of audit selection, is known as ‘Risk Assessment’. It involves the ranking of registered persons according to a quantitative indicator of risk known as a ‘risk parameter’.

4.2 Method of selection based on risk assessment:

The selection of registered persons would be done based on the risk evaluation method prescribed by the Directorate General of Audit in consultation with the Directorate General of Analytics and Risk Management. The risk evaluation method would be separately communicated to the Audit Commissionerates during the month of January/February of every year. The risk assessment function will be jointly handled by the Directorate General of Audit and the Risk Management section of GST Audit Commissionerates. The Risk Management section of GST Audit Commissionerate would ensure availability of registered person-wise data, which would facilitate risk assessment and preparation of the list of registered persons to be audited in the current year.

4.2.1 Based on the risk methodology, a list of units will be communicated to the Audit Commissionerates by DGARM / DG (Audit), for the purpose of conducting audit for the audit year. The list will contain the name of the registered person and the risk indicator alongwith with the action points for decision support so that the auditor is aware of the area to focus while conducting audit. The Audit Commissionerates may select the units to be audited in a particular year after reviewing the list received by, in the context of local risk perceptions and parameters. The Audit Commissionerate may also select a registered person with low risk score compared to another registered person with relatively high-risk score, based on Local Risk Factors (Illustrative list of Local Risk Factors is given in GSTAM Annexure XII). It should be ensured that 20% of the taxpayers to be audited are selected based on local risk factors after obtaining the approval of the Chief Commissioner.

4.2.2 However, the reasons for such selection should be indicated which would be used as a feedback by the Directorate of Audit for further improvisation of risk factors in future.

4.2.3 The Audit Commissionerates may also select a few units at random or based on local risk perception in each category of large, medium and small units. Feedback on such random selection and results of audit thereof would help in evaluation of parameters used for the process of selection. The Audit Commissionerates may also select some registered persons registered in terms of Section 51 and Section 52 of the CGST Act, 2017 for checking the correctness of TDS and TCS. Feedback on such selected persons and results achieved may be provided to the Directorate General of Audit.

4.3 Preparation of audit schedule:

4.3.1 Annual plan for Audit Coverage (Audit year being – 1^st April to 31^st March):

i. The Audit Commissionerate would release an Annual plan by 15^th March, indicating the names of registered persons proposed to be audited during the course of the year (period from 1^st April to 31^st March of the next year) and the probable month in which the Audit officers would visit the units for verification of records. The Audit coverage (i.e. number of units selected for Audit in a year) may be calibrated with the manpower availability in a Commissionerate. The working strength of officers in Audit Commissionerate would be taken as the basis for calibration. After release of Annual plan by the Audit Commissionerate, concerned DC/AC In-charge of Circles may issue quarterly schedules and to constantly monitor conduct of audits to ensure that at the end of the year audit of all the units allocated is Circle DC/AC can permit changes with reference to conduct of audit of any unit by allowing preponing / postponing from one month to another month/ from one quarter to another quarter. However, it shall be ensured that audit of all the units allocated by the Audit Commissionerate are completed by 31^st March so that no single unit is left uncovered.

ii. In order to ensure adequate coverage, the registered persons shall be categorized into three categories namely large, medium and small units. Given the past experience in detection of non-compliance and recovery of Tax through audits, it is suggested that Audit Groups may be deployed to cover large, medium and small units as discussed in Staffing Norms in para 3.6 above. While deploying officers due care should be taken, so that the staff is proportionately allocated to attend the audit work related to registered persons dealing with supply of goods and those dealing with supply of services based on revenue profile of the Commissionerate.

iii. The criteria for categorizing a registered person as large, medium or small would be the total annual value of outward supplies (including export and exempt supplies). The threshold limits of value of outward supplies for categorizing the units into large, medium and small would be dependent upon (i) the available manpower in the Audit Commissionerate and (ii) the total no. of registered persons and turnover of each registered person in the jurisdiction of the Audit Commissionerate. It may be noted that threshold limits may vary from one Audit Commissionerate to another Audit Commissionerate in view of varying number of registered persons and quantum of value of outward supply by each registered person. The categorization of Registered Taxpayers would be done by the Directorate General of Audit. The methodology for categorization alongwith threshold limits would be communicated to the Audit Commissionerates by Directorate General of Audit during the month of January/February.

iv. The scheduling can be reviewed half yearly for necessary adjustments, if any. The Directorate General of Audit will also periodically review and revise, wherever necessary, the criteria for categorizing the units into large, medium and small within each Zone / Commissionerate, manpower deployment in each category, composition of Audit Group and number of days required for audit in each category. The review/revision would be done in consultation with the Audit Commissionerates so as to ensure that Audit coverage by officers is made optimal.

v. Principal Chief Commissioner / Chief Commissioner may allow temporary reallocation / diversion of officers amongst the Audit Commissionerates to ensure adequate Audit coverage of all categories of registered persons falling under the jurisdiction of the zone.

4.4 Theme based coordinated audits

4.4.1 Theme based co-ordinated audits at all India level would be conducted by the concerned Audit Commissionerates in a coordinated manner. The theme would be selected by the Directorate General of Audit, based on a systematic and methodical risk analysis of internal data of registered person (from DG (Systems), economic indicators, third party information from tax and other regulatory authorities and other relevant sources of data. The D.G. Audit would also consult trade, industry and suppliers from time to time, wherever necessary. The theme would be intimated well in advance, say four to six months, to the field formations. The number of such audits will be one or at best two in a year. The selection of theme/issue, coordination and dissemination would be done by the D.G. Audit in consultation with the field formations.

4.4.2 The theme based coordinated Audits would also be carried out at the Zonal level. The theme for the audit, which could be a sensitive commodity, would be selected at the zonal level and simultaneous and coordinated audit would be carried out within the zone. The number of such audits will again be one or two in a year. The theme for the Audit would be selected based on analysis of data provided by DG (Systems) and relevant third-party information identified from time to time. The Principal Chief Commissioner/Chief Commissioner may involve the zonal units of Directorate General of Audit in selection of theme, planning and execution of theme-based Audit.

4.5 Accredited status for deferring frequency of audit

4.6 A segment of registered person, could be given an “accredited” status, similar to the one given in Customs, based on their proven track record of compliance with tax laws and procedures. Such identified registered person need not be subjected to Audit in every cycle. It has been decided that such units should normally be audited only after 3 years from the date of last audit. The procedure and criteria for accreditation would be communicated separately.

CHAPTER 5

AUDIT – PREPARATION AND VERIFICATION 5.1 Profiling of registered person:

5.1.1 Audit requires a strong database for profiling each registered person so that risk-factors relevant to a registered person may be identified in a scientific manner and audit is planned and executed accordingly. Some of the relevant data has to be collected from the registered person during the course of audit, while the rest is to be extracted from the, application for registration, registration documents and returns filed by the registered person as well as from his annual return, E-way Bills, reports/returns submitted to regulatory authorities or other agencies, Income Tax returns, contracts with his clients, audit reports of earlier periods as well as audits conducted by other agencies, like office of C&AG, etc. most of which will be available in GSTN.

5.1.2 A comprehensive data base about a registered person to be audited is an essential pre-requisite for selection of units as well as for undertaking preliminary desk review and effective conduct of audit. A substantial amount of data is already available in GSTN. Some of the data like those contained in annual financial statements keeps changing every year. Utility named Taxpayer at a Glance (TAG) containing all the available information of the registered person will be accessible to the auditor.

5.2 Reviewing the taxpayer data: The first step towards an effective audit is to review all relevant information about the registered person.  Annexure GSTAM – I contains details of all the relevant data required for review.

5.2.1 Whenever GST audit of a registered person is taken up, the audit team conducting the audit should review the data already available and the data that is not available and collect the information not available and update the data of the registered person.

5.2.2 The Planning and coordination section of the Audit Commissionerate shall make available all the information of the registered person selected for audit to the respective audit group as per the said Annexure GSTAM I

5.2.3 The information of each registered person should be updated periodically after completion of each audit. The audit working papers, audit report, duly approved during the audit monitoring meeting, along with the latest documents should be filed properly in a file of the registered person.

5.3 Allocation of audits amongst the audit parties:

The audit schedule should also mention the Group No. of the audit groups to conduct audit of a particular unit. It must be ensured that the group members of the audit party are fully trained for conducting audit in accordance with the guidelines in this manual.

5.4 Action to be taken by the Audit Group:

Once the audit schedule, with Group allocation, is finalised, the action shifts to audit groups. The group should have adequate time to complete the preparation for audits to be conducted as per the audit schedule. All units listed to be audited should be intimated at least 15 days before the commencement of audit verification in their premises. A format of the letter (ADT – 01) intimating the registered person about the audit and the records/documents to be provided to the auditors has been notified under CGST Rules, 2017 provided in Annexure – GSTAM-II of this manual.

5.5 Desk Review

5.5.1 Objective:

The desk review lays emphasis on gathering data about the registered person, his operations, business practices and an understanding of the potential audit issues, understanding his financial and accounting system, studying the flow of materials, cash and documentation and run tests to evaluate the vulnerable areas. The preliminary review assists in development of a logical audit plan and focus on potential issues.

5.5.2 This is the first phase of the audit programme done in the office. The idea is to gather as much relevant information about the registered person and its operations, as is possible, before visiting the unit. A good desk review under the supervision of senior officers is critical to the drawing up of good audit plan. The services of Deputy/ Assistant Director (Costs) allocated to CC Zone may be utilised effectively wherever required.

5.5.3 The auditor should refer to the information of the Registered Taxpayer (Annexure-GSTAM-I). Study of the information could throw up important points, which may merit inclusion in the audit plan. In addition, the auditor should also obtain the latest Trial Balance Sheet, Tax Audit Report, Annual Financial Statement, Cost Audit Report or any such document prepared or published after the last updating of information. From the scrutiny of these documents, certain points may further emerge for inclusion in the audit plan. The auditor should also incorporate the result of any parameters brought to light by risk analysis into the desk review for pin pointing specific issues for scrutiny during audit. An illustrative list of scrutiny of important documents from the audit angle is given at Annexure –GSTAM-III).

5.5.4 All receipts of the taxpayer need to be tested for GST liability. Analysis of exports turnover, turnover of non-taxable and exempted goods and services gives a clear picture of the amounts which were not considered for Tax payment. It also helps to conclude whether such exemptions claimed are proper or not. (Part III (I) of Working papers in Part B {for services} of GSTAM-VIII refers). The auditor should reconcile the ITC credit availed as shown in GSTR 1 with that shown in GSTR 2A and identify any gaps in the ITC availment. This gap should be mentioned in the Audit Plan for verification at the time of audit.

5.5.5 Cost Accounting Records/Cost Audit:

(i) In respect of Regulated sectors like Telecommunication, Electricity, petroleum and Gas, Drugs and Pharma, fertilizers and Sugar, Cost audit requirement has been made subject to a turnover based threshold of Rs 50 crores for all products and services and Rs 25 crores for individual product and services.

(ii) In respect of Non-Regulated sectors – The threshold is Rs 100 crores and Rs. 35 crores respectively.

For latest amendments and existing norms the Companies (Cost Records and Audit) Rules 2014 may be referred to.

5.5.6 From the RPMF, Trial Balance and Annual Financial Statements (Profit & Loss Account and Balance Sheet) it is possible to work out important financial ratios. The said ratios should be compared with the ratios of earlier year and wherever significant variation is noticed, these areas may be selected for audit verification. It may be kept in mind that any adverse ratio is only an indicator for verification of such an area and there may be valid reasons for the same. Therefore, only on the basis of such an adverse ratio, a point for verification can be selected. An illustrative list of important ratios is given at Annexure-GSTAM-IV.

5.5.7 Reconciliation of data with third party information: GST payment shown in the GSTR-9 returns can be reconciled with that shown in the financial accounts. Further, from the reconciled figure of GST payment, value of the sales can be worked out. This can then be compared with the sales figure shown in financial records. The difference, if any, must be analysed. The unit assessable value of the registered person can be compared with that of another registered person supplying the same supply. This method would give an idea whether the valuation and duty calculation system of the registered person is a high/low risk area. A comparative chart of items from financial statement to be drawn for reconciling the data is annexed as Annexure-GSTAM-V. The auditor should check the data available in GSTR-9 returns with other documents such as gross trial balance, Income Tax Returns, Annual Audited accounts, Income Tax Audit report etc. and to carry out a preliminary reconciliation for the purpose of identifying any amount that might have escaped GST.

5.5.8 Revenue Risk Analysis:

Risk Analysis is a method of identifying potential revenue risk areas by employing modern techniques. It can be carried out by (i) reconciling various specific financial data, comparing it with different business accounts/documents, (ii) deriving certain data and comparing with the actual figures of the financial documents & (iii) comparing the key data figures of the unit with the average of all industry figure of similar kind (if available) or past figures of the same registered person. The result of Revenue Risk Analysis should be filled in the relevant column of working papers.

5.5.9 Trend Analysis:

Trend analysis is a type of computational support needed for the analysis preparatory to planning, by analysing historical data and working out future projections. Historical data is analysed to discover patterns or relations that would be useful in projecting the future production, clearances and values etc.

5.5.10 For audit purposes, either absolute values or certain ratios are studied over a period of time to see the trend and the extent of deviation from the average values during any particular period. The analysis of trends as mentioned in the relevant table of working papers may be carried out. (refer III (9) of Annexure –GSTAM-VIII Part A & III C of Part B of GSTAM-VIII).

5.5.11 For audit of Traders, a check list is provided in Annexure XIII. For audit of Composite Dealers, a check list is provided in Annexure XIV.

5.6 Audit Plan

5.6.1 The objective of preparing an audit plan is to outline a logical series of review and examination steps that would meet the goals and standards of an audit in an efficient and effective manner.

5.6.2 Audit Plan is the most important stage before conduct of audit. All the previous steps are actually aimed at preparation of a purposeful Audit Plan. Therefore, it is important that all previous steps are completed and the relevant Working Paper of each of the steps is filled up before commencing preparation of an audit plan. By now, the auditor is in a position to take a reasonable view regarding the vulnerable areas, the weak points in the systems, abnormal trends and unusual occurrences that warrant detailed verification. Certain unanswered or inadequately answered queries about the affairs of the registered person may also be added to this list.

5.6.3 Audit plan should be a detailed plan of action, preferably in a standard format. The audit plan should be consistent with the complexity of the audits (Annexure –GSTAM-VII).

5.6.4 The summary results of desk review, along with the completed Working Papers, should be submitted to the Deputy/Assistant Commissioner for approval and guidance, if any.

5.6.5 The audit plan must be discussed with the Deputy Commissioner / Assistant Commissioner of the Circle and should be finalised after approval by the Commissioner/ Additional/ Joint Commissioner/ Deputy/ Assistant Commissioner as the case may be.

5.6.6 The audit group should put up documents received, along with filled in Questionnaire and working papers in the prescribed proforma, related to top five units of each audit circle mentioned in the Annual Plan for audit coverage to the Commissioner and the rest to the Additional / Joint Commissioner through Deputy / Assistant Commissioner in-charge of Circle, for approval of the audit plan, after carrying out preliminary reconciliation, identifying discrepancies, if any, and carrying out detailed examination of the records and information (including that already captured in the Master File of registered person).

5.6.7 In the case of circles where ADC/JC is not stationed at the place of Circle:

i. In respect of large and medium units, the audit parties should forward the draft audit plans to the Additional/Joint Commissioner, through the DC/AC of the circle, by e-mail, for approval. The audit of the respective units should not be conducted till receipt of the approval of the ADC/JC, through e-mail. While sending the desk review and the draft audit plan, the information in GSTAM Annexure – I should also be sent.

ii. In respect of small units, the Deputy/Assistant Commissioner of the Circle is competent to approve the audit plan. However, the approved audit plan should be forwarded to the Additional/Joint Commissioner, through e-mail, at least 10 days before the conduct of actual audit so as to enable the ADC/JC to communicate additions, if any, before the actual audit takes place.

5.7 Audit Verification

5.7.1 The objective of audit verification is to perform verification activities and document them in order to obtain and record audit evidence. The verification techniques must be appropriate for audit objectives identified in the audit plan. It is important that in an audit, the objections that are raised are technically correct and stand up against scrutiny or challenge. Law being open to interpretation, it may be difficult to test the technical correctness of all objections. However, it should be correct to the extent that any professional auditor, working with and having access to the same research material would likely to come to the same conclusion. It also means that the auditor must demonstrate, in writing, the research and reasoning used to base his/her application of legislation, policies and jurisprudence.

5.7.2 Audit verification involves verification of data and actual verification of documents submitted at the time of desk review, verification of points mentioned in the audit plan.

5.7.3 Gathering of information of the registered person –

This may be carried out as per the activity of the taxpayer as found out during the Desk Review. The task mentioned herein below may not be relevant in case of all taxpayers. The auditor should evaluate the necessity of carrying out these tasks and mention the relevance in the Working Paper for carrying out or not carrying out the same.

5.7.4 Evaluation of the Internal Controls.

The objective of review of internal controls is to assess whether the registered person has reliable systems and controls in place that would produce reliable accounting/business records. Most medium to large companies have ERP systems in place, which account for all transactions from entry of raw material to clearance of final products. Auditors must have a look at these systems and more relevantly determine whether software being used exclusively for the transactions related to Goods and Service Tax matters is integrated to the main ERP system or is running parallel to the main ERP. This assessment would be used by the auditor to decide on the extent of verification required and to focus on areas with unreliable or missing controls. It should be noted that this review must be commensurate with the size of operations. A small registered person might have little in terms of internal controls where as a large registered person would have sophisticated internal controls in place. If the internal controls are well designed and working properly, then it is possible to rely on the books maintained by the registered person. The scope and the extent of the audit can be reduced in such a case. The reverse would be true if the internal controls are not reliable. Audit should evaluate the soundness of internal control of sub-systems/areas like sales, purchase tax, accounting etc., and grade them as good, acceptable and poor (refer Part D of working papers).

5.7.4.1 In this regard, an auditor should normally examine the following:

i. Characteristics of the company’s business and its activities.

ii. System of maintenance of records and accounts.

iii. Identifying the persons handling records for accounting purposes.

iv. Allocation of responsibilities at different levels.

v. System of internal checks.

vi. System of movement of documents having relation to duty/tax assessment.

vii. Inter-departmental linkages of documents and information.

viii. System of own internal audit.

5.7.5 Techniques for evaluation of the Internal Controls.

(a) Walk-through: This is a process by which the auditor selects any transaction by sampling method and traces its movement from the beginning through various sub systems to the end. The auditor verifies this transaction in the same sequence as it had moved. By this method the auditor can get a feel of the various processes and their inter linkages. It is also a useful method to evaluate the internal control system of a registered person. The auditor can undertake walk through process of sales, purchase, GST, account adjustment systems etc., certain model ‘Walk-through’ routes are given in Annexure-GSTAM-VI. Similarly, key controls may be examined for recording of all cash transactions: these controls may include scrutiny of numbered cash transaction invoices, daily reconciliation of cash invoices, separation of taxes etc. Undertaking a ‘walk-through’ and conducting ABC analysis during this process would help the auditor in evaluating the system of internal controls in a scientific manner.

(b) ABC Analysis: It is a known fact that in any field of activity an enormous data is generated and all data is not equally important. In order to filter out the irrelevant or relatively insignificant data, various techniques are applied. The ABC Analysis is one of such data management techniques. This technique is particularly useful when auditors are required to scrutinise and examine a large volume of data/documents within a limited time. In ABC analysis the whole data population is classified into three categories (i.e. A, B and C categories) based on the importance, as given below:

• A-category is the class of data that is the most important from the point of view of managing and controlling the same.
• B-category is the class of data, which should invariably be controlled, but the degree of control is not as intense as for A-category.
• C-category is the class of data, which has far less revenue-implications and can be controlled by suitable test-checks.

The auditor can apply ABC Analysis especially where the quantum of data/information to be analysed is voluminous. In such a case, the auditor can classify them according to their tendency towards potential risk into A, B and C categories. To give an example, transactions with top five customers/clients of a registered person may alone be taken up for detailed examination by auditors. Similarly, while verifying credit utilization by the registered person, documents relating to the receipt/procurement of major inputs may be examined. The technique of ABC analysis can also be suitably applied for evaluating the systems of internal controls while carrying out verification.

The above steps viz., tour/study or evaluation of internal controls/walk through etc., are required to be carried out during the stage of actual audit verification.

5.7.6 The auditor should invariably record the findings of the above steps, in the Working Paper (Annexure –GSTAM-VIII).

5.7.7 Verification of points mentioned in the audit plan:

In view of emphasis on trade facilitation, intelligent enforcement and providing non-intrusive environment to taxpayers, it has been decided to move from the present system of premises based audit to desk-based (office) audit in case of small category of taxpayers. Such desk based audit may be carried out on the basis of information / data made available to them. However in case of non-cooperation by the taxpayers, premises based audit may be carried out after approval by the Commissioner. Further in cases where it is felt at any stage of audit that there are inherent weaknesses in the internal control system of the taxpayers, the officers may switch to premises based audit with the approval of the Commissioner. However, in respect of Large and Medium Category of taxpayers, the premises based audit has to be conducted.

The auditor should conduct the verification in a systematic manner, following the sequence of steps envisaged in the working papers. While conducting audit verification, special care should be taken to examine all those issues pointed out in the audit plan. The auditor should try to determine whether the apparent weaknesses in the internal control system of the manufacturer/service provider have led to any loss of revenue. He should also identify the procedural infractions on part of the registered person, which are recurrent in nature and which may obscure a significant fact. During the process, he must cross check the entries made by the registered person in various records and note discrepancies, if any. In all cases involving discrepancies, the auditor should make detailed enquiries regarding the cause of the discrepancies and their revenue implication.

5.7.8 The auditor should also examine the documents submitted to various Government departments/ Regulatory Authorities such as Customs, Income Tax, Banks, etc. by the registered person. This should be used in cross verification of the information filed by the registered person for the assessment of GST. Annexure GSTAM-IX gives utility of some of the documents/ registers of the registered person that can be made use of by the auditor during the course of verification. Extensive use of information available with open sources such as electronic and print media, internet etc. should also be resorted to for verification of information filed by the registered person.

5.7.9 The audit verification gives maximum opportunity to the auditor to go through the registered person’s records in his unit. Therefore, auditor may come across a new set of information or documents, not earlier known, during any of the earlier stages. Further, while examining an issue, the auditor may come across a fresh issue also requiring detailed examination. In such a situation, the auditor should, after obtaining the approval of his Dy. Commissioner/Asst. Commissioner, go beyond the scrutiny envisaged under the Audit Plan and record the reasons for doing so. Despite audit verification being a structured process, it is flexible enough to accommodate needs on the spot. At the end of each entry in working papers, auditor must indicate the findings. If any of the planned verifications is not conducted, the reasons for the same must also be recorded. While the process of verification for each audit would be unique in terms of Audit Plan, it should involve some general steps as discussed below:

5.8 Physical Verification of Documents: A detailed scrutiny of the financial records of the registered person becomes imperative, if any issue is noticed at the time of Desk Review. The documents to be examined include Annual Financial Accounts containing Director’s Report, Statutory Auditor’s Report, Balance Sheet and Profit & Loss Account. If necessary, the auditor must go into details of the figures mentioned in the Annual Financial Statements and for that he must examine Trial Balance, Ledgers, Journal Vouchers, 26AS Statement, Invoices and E-way bills. He may also examine Cash Flow Statement, Groupings, Cost Audit Report and Tax Audit Report. He should also check whether the registered person is maintaining the statutory records as required under various statutes especially under the Companies Act, 2013.

5.8.1 Audit objections raised must be fully supported by documentary and legal evidences. This will greatly help in explaining and discussing the objections with the registered person and other follow up action. It needs to be ensured that all audit documentation is complete, accurate and of professional quality. Working Papers are a synopsis of audit operations conducted by the Audit Group. Entry of all items mentioned in the audit plan must be made in the working papers, during Audit Verification.

5.8.2 The provisions of Section 9(4) of the CGST Act, 2017 specify a class of registered person who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both. As such during the course of Audit, the auditors may examine the details of procurements from such un-registered persons.

5.8.3 For verifying the gap in ITC availment as identified in para 5.5.4, the auditor should carry out a test check of the invoices of such suppliers whose details are not figuring in GSTR 2A and identify some of such suppliers with high tax value and get the particulars of tax payment verified at the supplier’s end.

5.8.4 In order to verify the correctness of TDS payments, the auditor should check the reconciliation statement showing purchases and prepare a list of all suppliers who have not paid GST. Some of these suppliers may either be unregistered or registered. In case of unregistered suppliers, details of payment of GST in terms of Section 51 of CGST Act, 2017 may be verified and in case of registered suppliers the reasons for non-payment of GST may be ascertained in test cases.

5.9 Working Papers (Annexure – GSTAM-VIII):

i. The working papers form the basis of audit objection. They also show the detailed steps undertaken by the auditor during the preparation and conduct of the audit. Therefore, they should be filled carefully, giving observations and conclusions of the auditor duly supported by evidences/documents, wherever required.

ii. Each part of the working papers should be filled up on completion of the relevant audit step. The date on which such part is completed and working paper filled in should be mentioned. The working papers should be filled in by the auditors themselves and in no case should be handed over to the registered person for filling them up.

iii. The completed working papers must be submitted by the Audit Group with the draft audit report.

iv. Copies of supporting documents/records/evidences referred to in the working papers must be annexed at the end. Each copy should have a cross-reference to the relevant entry in the working paper.

5.10 Working papers should support the audit effort and results. They should:

i. Be clear, concise, legible, organized, indexed, and cross-referenced;

ii. Disclose the audit trail and techniques used in the examination of each significant item;

iii. Support the conclusions reached and cover all queries raised;

iv. Include audit evidence (e g., copy of a financial statement, an invoice, a contract, a bank statement, etc.) to support the assessment;

v. Link results to supporting working papers e.g. the objections identified in the working papers must agree with the summary of audit results or statement of audit objections and the audit report;

vi. See that audit reports are clear and disclose all material and relevant information; and

vii. Take follow up action.

5.11 Apparently, the financial and other documents maintained by the registered person for his private use and in compliance of other statutes are of great importance which may reveal substantial short/non-payments of duty. Annexure-GSTAM-IX provides an illustrative list of such records/ documents, as also the relevant information that can be gathered from them. The auditor may take note of the same during ‘Gathering information about the registered person and the system followed by him’, and go through them during ‘Audit Verification’.

5.12 In case it is not possible to conduct Audit within three months period as prescribed under Section 65 of CGST Act, Circle DC/AC is to submit proposals for extension of time limit for completion of audit well in advance preferably at-least one week in advance to the Commissioner explaining the circumstances under which the Audit could not be completed within three months period. In case extension of time period for completion of audit is granted by Commissioner, the fact of such grant of extension by Commissioner is to be intimated to the registered person.

5.13 Apprising the registered person of irregularities noticed and ascertaining his view point

It is important that the auditor discusses all the objections with the registered person before preparing draft audit report. The registered person should have the opportunity to know the objections and to offer clarifications with supporting documents. This process will resolve potential disputes at an early stage and avoid unnecessary litigation.

5.14 The ultimate aim of conducting an audit is to increase the level of tax compliance of registered person. Therefore, no audit can be considered to be complete unless the auditor has made all efforts to ensure maximum recovery of short levy before leaving the premises of the registered person. As the Audit system adopts a transparent methodology, it is necessary that all the audit objections noticed by the Audit Group are conveyed to the registered person with a view to ascertain his point of view before preparing the Draft Audit Report. Accordingly, the audit objections should be intimated in writing to the registered person, clearly stating that the same is not in the nature of any show cause notice and is only a part of participative and fact-finding audit scheme under which even the preliminary and tentative audit observations are being shared with the registered person for ascertaining his point of view. Where satisfactory explanation or evidence is submitted to the auditor, the findings should be revised as necessary after placing the same before Circle DC/ AC and obtaining his approval. However, if a response from the registered person is not forthcoming, draft audit paras should be prepared on the basis of available records after citing the lack of cooperation on part of the registered person, in the Audit Report.

5.15 It is the auditor’s responsibility to explain all the objections to the registered person and to make all attempts to resolve any disagreements before those are finalised. It is also the auditor’s responsibility to make sure that the senior officers are aware of potential disagreement and the position taken by the registered person.

5.16 Suggestions to Registered person for future compliance

5.16.1 Before leaving the registered person’s premises, the auditor must discuss future compliance issues with the senior management of the registered person. The auditor should also discuss the steps that management can take to reduce specific errors detected during the audit and to improve compliance by suggesting improvements in the accounting systems etc. Written or verbal assurances as given by registered person should be recorded in the Audit Report.

5.17 If, in any way, the department can assist the registered person to reduce errors and improve compliance, such offer of assistance should be made.

CHAPTER 6

PREPARATION OF AUDIT REPORT AND FOLLOW UP

6.1 Preparation of Draft Audit Report and submission to senior officers

6.1.1 After completion of audit verification, the auditor should prepare the verification report in the prescribed Proforma as mentioned in Part VI of GSTAM – VIII for each issue of the approved Audit Plan. This document should record the results of verification conducted as per the audit plan. Any additional issue (not mentioned in the original plan) verified/ point noticed should also be mentioned. The auditor would then discuss each of such issues with the registered person pointing out either non-payment or procedural infractions. The initial views of taxpayer must be recorded in the verification document. The auditor should also apprise the registered person of the provisions relating to voluntary compliance and encourage him to take advantage of those provisions in order to avoid disputes and litigation.

6.1.2 Where the registered person agrees with the short levy, as noticed, the auditor should explain the benefit available under Section 73(6) / 74 (6) as the case may be and use persuasion as a measure of recovery of dues along with interest, if any, promptly. Details of spot recoveries and willingness of the registered person to pay short levy should also be recorded. This document would then become the basis for preparation of the draft audit report.

6.1.3 The Draft Audit Report shall be prepared in consultation with the Deputy/Assistant Commissioner of Audit Circle. The audit Circles shall bring the NIL DARs to the notice of concerned Addl./ Jt. Commissioner for review, who has to record his findings in audit file based on Desk Review.

6.1.4 The narrative of the objections in the audit report should be concise, to the point and self-contained and should convey the gist of objection raised. Telegraphic narration should be avoided. Where the objections are based on any circulars or clarifications issued by the Board, they should be quoted. Cases, in which certain specified conditions are not fulfilled, giving rise to objections, should be clearly brought out. Similarly, where objections are backed by interpretations as decided by the court judgments, decisions of Appellate authorities or supported by technical literature, those should be cited.

6.1.5 The draft audit report should be finalised within the shortest time span possible i.e. within 10 – 15 days of the commencement of the audit in the registered person’s place and placed before the MCM for decision.

6.2 Monitoring Committee Meetings

6.2.1 The auditor should submit the draft audit report to the Deputy / Assistant Commissioner of the Audit Circle for approval and after approval of DAR the same is to be considered for placing before Monthly Monitoring Cell Meeting.

6.2.2 Monitoring Committee Meeting (MCM) should be convened by the Audit Commissionerate, to which the Executive Commissioner or his representative shall be invited to attend. The decision taken by the Audit Commissioner, with regard to settlement of audit objections after recovery of all dues or dropping of the unsustainable audit objections, shall be final. Approved audit objections, including those in which show-cause notices are proposed to be issued, should be conveyed to the Executive Commissioner in the form of Minutes of the MCMs, who shall respond to these objections conveying his agreement/disagreement within 15 days of the receipt of the minutes of the MCM.

6.2.3 On points of difference, further consultations may be held for a period of 15 days. If the difference persists, the final decision rests with the Audit Commissioner.

6.2.4 The Planning and Co-ordination section of the Audit Commissionerate should organise, /Executive Commissionerate-wise / Circle-wise Monitoring Committee Meetings (MCM), at least at a monthly interval under the chairmanship of the Audit Commissioner, under intimation to the Executive Commissioner and the ADG (Audit) of the Zone concerned. The DD/AD (Costs) if available may also be invited for the said meeting. During the MCM each of the audit objections/ observations would be examined for its sustainability. The Committee (MCM) should also decide as to whether the extended period of limitation can be invoked or not and also on the applicability of the provisions relating to waiver of show cause notice in respect of each para (refer Section 73(5) & 73(6)/ 74(5) & 74(6) of CGST Act, 2017). To facilitate prompt decision, the Additional/Joint Commissioners and all the DC/ACs of Headquarters and all circles of the Audit Commissionerate should attend these meetings to offer their views on the spot, to ensure that uniformity in raising objections is maintained. The minutes of each such meeting should be drawn, pointing out the decision on each audit objection regarding its sustainability and directions for future action. The objections rejected by the meeting will be treated as closed.

6.2.5 The Planning and Co-ordination Sections of Audit Commissionerate and the MIS of the Audit Circles should make prompt entries in the Registers of Audit Planning and Audit Follow-up, at every stage, until the closure of the audit point either by issue of a show cause notice or by recovery of amounts due or by closure on merits/reconsideration.

6.3 Final Audit Report

Based on the decision of the MCM, the draft audit report should be finalised within thirty days from the date of the meeting. The Planning and Co-ordination Sections of Audit Commissionerate shall upload the FAR using Audit Report Utility and issue FAR. A copy of the FAR, even if it is a NIL report, should be sent to the registered person, by e-mail through system and necessary records confirming such action should be kept in Registered person’s Master File.

6.4 Follow up action and issue of show cause notice

6.4.1 An audit objection should be closed after requisite action i.e., either recovery of amounts due or issuance of show cause notice, has been taken on it. After the issuance of Final Audit Report, wherever further action such as issue of Show Cause Notice is required, the Audit Group should prepare the Draft Show Cause Notice. The Show Cause Notice should be issued by the concerned officer of the Audit Commissionerate as per the Competency decided by the Board in its instructions issued from time to time and the same shall be answerable to the adjudicating authority as per the Board’s instructions issued in this regard. It is the responsibility of the Audit Commissionerate to pursue / persuade the taxpayer for payment of tax dues, especially on the paras admitted by the Registered Person. However, for any pending action i.e., recovery, especially on paras admitted in writing by the Registered Person, can be taken up with the jurisdictional Executive Commissionerate, for follow up. The issues relating to paras orally admitted should not be referred to the Executive Commissionerates. In case, new facts, necessitating reconsideration of findings in an audit report, come to the knowledge of officers who are required to take action on an objection, they should send their report along with supporting material to the Planning and Co-ordination Section for reconsideration. But this action must be taken most expeditiously, say within one month of receipt of the Audit Report. In exceptional cases involving cogent grounds, the views taken in the Monitoring Meetings shall be taken up for review/re-consideration by the MCM only. The Audit Commissioner should send a list containing details of Show Cause Notices issued during the month, by the Headquarters and Circles, to each of the Executive Commissionerates, on monthly basis.

6.4.2 The results of action arising after preparation of final audit report should be filled up in the follow up report utility and uploaded in the system, as per the instructions in the Audit Report Utility Circular.

6.4.3 Each audit report should be examined by the Planning and Co-ordination Section/MIS Section of the Circle. Any objection with major revenue implication, objection specific to a particular issue or any objection describing a novel modus operandi, should be selected for (i) issue of Modus operandi circular within the Commissionerate, (ii) for communicating the same to the Principal Chief Commissioner/Chief Commissioner’s office for circulation within the Zone, (iii) communication to the Directorate General of Audit for issue of audit circulars and (iv) communication of all important modus operandi to the DGGI.

6.4.4 On completion of the above procedure the planning section shall place the documents in the registered person’s Master file and also update the electronic file of the registered person.

8) Details of Additional Place of Business

Part II – Other information

1) Constitution of Business (Please Select the Appropriate)

Details of proprietor / partner / CEO / Chairman / Managing Director (as applicable). Details of Proprietor/Partners/CEO/Chairman /Managing Director/Member etc.

Part-III

Details of Supplies made and taxes paid

(a) HSN -wise details of value of goods supplied and ITC paid (for 3 years).

(b) GST Services code-wise details of value of services supplied and ITC paid (for 3 years).

(c) Details of Zero rated supplies and Deemed Exports made

Rs. In thousands

Note: Wherever, it is possible, the data may be downloaded from GSTIN while preparing the Master file.

ANNEXURE II

FORM GST ADT – 01

[See rule 101(2)]

Reference No.:

Date:

To,
————————————–
GSTIN ………………………………………..
Name …………………………………………….
Address ………………………………………….
Period – F.Y.(s) – ………………………………………..

Notice for conducting audit

Whereas it has been decided to undertake audit of your books of account and records for the financial year(s)……………… to……………….. in accordance with the provisions of section 65. I propose to conduct the said audit at my office/at your place of business on And whereas you are required to:-

(i) afford the undersigned the necessary facility to verify the books of account and records or other documents as may be required in this context, and

(ii) furnish such information as may be required and render assistance for timely Completion of the audit.

You are hereby directed to attend in person or through an authorised representative on ………………… (date) at …………………………… (place) before the undersigned and to produce your books of account and records for the aforesaid financial year(s) as required for audit.

In case of failure to comply with this notice, it would be presumed that you are not in possession of such books of account and proceedings as deemed fit may be initiated as per the provisions of the Act and the rules made thereunder against you without making any further correspondence in this regard.

Signature…………………………………
Name…………………………………..
Designation ………………………

ANNEXURE – GSTAM – III

ILLUSTRATIVE LIST OF IMPORTANT DOCUMENTS FOR SCRUTINY AT
DESK REVIEW STAGE

PART-A (FOR GOODS)

I. Check of Documents during Desk Review –

PART-B (FOR SERVICES)

ANNEXURE – GSTAM – IV

RATIO ANALYSIS OF DATABASE

(PROCEDURE/FORMATS SEPARATE FOR GOODS AND SERVICES)

PART –A: GOODS

PART-B FOR SERVICES RATIO ANALYSIS OF DATABASE

 ANNEXURE V

Only for those registrants who are required to file Annual return u/s 44 of the CGST Act .
Part-A-Goods
COMPARATIVE CHART OF ITEMS FROM FINANCIAL STATEMENTS/ RETURNS

Note: Numbers mentioned in the blocks above denote S. No. of respective return/ financial statement

# – Specified assessees among the notified industries under Cost Accounting Record Rules, under Section 233B of Companies Act, 1956.

## – Units whose turnover is more than Rs.40 Lakhs, return under Section 44AB of the Income Tax Act. 1961

@ – Under Section 211 of the Companies Act, 1956.

@@ – Companies other than the companies claiming exemption under Section 11 of the IT Act, 1961

@@@ – Units manufacturing Bulk Drugs & Formulations under Drugs (Prices Control) Order 2013

(+) Auditor to obtain the information from the auditee

while forwarding GST ADT-01

(++) Annual Return to be filed by the Registered person, under Rule 80 of CGST Rules other than an Input Service Distributor, other than an Input Service Distributor, a person paying tax as TDS/TCS, a casual taxable person and a non-resident taxable person, Note: Wherever it is possible, the data may be downloaded from GSTIN Portal

ANNEXURE – GSTAM- VI

QUESTIONNARE FOR REVIEW OF INTERNAL CONTROL SYSTEM AND WALK THROUGH.

PURCHASES – INWARD SUPPLIES

1. Whether all purchases are centralised or de-centralised. If all purchases are authorised by few key persons like owner or Managing Director etc, it may require in-depth study of purchases.

2. Whether all the purchases are made only by issue of purchase order and whether different series of purchase order are issued. Also, the issuance of series of purchase order is centralised in the purchase section. Are there any cases where purchases have been made without issue of purchase order?

3. Whether there is a system of authorised Vendor List. If not, what is the system of approving particular vendor? Are there instances where substantial purchases have been made through unauthorised vendors?

4. Whether rejected inward supplies are stored separately. What is the system of accounting for the rejected inward supplies/short quantity?

5. Whether for purchase returns, debit notes are issued?

6. Whether for rejected inward supplies any set procedure is followed.

7. At what stage ITC is availed, i.e. either before testing for rejection or after testing for rejection?

8. On the inward supplies rejected or short quantity received, whether the ITC reversal is done on each invoice basis or on monthly basis.

9. Whether any item supplied free of cost by the customer.

OUTWARD SUPPLIES

1. What is marketing pattern – is it through depot, stockist, C&F agent related person or directly by the registered person?

2. How many series of outward supply /GST invoices are generated? For example, there can be different series for outward supplies, export supplies, scrap, other items and job work.

3. Whether all different series of invoices of out ward supplies are entered in one outward supply account or in different outward supply account.

4. Who authorises for despatch of outward supplies?

5. Whether any charges for erection/commissioning collected?

6. Whether Tax invoices are issued for composite supply of both goods and erection & Commissioning (which involves applicability of rate of tax of principal supply, viz., goods)?

7. Whether any materials supplied to the recipients at free of cost?

8. Any amount for marketing expenses, Advertisement, Royalty, Handling Charges, Packing Charges, Warranty, after sales service and Insurance received from recipient in any manner?

9. Whether commercial invoices and outward supply invoices (Tax Invoices under GST) are same or different?

10. Who is authorised to fix the price of outward supplies and whether any printed price circulars are issued?

11. Who is authorised to make supplementary outward supply invoices or debit note for price variation/additional recoveries (advertisement, after sales service, additional packing, insurance, freight, depot charges)?

12. Whether outward supply figures mentioned in GSTR1 are tallying with the records maintained by the registered person?

13. Whether any goods were received for repair etc. on return by the recipients?

14. Types of discounts given and how are they accounted for in relevant records.

15. Whether recipients’ accounts are debited with the net amount of invoice or gross amount?

STORES

1. Whether receipt in the stores record are shown only after inspection of inward supplies or before inspection.

2. What is the frequency of stock taking of all the items? How difference is accounted for and what reports are prepared.

3. What is the frequency of physical inventory for high value items (A category in ABC analysis) whether a report is prepared for stock verification and put-up to management and what is the frequency of reporting?

4. For inward supplies covered by insurance claim what is the procedure for filing the claim. Whether such inward supplies are entered in the store register or these are shown in separate account. Whether any register or report is prepared for all such claims.

5. What are the records maintained for inward supplies sent out for Job Work? Whether scrap is received back or job work price is adjusted.

6. How the defective/ damaged inward supplies are reflected in the books of accounts?

TAX ACCOUNTING

1. Whether GST paid on inward supplies are shown separately in purchase account?

2. Whether all inward supply invoices are entered for full value and thereafter for rejected/stock quantity, credit note or sales return invoice is prepared.

3. Whether GST payable on outward supplies made and shown separately in outward supply account?

4. In case of capital goods whether full value including GST is debited in the books or net value is shown in the capital goods account.

5. In case of capital goods fully written off whether GST deducted from such expenditure account or not?

6. What is the system to check GST liability (payment through Electronic Cash ledger / Electronic Credit Ledger) as shown in the financial records with the GST records? Whether any reconciliation is made for the differences?

JOB WORK

1. Whether any input/output ratio has been determined for sending the input for job work.

2. What are the records maintained for sending inputs for job work (either directly from the supplier of inputs/ from the place of business of the registered person) and whether the records show quantity of inputs sent, quantity of final product to be received, actually received and variation?

3. Whether any monthly or periodic statements are prepared for each job work and at what level the statements are verified for taking corrective action?

4. What is the system of treatment of scrap generated at job worker? Whether it is brought back to the registered person’s premises or allowed to be disposed off by job worker?

5. Whether the finished goods after job-work are being supplied from job-worker’s premises.

6. When the finished goods are not received back from the job worker in time (180 days), what action is taken by the company and what accounting treatment is done for the same?

7. Whether the processed inward supplies after conversion into outward supplies are sold by the principal directly from the premises of Job-worker?

8. Whether outward supplies are made after transferring the same to any other place from the job-worker’s premises?

WALK THROUGH: Flow chart showing movement of transactions; same route can be followed for walk through process. (Consider only such part of flow chart as applicable in case the supplier being manufacturer or directly supplying goods procured as such)

I. Purchases

Vendor Development / Supplier identification

↓

Quantification of requirements – Technical literature

↓

Tender Document

↓

Hire purchase — Leasing agreements – Project reports

↓

Purchase Order (Register of purchase Order)

↓

Credit notes – Vouchers – Cheque book – Bills payable

↓

Debit notes (for purchase return)

↓ P

Purchase book

↓

Purchase Return Book

↓

Waste Register

II – INPUT TAX CREDIT

Gate Register

↓

Weighment register/slips

↓

Material receipt — Loss in Transit /Rejects

↓

Lab tests —- Rejects/ return / debit note

↓

Return of reject / rejected inputs – Tax Invoice/ debit note

↓

inward supplies Leased.

↓

inward supplies written off –

↓

Capital goods — fixed Asset register – Depreciation

↓  I.T. return

Annual report — Fixed Asset schedules / Depreciation schedules

↓

Credit notes from suppliers

↓

Tax Invoices for supply of inputs as Outward supplies (as such) / transfer ‘assets’.

III Costing.

cost audit report – cost register – Process chart

↓

Trial balance

↓

Balance sheet and P & L account / Annual report

IV Price determination (Transaction Value)

Invoices

↓

Debit notes

↓

Other income in Annual Report

↓

Debtors Ledger / Creditors Ledger

↓

Cost Audit Report

↓

Register for inter Corporate Loan

↓

Register of advances

↓

Dealer’s agreement / Consignment agents / C& F agents agreement

↓

RBI approval for payment of Royalty

↓

Bill of Entry Register

↓

Bank reconciliation statement / Bank statement

↓

Marketing files / Sales performance charts

↓

Debit notes

↓

Purchase order placed by buyers / sale contract

↓

Fixed assets in custody of finance given by buyer

V. Classification (where applicable)

Research Development — Product Development – Product lab

↓

Responsibility for verification of tax liability

↓

Intimation —- Inter office Memo

↓

Marketing documents including literature.

VI. Outward supply

Tender files

↓

Outward supplies/ sales order Book — Scrap Register

↓

Marketing files

↓

Price lists

↓

Dealers agreement — Distributor consignment Agents C & F Agents Agreements

↓

Delivery note – Invoices

↓

Despatch advice

↓

Invoices register

VII. outward supply return

outward supply return book Bank Reconciliation Statement

↓

Non moving stock register

↓

Credit notes — Job card / work order

↓

Debit notes

IX Non Taxable items

Name of the Non-taxable item

↓

ITC availment

↓

Reversal of ITC

Part B- SUPPLY OF SERVICES

QUESTIONAIRE FOR REVIEW OF INTERNAL CONTROLS

(Information to be filled in by the Auditor before filling up the information in the working papers)

A. Flow Chart showing manner of verification of transactions and documents during Walk Through and Audit.

1. Verification of Supply of Services and Income:

> File of correspondences with the client/customer

> Quotation/Tender files

> Cost sheet to work out approximate cost of service (eg. cost of A.M.C., Advertisement cost)

> Price List (in cases where price of services are fixed as in case of Insurance Premiums, Cable Operators, Coaching Centres).

> Booking Register (eg. in case of Mandap keeper, Convention Centre, tour operators).

> Service Agreement/Contract like Agreement for Technical consultancy.

> Job cards/work statements (eg. in case of AMC or repair of vehicle, job card may show value of services and material used)

> Invoices/Receipts

> Income Register/ Debit Notes

> Customer’s ledger Account (to verify total amount billed, by way of invoice, debit note, payment received, credit note issued)

> GST returns

2. Receipt of Inputs (including goods and services – Inward supplies) and availment  of ITC thereon

> Vendor/Supplier list

> Correspondence with vendor/supplier

> Tender/Quotation documents

> Purchase Order

> Purchase invoices/bills

> Debit Notes (for return of input services)

> Purchase Register

> Ledger Accounts of inward suppliers (to verify the date of payments for inputs)

> Bank Account/Cash Account (to verify random cases for payments in respect of inward supplies)

> Verify use of inputs (eg. use of telephone for output services or for non-taxable work, insurance for property used for output services)

> Verify ITC register maintained if any

> Verify relevant GSTR 3Bs and GSTR9/ GSTR 9C

3. Financial Record Scrutiny

> Trial Balance

> Check all Income Accounts (showing credit balances) in Trial Balance.

> Compare value of Income Accounts with value of taxable services shown in relevant GST returns.

> Verify invoices/bills/other documents of Income Accounts on which GST is not paid.

> Verify major expenses accounts to confirm whether any recoveries made from customer/client are adjusted in the expenditure account.

> Check Journal Vouchers/Debit Notes to verify recoveries from Customer/clients on which GST is not paid.

4. Use of Inputs/ Input Services in Exempted Services:

> Check details of Input Services on which ITC was availed

> Check, if any, record maintained for quantifying inward supplies used for exempted outward supply services or non-taxable activity.

> Verify use of inward supplies by verifying documents

> Check costing of outward supply (prepared for submitting quotation or prepared for calculation of cost of output services)

> Check job card/work statement to find out exact quantum of use of input services.

B. Questionnaire for gathering information:

1. General:

2. Invoicing pattern

3. Accounts and records

4. Making of GST return

5. Place of supply

6. VALUATION OF SERVICES

7. AMOUNTS TO BE INCLUDED IN TAXABLE VALUE

8. MIS

Note: After obtaining the above information, the auditors may physically examine the concerned ledgers/ documents which may be relevant for verification of the issues mentioned in the audit plan as well as any new additional issues that may be identified during the time of gathering of the information

ANNEXURE – GSTAM – VII

AUDIT PLAN

Part-A for Goods
Note: This is only an illustrative Audit Plan for M/s ABC Paper Mills. Plan for each unit should be prepared based on the specific requirement.

Guidelines for filling in the Audit Plan:

1. Subject: – For example classification, valuation, ITC etc.

2. Specific Issue to be verified. Under this column, the auditor should mention the precise issue pertaining to the subject. For Example Discounts passed on to the buyer, Utilisation of inputs for repair/re-processing, etc.

3. Source Document/ Information to be verified: – documents/information reflecting or having a bearing on payment of GST, to be verified. For example GST Invoice showing a particular discount.

4. Back-up Document: The documents to be examined to check the correctness of the information contained in the source document. The method of examination may also be specified under this column. For example Commercial invoice, party ledger, discount policy documents, price circulars, etc. reflecting the said discount.

5. Period of coverage: – Normally, the coverage will be for the whole of the audit period. However, the auditor may conduct test verification for specific periods each extending over a short duration.

Selection Criteria: – In case, the volume of documents for verification is large, the auditor may adopt sample verification. In such a case, the sample selection techniques should be spelt out. The sample should be chosen in such a way that it represents the whole, uniformly.

Part-B (Services)

Note: This is only an illustrative Audit Plan.

Guidelines for filling in the Audit Plan:

1. Subject: – For example classification, valuation, ITC etc.

2. Specific Issue to be verified. Under this column, the auditor should mention the precise issue pertaining to the subject.

3. Source Document/ Information to be verified: – documents/information reflecting or having a bearing on payment of service tax, to be verified. For example GST Invoice showing a particular value.

4. Back-up Document: The documents to be examined to check the correctness of the information contained in the source document. The method of examination may also be specified under this column. For example Commercial invoice, party ledger, discount policy documents, Agreement/MOU etc. Reflecting the value mentioned in the source document.

5. Period of coverage: – Normally, the coverage will be for the whole of the audit period. However, the auditor may conduct test verification for specific periods each extending over a short duration.

6. Selection Criteria: – In case, the volume of documents for verification is large, the auditor may adopt sample verification. In such a case, the sample selection techniques should be spelt out. The sample should be chosen in such a way that it represents the whole, uniformly.

ANNEXURE – GSTAM – VIII

WORKING PAPERS

Date of Preparation________________

W/P No.______________

I. DETAILS OF AUDIT

1. Name of the Principal place of business :

2. Address :

3. GSTIN.

4. Period covered in Present Audit

5. DATE OF AUDIT :

6. DATE OF SUBMISSION OF AUDIT REPORT :

7. DRAFT AUDIT REPORT NO. :

8. DETAILS OF THE AUDIT GROUP :

9. Major audit objections in earlier IAD reports :

10. Major CERA Observations in the past :

II. NATURE OF BUSINESS OPERATION OF THE TAXABLE PERSON

1. Brief description of the main goods being supplied in the proforma given below:

2. Details of principal inputs and capital goods used by the taxable person.

3. Brief details of the revenue for the last three financial years in the proforma given below:-

III. DESK REVIEW AND AUDIT PLAN:

(PROCEDURE / FORMATS SEPARATE FOR GOODS AND SERVICES)

PART –A: GOODS

Date of Preparation ________________

1. The auditor should check whether the Taxable person Master File is available in MIS Section and whether the same is complete. If not the auditor should complete the same as far as possible from the information available in the office.

Go through the information available in Taxable person Master File. Identify and mention (with justifications), the areas or issues which merit inclusion in the Audit Plan.

2. Obtain and study other documents mentioned in Annexure-GSTAM-III and conduct examinations as illustrated therein. List out the documents studied.

3. RATIO ANALYSIS OF DATA BASE:

Work out some of the important financial ratios as mentioned in Para 5.6.6 and Annexure IV. Mention the important indicators, which require to be included in the Audit Plan.

The results of Ratio analysis may be summarised in the following table.

IMPORTANT OBSERVATIONS OF THE AUDITOR (LEADING TO INCLUSION IN AUDIT PLAN)

Mention changes in the law and rates of tax pertaining to the outward supplies made and inward supplies since previous audit.

4.____________________________________________________________________________________________________________________________

5. Mention details of Anti-evasion cases booked in recent past or are in progress and past audit objections, which have not been settled so far, by way of taxable person acceptance, adjudication, appeals etc.

___________________________________________________________________________________________________________________________________________

6. Give details of important areas (pertaining to the goods supplied, rate of tax, exemption notification and ITC availment on inward supplies to be included in the Audit Plan with reasons thereof.

7. REVENUE RISK ANALYSIS:

Date of Preparation ________________

a. Perform the Revenue risk analysis, covering a period of at least one year or a minimum of one return, for GST payable and paid. The GST payable may be derived by determining the taxable outward supplies from Profit and Loss Account and other supporting documents and reconciling with taxable persons records. The existing GST rate may be applied to this to arrive at GST payable. This may be compared with total GST paid as per monthly return. Mention results indicating possible problem areas and mention issues to be included in the Audit Plan.

b. Perform the revenue risk analysis, covering a period of at least one year for ITC utilization and availment and record your conclusions as to the potential revenue loss. Value of inward supplies purchased as per the expenditure statement in the Profit and Loss account and other records as prescribed under section 35 (1) may be used for working out ITC available and compare it with ITC available in ITC credit Ledger (ITC PMT-01). Mention results indicating possible problem areas and mention issues to be included in the Audit Plan.

8. TREND ANALYSIS:

Undertake analysis of trends as illustrated in Para 5.6.9 or other trends as deemed relevant. Mention issues to be included in the Audit Plan.

The results of Trend analysis may be summarised in the following table.

(Ratios marked with * are to be determined only in case the registered person is into manufacture

IMPORTANT OBSERVATIONS OF THE AUDITOR (LEADING TO INCLUSION IN AUDIT PLAN

9. FINANCIAL AND TAX ACCOUNTING INFORMATION:

Date of Preparation ________________

a. Obtain audited Balance sheet and Profit and Loss Account and trial balance. Review any notes in the Balance sheet / profit and loss account. If unit is a division of a company, check if internal financial statements are prepared for the unit before consolidation with other related units. Work out purchase value of inward supplies to value of outward supplies ratio and compare with ITC ratio. Obtain a copy of last two reports. Mention issues to be included in the Audit Plan.

b. Identify all business activities like supply of goods/ supply of services like repair, service activities and major source of ‘Other Income’. Mention issues to be included in the Audit Plan.

c. Compare total turnover as per profit and loss account with the corresponding figures submitted to the department in the returns for three years. Mention discrepancies to be included in the Audit Plan.

GATHERING INFORMATION ABOUT TAXABLE PERSON AND THE SYSTEM FOLLOWED BY HIM

Date of Preparation ________________

i. INTERVIEWS

i. Person(s) Interviewed, their designation and dates of interview.

Give the gist of interviews specially in respect of

i. related ventures, business with these ventures and annual volume of such transactions,

ii. relationships with the unit and its owners / shareholders,

iii. the head office / registered office of the unit, location of its operations and location of its accounting records

iv. whether Company is an ancillary unit or independent unit of production:

v. internal controls in the unit.

vi. any organizational or systemic changes that has occurred since last audit.

Mention issues to be included in the Audit Plan

EVALUATION OF INTERNAL CONTROLS

(Please refer Para 5.7.1, 5.7.2 and Annexure VI).

Date of Preparation ________________

i. Perform a walkthrough for the Sales / Records maintained. Trace a sample of transactions (all types, including those on Credit) from source documents through the GST account. Mention any new area need to be included in the Audit Plan or whether the extent of verification of the issue already identified in the Audit Plan needs to be modified.

ii. Perform a walkthrough of the purchase system (including capital assets). Trace a sample of transactions, of all types, including Credits, from source documents through the GST account. Examine specifically system for purchase, rejection, short supply etc. Mention any new area need to be included in the Audit Plan or whether the extent of verification of the issue already identified in the Audit Plan needs to be modified

iii. Perform a walkthrough of any other system (eg. Stores Journal Entries, ITC accounting etc.) Trace a sample of transactions of all types from source documents through to the GST Account. Mention any new area need to be included in the Audit Plan or whether the extent of verification of the issue already identified in the Audit Plan needs to be modified.

iv. Perform a walkthrough of the process of compiling GST return for one month, tracing from the tax return amounts backwards through to their sources. Check supplies as per outward supply Account in ledger with value shown in monthly return. Mention any new area need to be included in the Audit Plan or whether the extent of verification of the issue already identified in the Audit Plan needs to be modified.

v. Evaluate the soundness of level of Internal Control of each of the following areas/sub-systems and grade them as good, acceptable or poor in the following format:

In case quantum of data/information to be analysed is voluminous, apply ABC analysis (please refer para 5.7.2)

vi. Any other relevant information gathered by the auditor during the course of Evaluation of Internal Control. Mention any new area need to be included in the Audit Plan or whether the extent of verification of the issue already identified in the Audit Plan needs to be modified.

AUDIT PLAN:

(Please see para 5.8 and Annexure VII).

Date of Preparation ________________

Audit Plan approved by ________________

i. The Audit Plan must be based on the issues identified in the previous steps as to be verified during the conduct of audit and must be specific in the following format (also given in Annexure VII):

IV. AUDIT VERIFICATION AT THE UNIT:

A. OUTWARD SUPPLY/ SALES INFORMATION:

Date of Preparation ________________

i. Indicate marketing / clearance pattern in the following proforma:-

ii. Examine selected recipient’s ledger (customer) to find out any amounts other than those shown in Tax invoices are realised (Check Debit Note and Journal Vouchers also).

________________________________________________________________________________________________________________________

iii. Identify other revenues as reported in the financial statements (Incomes other than from sales). Mention such other revenues which may form part of the assessable value

________________________________________________________________________________________________________________________

B. INWARD SUPPLY (INPUTS)/PURCHASE INFORMATION:

Date of Preparation ________________

a. Goods

i. List major suppliers, inward supply of goods purchased and indicate annual volume in Rupees. Whether there are inward supplies purchased from related units?____________________________________________________________________________________________________________________________

ii. Examine selected creditor’s account (supplier) for each major input to find out any purchase returns, short supply, rejection of goods etc. and its impact on ITC availment.

____________________________________________________________________________________________________________________

iii. Study the purchase details of major capital goods acquired and in the course of or furtherance of business.

_____________________________________________________________________________________________________________________

b. Services

i. List major input services on which credit has been availed

_______________________________________________________________________________________________________________________

ii. Examine selected ‘credit accounts’ for each major input services to verify whether payment has been made prior to availment of credit.

_______________________________________________________________________________________________________________________

iii. Examine whether any input services may have been used in the exempted supplies.

______________________________________________________________________________________________________________________

iv. Examine whether any taxable services have been received from a service provider located outside India and verify whether GST due on such transactions if any, has been paid.

________________________________________________________________________________________________________________________

C. OTHER INFORMATION:

Date of Preparation ________________

1. Study whether any goods are captively consumed. Mention issues to be included in the Audit Plan. ____________________________________________________________________________________________________________________

ii. Study whether any supplies are made to distinct persons, inputs/ partially processed intermediates sent for job work or received for job work. Study the valuation and ITC availment in such cases Mention issues to be included in the Audit Plan.

____________________________________________________________________________________________________________________

iii. Any other relevant information gathered by the auditor during the course of Gathering information about taxable person, and systems followed by him and study of financial documents. Mention issues to be included in the Audit Plan.

____________________________________________________________________________________________________________________

V. VERIFICATION AS PER AUDIT PLAN:
(Please see Chapter 5)

A. Carry out verification as per Audit Plan. The result of verification of each of the issues should be mentioned in the format below, whether or not there is any detection of discrepancy/audit point. The verification reports in respect of issues verified which was not part of original Audit Plan but verified later should also be mentioned at the end.

Proforma of a Verification Report

V.P. NO ____________DATE____________

i. Name of the auditor verifying the issue:

ii. Issue involved in brief:

iii. No. of the Audit Plan:

iv. Documents verified:

v. Brief account of the process and extent of verification:

vi. Auditor’s observation and conclusion in brief:

vii. Quantification of revenue involved, if any (also give the calculation sheet):

viii. Documents relied upon to support the conclusion:

ix. Party’s agreement : Yes/No

x. If yes : In writing/Oral

xi. Amount of recovery, if any :

Signature of the auditor

Supervisor’s remarks and signature.

VII POST VERIFICATION

(to be filled up before leaving the taxable person’s unit)

Date of Preparation ________________

A. Indicate information provided and specific actions suggested to the taxable person to improve future compliance. Where the taxable person is in agreement with the suggestions, request a commitment in writing and include it in the Audit Report. If the taxable person is unwilling to give a written undertaking, obtain a verbal commitment. Mention results.

_______________________________________________________________________________________________________________________

B. SUMMARY OF AUDIT RESULTS

Provide an outline of all objections, which involve short/non levy of tax, amounts (say under Sec. 76 of CGST Act), irregular availment/utilization of credit and non-payment of interest due. Details of objections of technical/procedural in nature without involving revenue/credit/ interests/amounts should also be mentioned. Indicate whether the taxable person has agreed to the objections and if so, has made spot payment (if so details thereof). The summarised objections are to be uploaded in the audit utility and a draft audit report is to be generated for discussion during the Monitoring Committee Meeting.

ON CONCLUSION FAR IS REQUIRED TO BE SENT IN PROFROMA GST ADT -02 TO THE AUDITEE WITHIN 30 DAYS

(Auditor)
Name/Designation
Group No:

Place: _______________

Date: _______________

PART-B
SUPPLY OF SERVICES

I. RECORDS EXAMINED:

A standard list of records have been called for from the taxable person vide letter dated: _______________( FORM ADT-01) The following are the list of records received and examined:

a)

b)

c)

II. RATIO ANALYSIS:

Work out some of the important financial ratios over a period of time. Mention the important indicators, which require to be included in the Audit Plan.

The results of Ratio analysis may be summarised in the following table.

III. TREND ANALYSIS:

Work out trends of the following over a period of five years.

IV. INPUT TAX CREDIT(ITC) ANALYSIS : (Rs in lakhs) for the last THREE years

V. ANNUAL TURNOVER VIS-A-VIS GST PAID:

Brief details of the annual turnover and the GST paid for the last five years and the current year (Only Income side to be mentioned, and as regards Value and Taxes, they refer to only output services- Reverse charge taxes not to be mentioned) (Rs in lakhs):

ASSOCIATE OF ENTERPRISES:

VI. ANNUAL EXPENDITURE (IN INDIAN RUPEES) VIS-A-VIS GST PAID UNDER REVERSE CHARGE:

Brief details of the annual expenditure and the GST paid for the last five years and the current year (Only Expenditure to be mentioned, and as regards Value and Taxes, they refer to only taxes payable under reverse charge – except in case of import of services) [Rs in lakhs]

VII. ANNUAL EXPENDITURE OF FOREIGN CURRENCY VIS-A-VIS GST PAID UNDERSE REVERSE CHARGE:

Brief details of the expenditure in foreign currency and the GST paid for the last five years and the current year (Only Expenditure to be mentioned in relation to import of services) [Rs in lakhs]

VIII. Brief details of Service Wise Exports (zero rated), turnover of non-taxable services and exempted services for the last THREE years:

IX. Brief details of Service Wise Pure Agent Benefit Claimed for the last THREE years: Rs in lakhs

X. In case the unit is registered as ISD, give the details of ITC availed and distributed: [Rs in lakhs]

XI. Analysis of data of GST Returns filed.

Observations of the group (for each year of the audit period) particularly whether the amount of GST calculated and paid correctly, Delay in filing of returns, Late payment of tax etc.

(Rs in lakhs)

XII. RISK LOSS ANALYSIS

1. Sales Income and GST payment:

(a) Estimated sales value calculated from GST payment particulars =

(b) Estimated value of sales as per Sales Account =

(c) Estimated sales value as per 3CD =

(d) Difference if any

2. Purchase of Input Services and ITC availment:

Estimate taxable input services from purchase account and apply the rate of tax to determine the ITC that should have been availed on inward supply and compare it with ITC availment reported in GST return

3. Expenditure Account: Whether recoveries are made under various expenditure heads. If so, indicate the nature of such recoveries.

4. Whether services have any third party regulator. If so, name the regulator. Enclose copy of return submitted to third party regulator.

XIII. AUDIT PLAN:

Date of Preparation ________________

Audit Plan approved by ________________

The Audit Plan must be based on the issues identified in the previous steps as to be verified during the conduct of audit and must be specific and may be in the following format (may be included any other specific issues also that may emerge from Desk Review):

XIV. CONDUCT OF AUDIT:

A. Gathering of information about the tax payer:

While visiting the business premises of the taxable person, the auditor shall invariably gather the information as detailed in the Annexure –VI and the results thereof and any fresh/ additional points identified for verification be recorded here under:

B. Evaluation of internal controls (Walk through and ABC analysis):

i. Perform a walk through for the Records maintained. Trace a sample of transactions (all types, including those on Credit) from source documents through the GST account.

ii. Perform a walkthrough of the purchase system (including capital assets). Trace a sample of transactions, of all types, including Credits. Examine specifically system for purchase, rejection, short supply etc.

iii. Perform a walkthrough of any other system (eg. Stores Journal Entries, ITC
accounting etc.) Trace a sample of transactions of all types.

iv. Perform a walkthrough of the process of compiling GST return, tracing from the tax
return amounts backwards through their sources. Check services provided as per relevant account in ledger with value shown in the return.

v. Evaluate the soundness of level of Internal Control of each of the following
areas/sub-systems and grade them as good, acceptable or poor in the following format:

In case quantum of data/information to be analysed is voluminous, apply ABC analysis.

C. Carry out verification as per Audit plan:

The result of verification of each of the issues should be mentioned in the format below, whether or not there is any detection of discrepancy/audit point. The verification reports in respect of issues verified which was not part of original Audit Plan but verified later should also be mentioned at the end.

Proforma of a Verification Report

V.R. NO ____________DATE____________

i. Name of the auditor verifying the issue:

ii. Issue involved in brief:

iii. No. of the Audit Plan:

iv. Documents verified:

v. Brief account of the process and extent of verification:

vi. Auditor’s observation and conclusion in brief:

vii. Quantification of revenue involved, if any (also give the calculation sheet):

viii. Documents relied upon to support the conclusion:

ix. Party’s agreement : Yes/No

x. If yes : In writing/Oral

xi. Amount of recovery, if any :

Signature of the auditor

Supervisor’s remarks and signature.

xii. POST VERIFICATION

(to be filled up before leaving the tax payer’s premises)

Date of Preparation ________________

A. Indicate information provided and specific actions suggested to the taxable person to improve future compliance. Where the taxable person is in agreement with the suggestions, request a commitment in writing and include it in the Audit Report. If the taxable person is unwilling to give a written undertaking, obtain a verbal commitment. Mention results.

SUMMARY OF AUDIT RESULTS

B. Provide an outline of all objections, which involve short/non levy of tax, amounts, irregular availment/utilization of credit and non-payment of interest due. Details of objections of technical/procedural in nature without involving revenue / credit / interests /amounts should also be mentioned. Indicate whether the taxpayer has agreed to the objections and if so, has made spot payment (if so details thereof). The summarised objections are to be uploaded in the audit utility and a draft audit report is to be generated for discussion during the Monitoring Committee Meeting.

ON CONCLUSION FAR IS REQUIRED TO BE SENT IN PROFROMA GST ADT -02 TO THE AUDITEE WITHIN 30 DAYS

(Auditor) Name and designation, Group No.

Place:

Date:

ANNEXURE – GSTAM – IX

VERIFICATION OF RECORDS/REGISTERS DURING THE COURSE OF AUDIT VERIFICATION

(PROCEDURE / FORMATS SEPARATE FOR GOODS AND SERVICES)

PATR –I : GOODS

I. Records to be verified in the marketing and outward supplies department

1. Purchase Orders

2. Price Circulars

3. Delivery Challans

4. Material transfer note

5. Sales Book

6. outward supply book

II. Records to be verified in the stores department (Where applicable) –

1. Stores Ledger

2. Goods Receipt Note (GRN)/Material Receipt Note/Inspection Cum Receipt Report (ICRR)

3. Material Return Note

4. Rejected Goods Register

5. Waste Register

6. Physical Stock Verification Statement

7. Job work/Sub-contract Register

III. Finance & Accounts related records –

1. Ledgers

2. Debit Note

3. Credit Note

4. Journal Voucher

5. Internal Audit Reports

6. Purchase Book

7. Purchase Return Book

8. Income Tax Audit Report

9. Income Return

10. Fixed Assets Register

11. Monthly Stock Statement to Bank

I. Records to be verified in the marketing and outward supplies departments –

II. Records to be verified in the stores department (where applicable) –

III. Finance & Accounts related records – 

PART-II –SUPPLY OF SERVICES

A. RECORDS TO BE VERIFIED

I. Marketing and sales department –

1.Purchase Orders/Agreements/MOUs

2.Outward supply book

II. Stores department –

1. Stores Ledger

2.Job work/Sub-contract Register

III. Finance & Accounts related records –

1. Ledgers

2. Debit Note

3. Credit Note

4. Journal Voucher

5. Internal Audit Reports

6. Purchase Book

7. Purchase Return Book

8. Income Tax Audit Report

9. Income Return

B. AREAS TO BE COVERED IN THE TAXPAYERS/UNITS AVAILING EXPORT PROMOTION SCHEMES:

II. Records to be verified in the marketing and sales departments –

II. Records to be verified in the stores department –

III. Finance & Accounts related records –

ANNEXURE – GSTAM- X

DRAFT OF THE LETTER TO BE WRITTEN BY THE REGISTERED PERSON UNDER SECTION 73(6) OF THE CGST ACT, 2017,

To,
The Commissioner
GST Audit Commissionerate

Sir,

Subject: Letter given for waiver of show cause notice in terms of Section 73(5) of the CGST Act, 2017– reg.

****

I / We M/s _________________________, address  __________________________ falling under the jurisdiction of Range _______________ and Division ___________ do hereby state and request as under:-

a) As per the provisions of Section 73(5) of the CGST Act, 2017, where any GST has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, chargeable with the GST , may pay the amount of such duty before service of notice on him under sub section (1) of Section 73 and inform the GST officer in writing in terms of sub section (5) of section 73 , who, on receipt of such information shall not serve any notice in respect of the amount so paid;

b) During the course of verification of our records / returns, by the Audit team from the office of Audit Commissionerate ___________, it is observed that there is a short payment / non levy / non – payment of GST / wrong availment of ITC on account of reasons mentioned as per the Annexure enclosed hereto. We have agreed to the points raised during verification / scrutiny and have paid the said amounts of duty and / or reversed the ITC of Rs. ________ vide PMT-06 Challan No. ________ / ITC credit Register Entry No. _______ dated ________. We have also discharged the applicable interest liability.

4. In terms of the provisions of Section 73(6) of the CGST Act, 2017, we request that the demand show cause notice may not be issued to us in this case and no penalty may be imposed on us as the above short levy / short payment / non levy / non-payment / wrong availment of ITC are not intentional on our part.

5. We request that the above issues may be treated as closed with this letter since we have complied with the provisions of the GST law. It is hereby confirmed that this amount is paid voluntarily and no appeal will be filed against such payment or we will not claim any refund in future.

Yours faithfully

Date: _________

Place: _________

Signature CEO/Director /Authorised Signatory

(Name & Designation)

M/s ____________________________

ANNEXURE GSTAM XI

Form GST ADT – 02

[See rule 101(5)]

Reference No.:

Date:

To,
————————–
GSTIN ………………………………..
Name ……………………………………
Address ………………………………….

Audit Report No. ……….. dated ……..

Audit Report under section 65(6)

Your books of account and records for the F.Y……………… has been examined and this Audit

Report is prepared on the basis of information available / documents furnished by you and the findings are as under:

[Upload pdf file containing audit observation]

You are directed to discharge your statutory liabilities in this regard as per the provisions of the Act and the rules made thereunder, failing which proceedings as deemed fit may be initiated against you under the provisions of the Act.

Signature ………………………….
Name ……………………………..
Designation ……………………….

 GSTAM – ANNEXURE – XII

Local Risk Parameters

The following are example of local risk parameters criteria that may be considered during selection of units for audit. The planning section, Hqrs of Audit Commissionerate may consider all or some of the below criteria, depending on available data and resources, and may also use additional criteria not listed below.

i. The Taxpayer did not provide or delayed in providing documents sought by the Audit Team

ii. The Taxpayer was not previously audited;

iii. The Taxpayer is newly registered;

iv. Length of time since last audit;

v. The Taxpayer had / did not have substantial assessment during previous audits;

vi. The size of the Taxpayer’s turnover / net profit;

vii. The size of the Taxpayer’s loss, if any;

viii. The size of the Taxpayer’s refund, if any;

ix. The size of change in the Taxpayer’s turnover/net profit from the previous year;

x. The size of the impact detected mistakes had on the Taxpayer’s turnover / net profit;

xi. The ratio of expenses/turnover;

xii. The ratio of turnover/total assets;

xiii. The ratio of loans/total assets;

xiv. The size of income from high risk activities (e.g., real estate income);

xv. The size of exemptions, if any;

xvi. The percent of the net profit in comparison to the activity average;

xvii. The percent of the total profit compared to the activity average;

xviii. The Taxpayer requested waivers or is bankrupt;

xix. The Taxpayers files inconsistently;

xx. The Taxpayer is currently involved in legal disputes;

xxi. The Taxpayer’s return was previously investigated for evasion;

xxii. The Taxpayer received notices from other governmental entities;

xxiii. The quality of the Taxpayer’s books and records (manual / automated; not well-kept);

xxiv. The Taxpayer’s returns is prepared by questionable accountants;

xxv. The specific sector, in which the Taxpayer operates (e.g., typical high-risk activities include restaurants and hotels, apartment rentals, professionals, car rental, spare parts for vehicles, chemicals, telecommunications, retail);

xxvi. The form of the legal entity (e.g., corporation / partnership);

xxvii. The multitude of the Taxpayer’s legal relationships with other entities;

xxviii. The Taxpayer has multiple branches;

xxix. The Taxpayer has multiple activities;

xxx. Audit differences (past audit assessments).

xxxi. The Taxpayer has supplied goods on which there has been reduction in rate of duty, in order to examine the possibility of profiteering under Section 171 of the CGST Act, 2017

xxxii. The Taxpayer has stopped filing GST returns.

xxxiii. The Taxpayer has applied for surrender of its registration.

xxxiv. Where there is increase in ratio of Exempted Supplies / Total supplies of a Taxpayer over time.

xxxv. Where higher incidence of supplies without issuance of e-way Bills have been noticed.

xxxvi. The Taxpayer who does not file periodical return but issues e-way bill regularly.

xxxvii. The Taxpayer who was not audited in the pre-GST era for the last 4 – 5 years.

xxxviii. The Taxpayer whose turnover increased substantially after enactment of GST.

xxxix. The Taxpayer who is not filing GSTR – 3B but in their electronic cash ledger, amount of TDS is reflected.

GSTAM ANNEXURE – XIII

Check list for Audit of Traders

1. INVOICING PATTERN:

1. Whether the invoice issued contains all the information prescribed in Rule 46 of CGST Rules and is being numbered accordingly

2. Whether revised invoice or credit note or debit note issued contains all the information prescribed in Rule 53 of CGST Rules

3. Whether the export invoice is being endorsed with the words “supply meant for export on payment of integrated tax” or “supply meant for export under bond or letter of undertaking without payment of integrated tax”

4. Whether the payment voucher issued for advance payment has been made as per Rule 52 of the CGST Rules.

5. Whether the receipt voucher issued for advance receipt has been made as per Rule 50 of the CGST Rules.

6. In case of a composition dealer U/s 10 of the SGST/CGST Act, whether bill of supply has been issued U/r 49 of CGST Rules.

7. Whether invoice has been prepared in triplicate in the case of supply of goods as per Rule 48(1) of CGST Rules.

N.B. – Significant omission/commission in the invoice should only be taken into consideration for taking action U/s 73 or 74 of the CGST Act.

2. RETURNS:

1. Check the outward supplies made from GSTR-1 and compare it with the sales account maintained.

2. Check whether claim under Nil rated, exempted and non GST outward supplies shown in GSTR-1 is proper.

3. Check whether proper rate of tax was applied to outward supplies shown in GSTR-1

4. Identify Zero rated supplies from the GSTR -1 and compare it with the records maintained by the trader.

5. Check the total taxable supplies from GSTR-1 and compare it with the sales account maintained to identify any suppression of sales.

6. Check whether the trader is filing returns within the time prescribed in Section 39 of CGST Act.

7. Cross-check the GSTR 1/2/3 with GSTR 3B of the corresponding month

3. INPUT TAX CREDIT AVAILMENT:

1. Check whether the trader possesses all the invoices on which ITC was availed.

2. Check whether input tax credit was claimed on any negative list of goods mentioned in Section 17(5) of CGST Act

3. Check whether input tax credit availed by the trader is in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, wilful misstatement or suppression of facts which is not eligible in terms of Rule 36(3) of CGST Rules

4. Check whether the calculation for reversal of tax when the input / input services are partly used for the purposes of business and partly for other purposes was done properly in terms of Rule 42 of CGST Rules.

5. Check whether the calculation for reversal of tax when the capital goods are partly used for the purposes of business and partly for other purposes was done properly in terms of Rule 43 of CGST Rules.

6. Check items on which ITC availed from GSTR-2 with purchase account maintained to ensure that the ITC was taken on the items actually purchased.

7. Check whether the trader has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 and availed the input tax credit on the said tax component which cannot be allowed in terms of Section 16(3) of CGST Act.

8. Check whether the trader has paid the value of supply to the supplier within 180 days from the of issue of invoice by the supplier in terms of Section 16(2)(d) of CGST Act to ensure that ITC was not taken in cases where consideration was not paid within the stipulated time.

9. Check whether ITC was taken within the time limit stipulated in Section 16(4) of CGST Act.

10. Detailed TRAN-1 Verification

a) To cross-check the veracity of information furnished under TRAN-1 vis-a-vis the books of account and last returns filed under the repealed Acts.

b) To check whether ITC has been properly claimed on Capital Goods as per the existing provisions of the State VAT Act.

c) Whether Inputs/Semi-finished goods/Capital Goods have been returned back to the Principal Place of business which were sent to Job Worker within the prescribed time as per Section 143.

d) To check proper availment of credit on transactions where trader has not submitted statutory forms under the CGST Act within the prescribed time.

e) Check whether the ITC taken after filing GST Tran-1 / Tran-2 is proper

4. VALUATION

1. Whether “Time of supply of goods” was properly determined in terms of Section 12 (2) of CGST Act while discharging the tax payable.

2. Whether time of supply of goods was properly determined in terms of Section 12(3) of CGST Act in case of payment under reverse charge and tax liability was discharged properly.

3. Check whether the discounts allowed are in accordance with regular practice of the dealer and the purchaser has paid the sum originally charged less the discount.

4. Check whether any amount , that the supplier is liable to pay but incurred by the purchaser has been included in the value of supply

5. Check whether interest or late fee or penalty for delayed payment of any consideration for any supply collected from the purchaser is included in the value of supply

6. Check whether there are supporting documents for the credit notes issued for the sales made

7. Check whether there are supporting documents for the debit notes issued for the sales made

8. To check the time of supply of goods in cases where there is change in rate of tax U/s 14 of CGST Act.

9. Whether the time of supply in case of Composite and Mixed Supply has been correctly made as per Section 8 of the CGST Act.

10. Check whether transactions have been made between related persons. If so, check whether there is significant variation in the value in comparison to similar transactions with unrelated buyers. If there is significant variation in the value of goods or services, market value of the goods/services should be taken by rejecting the value disclosed between the related persons.

11. Whether the value has been made in accordance with the Valuation Rules from Rule 27 to 35 of the CGST Rules 2017.

N.B. – Debit Note and Credit Note should have direct link to a transaction having implication on tax liability. Debit Note and Credit Note if not linked to implication of tax liability should be ignored.

5. PLACE OF SUPPLY

1. In respect of interstate supplies & Imports, check whether place of supply of goods has been properly determined in terms of Section 10 & 11 of IGST Act and IGST has been paid accordingly

2. To check whether place of supply of services has been properly determined in terms of Section 12 of IGST Act and IGST has been paid accordingly.

6. STOCK VERIFICATION

1. Check the physical stock of taxable and risk-prone commodities which can be quantified.

2. Check whether the stock-in-trade found at the time of Audit Visit tallies with the books of accounts maintained.

8. OTHER CHECKS

1. Total taxable turnover as per GST Return vis-à-vis turnover as per financial accounts.

2. Ratio between net purchases vis-à-vis Net Sales (Net Purchase = O.B. + Purchases – C.B.)

3. Value pf Closing Stock vis-à-vis ITC balance.

4. Value addition percentage vis-à-vis cash payment of GST to total liability

5. Any other registrant in the name of family member just on paper.

6. Turnover before GST introduction to check suppression in value.

GSTAM ANNEXURE – XIV

CHECKS FOR COMPOSITE DEALER