List of Records and Register of Taxpayers to be verified by GST Audit Team of CBIC

By | July 11, 2019
(Last Updated On: July 11, 2019)

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

GOODS AND SERVICES TAX AUDIT MANUAL 2019

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 –

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1.Purchase order
Nature of Document:This document denotes the price and other conditions laid for purchase of goods/outward sale of goods.

Nature of Verification:

Purchase order placed by Customers:

(a) To verify the terms and conditions especially with respect to price revision, supply of any material/component by the customer, erection and commissioning charges. The total price charged in the Purchase Order may be compared with the Taxable value invoice to ensure that no extra flow back is received outside the invoice through commercial invoice/debit note.

(b) To verify whether GST invoice is raised for full amount as per the Purchase Order.

(c) Taxability of outward supply of samples may be verified.

2.Price Circular
Nature of Document:-Most companies issues price circular periodically explaining various conditions of sales/ outward supplies like various types of discounts, conditions for providing the discount, recovery of freight, packing charges, interest and other charges.

Type of verification:-

i) Study the various elements to be recovered from the customers and whether these are required to be added to the transaction value or not like packing charges, freight charges, handling charges.

ii) If any discount is given to a class of buyer, the exact nature of such discount may be studied in detail to find out whether the discount is admissible or not.

iii) Verify whether any item or benefit if supplied free of cost by the buyer.

iv) In case of cum duty prices, the various component forming part of value needs to be studied from price circular.

3. Delivery Challan
Delivery Challan indicates the description of goods, quantity cleared and receiver of goods. D.Cs may be of two varieties viz. returnable D.C. & Non-Returnable D.C.Nature of Verification:

(a) Check how many series of DCs are issued and which sections are preparing these.

(b) Returnable D.Cs are used for movement of job-work materials. D.C. Register should be verified to ascertain whether materials sent for job work has been received back within the stipulated time, if not, whether appropriate duty has been paid or not.

(c) Non-Returnable D.Cs are used for clearance of goods, which are not to be received back. Normally it is the practice in the industry to raise D.Cs for outward supplies made and it accompanies the Outward supply Invoices. Inter unit movement of goods are sometime done through non-returnable D.Cs without any invoices resulting in clearance without payment of duty.

(d) Verify whether GST has been paid on scrap cleared under N.R.D.C.

(e) Replacements/Samples may also be cleared under the cover of NRDC’s without invoices.

4.  Material Transfer Note
Nature of Document:This document is used for inter unit transfer of materials & for inter branches transfers within a unit.

Nature of Verification:

Valuation adopted for such inter unit transfers need to be checked and whether duty has been paid on such transfers be ascertained.

5. Sales/outward supplies Book
Nature of Document:This is used for recording all credit sale/ outward supply of goods.

Nature of Verification:

(a) Invoice Numbers mentioned should be sequential and if any number is missing the same has to be examined.

(b) Verify how many series of invoices are used for outward supply of goods.

(c) Whether Debit Notes/Journal Vouchers are also entered in the outward supplies register. If yes, whether taxable value duty is payable on additional considerations received through such Debit Notes/JVs.

(d) Outward supply register normally shows taxable value and duty separately. Verify the cases where taxable value and duty has not been shown and find out the reasons thereof.

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

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1.Stores Ledger
Nature of Document :-It contains the details about receipt of various input or consumable, its issue for production and closing balance. It also contains details like results of physical verification, obsolete items, slow moving items and it write off etc. Nowadays most of the companies maintains stock records on computer.

Types of Verification:-

i) Verify coding system for receipt, issue, stock verification, valuation, input cleared as such, obsolete item and other found in store records.

ii)  Compare the purchase as per ITC documents with a receipt in the store records.

iii)  Verify whether any shortage found on physical verification as per store records.

iv)  Verify whether any item written off due to obsolesce.

v) Verify whether any input cleared as such and whether proper tax is paid or not.

2.Materials Receipt Note/Goods Receipt Note (GRN)/Inspection cum Receipt Report (ICRR)
Nature of Document :The MRN/GRN is prepared for all goods received in the factory. It shows the details like actual quantity received, quantity as per challan/invoice, quantity short received. It is prepared by the Stores Department. The ICRR is prepared by the quality control department and it shows the quantity accepted, quantity rejected and the reasons for rejection. A number of times these reports may not be physically available as these are maintained in computer systems. But statements may be generated on the request of Auditors for cases where goods have been short received or rejected.

Nature of Verification:

(i) Check the cases of short receipt and rejected goods and verify whether ITC has been reversed.

(ii) Verify in random cases, whether for ITC availed invoices, corresponding GRNs are available or not.

3.Material Return Note
Nature of Document:This document is raised by various departments to return the material to stores or to suppliers.

Nature of Verification:

(i) In case ITC availed materials are returned to supplier whether appropriate GST has been discharged.

(ii) In case MRN is raised by shop floor for rejection of raw material, the ITC treatment may be examined.

(iii) In case MRN is raised by shop floor for rejection of partially processed material, such material should be cleared on payment of GST.

4.Material Requisition Note (MRN) and Material Issue Note (MIN)
Nature of Document:MRN is used by various sections in the factory for requisition of material from stores department. In turn, stores department issue the material on MIN. The MRN & MIN contain code no. of receiving sections, description of material and code no. of material issued, and quantity of material.

Nature of verification:

(i) MIN may also be used for adjustment of shortages, stock verification discrepancies, stock issued as scrap, obsolete items etc. There may be separate code no. for such adjustments. ITC treatment on such goods may be verified.

(ii) For inputs cleared as such for outward supply, inter unit transfer, warranty period supply, MIN may be prepared showing different codes. All such clearances may be examined to verify payment of taxable value GST.

5. Waste Register
Where the raw material or components are not in useful condition, they are transferred to Bad Bins. The Auditor should verify the concerned records seeking reversal of credit on such unusable inputs. These goods are also known as obsolete items. 
6.Physical Stock Verification Statement
Nature of document:The companies undertake periodic stock verification where book stock is compared with physical stock. The statement showing book stock, physical stock and variation is prepared on each such stock verification. Most of the companies undertake quarterly, half-yearly and annual stock verification.

Nature of verification:

(i) Stock verification statement should be examined to find out the cases of shortages or excesses. In case discrepancies are not explained, action may be taken either for demanding reversal of ITC or demanding GST. This statement may also be available in the Cost Audit Report.

(ii) On the basis of such statement, stock adjustments are made in the financial records by passing a Journal Voucher. The said JV may also be examined for the adjustments carried out by the unit. 

7.Sub-contract Register / Job Work Register 
Nature of Document :This register indicates activity sub-contracted outside.

Nature of Verification :

(a) To study whether all materials sent outside for job work have been received back within the time stipulated.

(b) In case the job worker discharges GST, then valuation of such goods should be examined as to inclusion of any freely supplied material in the value.

(c) Receipt of scrap generated at job workers premises should be verified. 

III. Finance & Accounts related records – 

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1. Ledger
Ledger is a book where transactions of same nature are grouped together in the form of an account. For example, all transactions relating to taxable value GST payment may be entered in Taxable value GST Payment Account. Ledgers are of three types:1. Debtor’s Ledger: This contains accounts of all debtors (customers). All transactions made with a customer are entered in the individual account of each customer. Details of outward supply invoices and debit note issued to a customer and payment received from a customer are entered in the customer’s individual account.

Types of verification:

(i) Ledger account of the major customers should be scrutinized. In the Customer’s account it should be verified as to what are the documents used for recording the outward supply of the goods. These documents may be outward supply invoices or debit notes or JVs. If debit note and JVs are also found entered in the customer’s account, such documents should be verified to find out the reasons for such recoveries from the customers and whether on the taxable value GST has been paid or not.

(ii) If substantial amount of advances are recovered regularly, this may also be verified from customer’s account. In such cases, there may be credit balance showing receipt of advance payment.

2. Creditor’s Ledger: This Ledger contains accounts of all creditors like suppliers and service providers. Like in the case of Debtor’s Ledger, in the case of supplier’s account, the details like purchase invoice, debit note or JV may be available in a supplier’s account. The debit note or JV might have been prepared for rejection of purchase material or for short receipt of purchase material.

Types of verification:

(i) If the customer’s account shows details of debit note or JV, the reasons thereof may be inquired into and whether ITC has been reversed or not may be verified.

3. General Ledger: This Ledger contains all accounts of assets, liabilities, incomes and expenses. Scrutiny of this ledger is very important to a Tax Auditor as the income and expenditure accounts have direct impact on availment of credit, valuation of finished goods and payment of GST on the taxable value. The General Ledger may contain 100-500 accounts depending upon the size of the company. Therefore, selection of account for scrutiny is an important task for an auditor. For this purpose, accounts should be selected from the Trial Balance which gives names of all the accounts maintained by a unit. Some of the general rules which may be kept in mind while selecting the accounts for scrutiny are given below :

(i) Credit entries in raw material purchase account

(ii) Credit entries in expenses account.

(iii) Income accounts.

(iv) Unusual account.

Types of verification:

(i) All the important input purchase accounts may be verified in order to find out whether any rejection of raw material or short receipt of input have taken place and whether ITC has been reversed or not.

(ii) Raw material consumption account may also be verified to find out with regard to writing off obsolete material or cases of shortages noticed during physical stock verification.

(iii) Expenditure accounts where recovery of expenses is possible like Packing and Forwarding Expenses Account, Advertisement Expenses Account, Transportation/Freight Charges Account, Outward supply Expenses Account etc. may be scrutinized in order to find out any recoveries being made from the customer.

(iv) From the Trial Balance, the income accounts (these accounts will have credit balances) should be selected for scrutiny and the exact nature of such income’s accounts should be found out from the study of the documents mentioned in the relevant ledger accounts. Some of these accounts might have direct impact on the valuation of finished goods or it may also affect the GST liability.

(v) Unusual accounts as noticed during the study of Trial Balance may also be scrutinized so as to find out the exact nature of such accounts.

(vi) The tax auditor may also verify the Plant and Machinery Account to find out the additions made during the year and the disposal of plant and machinery made during the year. In the case of disposal, whether the appropriate amount of GST on the taxable value has been paid or not may be inquired into by the tax auditor.

(vii) As far as verification of claiming of depreciation on capital goods is concerned, the verification should be made from the Income tax return filed by the taxable person or from the Income Tax Audit Report (3 CD report).

2.Debit Notes
Nature of Documents:Debit Note is a statement informing the other party that his account has been debited for the reasons given in the Debit Note. The financial impact of a Debit Note is that the addressee is liable to pay the amount mentioned in the said statement to the person who has issued the Debit Note. In other words, the person issuing the Debit Note is eligible to receive the amount from the addressee. Debit Note may be issued for various reasons like return/short receipt of goods purchased, increase in the rate/quantity of the goods sold, recovery of packing charges, warranty charges, after-outward supply service charges etc. from a customer. The job worker may raise a Debit Note for value of own material used by him. The principal may issue a Debit Note to a job worker for the value of scrap generated during job work process and retained by a job worker.

Types of Verification:

(i) Since the number of Debit Notes issued by a unit are generally not very large, therefore all the Debit Notes must be studied by a Tax Auditor.

(ii) The Debit Note itself shows the reason for its issue and most of the time the supporting documents are enclosed with the Debit Note. Therefore, such documents should be studied in detail.

(iii) Cases of additional recoveries from the customer or rejection and short receipt of inputs are generally noticed in the Debit Note.

3.Credit Note
Credit Note is a statement informing the other person that his account has been credited for the reasons mentioned in the Credit Note. The financial impact of issue of a Credit Note is that the addressee is eligible to receive the amount of credit note. Credit Note may be issued for the reason like return of goods by the customer (outward supply’s return) etc.
4.Journal Voucher (JV)
Nature of Document:-JVs are prepared for all adjustments which may not involve direct financial dealings. For example, accounting of raw materials consumed in a particular month, providing of depreciation or making provision for payment of royalty.

Types of Verification:

(i) As most of the adjustments are made at the end of the half year and at the end of the year, therefore, all the JVs for the half year ending month or year ending (September and March in the case of units following April to March as accounting year) must be verified.

(ii) The narration given in the JVs should be studied in order to find out the exact nature of transaction being entered in the books of accounts.

(iii) Study of JVs may reveal accounting system followed by a unit. For example, a company following the system of cost centres may account for consumption of raw material for each centre on a monthly basis. In such cases, the raw material consumption by non-production department like construction department or maintenance department may be found out from the study of JVs which is passed at the end of each month. The said JVs may also be useful in quantifying the amount of wrong availment of ITC for entire year as only one JV is required to be examined for each month.

(iv) Adjustment entries passed for transferring the balance of one account to another related account may also be found out from the study of JVs. For example, Recovery of Packing and Forwarding Charges Account may be transferred to Packing and Forwarding Expenses account and for this purpose a JV is passed.

(v) Sometimes additional consideration may be collected from customer by issuing a simple letter to the customer (without issuing any debit note or outward supply invoice). In such cases these transactions are accounted for through JVs.

(vi) Similarly, for quantities short received or rejected quantity also the supplier may be compensated by way of intimation and the transaction is recorded through a JV.

5.Internal Audit Report
Nature of Document:-This is the report submitted by internal auditors appointed by the company which looks into day-to-day activities and the systems followed by the unit. In the bigger company, it is a mandatory also.

Types of verification :-

i) Call for sample audit reports and examine with respect to observations on loss of any input, excess availment of ITC, collection of additional consideration

ii) Verify whether any system changes have been advised and followed by the taxable person. Also examine the implications on the past period for any short payment or non-payment of tax.

iii) Internal Auditor also reports about stock verification and in case of shortages the ITC availment needs to be examined. 

6.Purchase Book 
Nature of Document:This shows credit purchase of raw materials and other inputs.

Nature of Verification:

(a) To find out major suppliers

(b) It may also show taxable value and GST separately. In that case taxable value and GST recorded in the purchase register may be reconciled with credit availed as per ITC return. 

7.Purchase Return Book 
Nature of Document:This book gives details of goods returned to suppliers.

Nature of Verification:

Verify whether ITC has been expunged / such goods cleared on payment of GST. 

8.Tax Audit Report
Nature of document:The Tax Audit Report is given by Chartered Accountant. The said report is given in the form 3 CD and it is required to be enclosed along with the Income tax return filed by the taxable person.

Nature of verification:

Depreciation statement as per the provisions of Income Tax Act enclosed with Tax Audit Report may be verified to confirm the correctness of availment of ITC on capital goods.

(i) As per Clause 27(a) of the said report, amount of ITC availed or utilized during the year and its treatment in the Profit & Loss Account and treatment of outstanding ITC in the account is required to be given. Tax Auditor may compare the said information with the information as per taxable value records.

(ii) As per clause 35(a) to 35(c), details like opening stock, purchases, outward supply and closing stock of trading activities and in the case of manufacturing unit quantitative details or principal items of raw materials, finished goods and by-products showing opening stock, purchases, consumption, outward supply, closing stock, yield of finished goods, percentage of yield and shortages/excesses is required to be given. This information may be used by Tax Auditor to verify the input-output ratio. The reasons for excessive shortage/ excesses and whether GST has been paid on the outward supply of raw material as reported in the tax audit report may be inquired into.

9.Income Tax Returns
Nature of document:This return is filed by the taxable person with the Income Tax department showing the calculation of income tax on the profit / loss earned by them. The return is filed in the prescribed format and along-with the return a statement namely computation of income is enclosed.

Nature of verification:

In the computation of income statement, a depreciation statement is also enclosed. The said depreciation statement shows depreciation claimed on various assets as per the provisions of Income Tax Act. The auditors should verify whether the value considered for claiming depreciation is inclusive of ITC availed by the taxable person or not.

10.Fixed Assets Register
Nature of Document :This register contains the details of purchase invoice, date of installation, place of installation, addition/deletion to the asset and depreciation charged.

Nature of Verification:

(a) Deletion of Assets – Payment of GST on clearance needs to be verified.

(b) For physical verification, the location may be found out from this register. 

11.Monthly stock statement to bank. 
Types of verification:-Companies are required to file a stock statement every month to the banks when the stock is hypothecated for loans. In such cases, verify the stock position as per statement given to the bank and the stock position as per company’s private and financial 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 –

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1.Purchase order/Agreements/MOUs
Nature of Document :This document denotes the price and other conditions laid for purchase and sale of goods and services.

Nature of Verification:

Purchase order placed by Customers, Agreement/MOU with the Customers:

(a) To verify the terms and conditions specially with respect to price revision, supply of any material/component by the customer, erection and commissioning charges. The total price charged in the Purchase Order may be compared with the GST invoice to ensure that no extra flow back is received outside the invoice through commercial invoice/debit note.

(b) To verify whether the invoice is raised for full amount as per the Purchase Order/Agreement/MOU

(c) Tax structure agreed upon in the purchase order should be checked with invoices raised for provision of services. In case the unit raises a separate commercial invoice, such invoices should be checked for the basic price, taxes, etc. actually collected.

2.Sales / outward supply Book
Nature of Document:This is used for recording all services provided.

Nature of Verification:

(a) Invoice Numbers mentioned should be sequential and if any number is missing the same has to be examined.

(b) Verify how many series of sales invoices are used for provision of services. Whether GST invoice series and commercial invoice no. series are different.

(c) Whether Debit Notes/Journal Vouchers are also entered in the sales register. If yes, whether GST is payable on additional considerations received through such Debit Notes/JVs.

(d) Sales register normally show GST separately. Verify the cases where GST has not been paid and find out the reasons thereof.

II. Records to be verified in the stores department –

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1.Stores Ledger
Nature of Document :-It contains the details about receipt of various input or consumable, its issue for production and closing balance. It also contains details like results of physical verification, obsolete items, slow moving items and its write off etc. Now a days most of the companies maintains stock records on computer.

Types of Verification :-

i) Verify coding system for receipt, issue, stock verification, valuation, input cleared as such, obsolete item and other found in store records.

ii) Compare the purchase as per ITC documents with a receipt in the store records.

iii) Verify whether any item written off due to obsolesce.

2.Sub contract Register / Job Work Register
Nature of Document :This register indicates activity sub-contracted outside.

Nature of Verification :

(a) In case the job worker/sub-contractor discharges tax, then valuation of such goods/services should be examined for the inclusion of any freely supplied material in the value.

III. Finance & Accounts related records –

Sr. No.Name of the Record/DocumentNature of the documents and checks to be done
1.Ledger
Nature of document:Ledger is a book where transactions of same nature are grouped together in the form of an account. For example, all transactions relating to GST payment may be entered in GST Payment Account. Ledgers are of three types:

1. Debtor’s Ledger: This contains accounts of all debtors (customers). All transactions made with a customer are entered in the individual account of each customer. Details of sales invoices and debit note issued to a customer and payment received from a customer are entered in the customer’s individual account.

Types of verification:

(i) Ledger account of the major customers should be scrutinized. In the Customer’s account it should be verified as to what are the documents used for recording the sales of the goods/services. These documents may be sales invoices or debit notes or Journal Vouchers (JV). If debit note and JVs are also found entered in the customer’s account, such documents should be verified to find out the reasons for such recoveries from the customers and whether GST has been paid or not.

(ii) If substantial amount of advances are recovered regularly, this may also be verified from customer’s account. In such cases, there may be credit balance showing receipt of advance payment.

2. Creditor’s Ledger: This Ledger contains accounts of all creditors like suppliers and service providers. Like in the case of Debtor’s Ledger, in the case of supplier’s account, the details like purchase invoice, debit note or JV may be available in a supplier’s account. The debit note or JV might have been prepared for rejection of purchase material or for short receipt of purchase material or for short receipt of services.

Types of verification:

(i) If the customer’s account shows details of debit note or JV, the reasons thereof may be inquired into and whether ITC has been reversed or not may be verified.

3. General Ledger: This Ledger contains all accounts of assets, liabilities, incomes and expenses. Scrutiny of this ledger is very important to a Tax Auditor as the income and

expenditure accounts have direct impact on availment of credit, valuation of finished goods and payment of GST. The General Ledger may contain 100-500 accounts depending upon the size of the company. Therefore, selection of account for scrutiny is an important task for an auditor. For this purpose, accounts should be selected from the Trial Balance which gives names of all the accounts maintained by a unit. Some of the general rules which may be kept in mind while selecting the accounts for scrutiny are given below :

(i) Credit entries in expenses account.

(ii) Income accounts.

(iii) Unusual account.

Types of verification:

(i) All the important input purchase/inward supply accounts may be verified in order to find out whether any rejection of raw material or short receipt of input have taken place and whether ITC has been reversed or not.

(ii) Expenditure accounts where recovery of expenses is possible like Packing and Forwarding Expenses Account, Advertisement Expenses Account, Transportation/Freight Charges Account, Sales Expenses Account etc. may be scrutinized in order to find out any recoveries being made from the customer.

(iii) From the Trial Balance, the income accounts (these accounts will have credit balances) should be selected for scrutiny and the exact nature of such income’s accounts should be found out from the study of the documents mentioned in the relevant ledger accounts. Some of these accounts might have direct impact on the valuation of finished goods or it may also affect the GST liability.

(iv) Unusual accounts as noticed during the study of Trial Balance may also be scrutinized so as to find out the exact nature of such accounts.

(v) The auditor may verify the Plant and Machinery Account to find out the additions made during the year and the disposal of plant and machinery made during the year. In the case of disposal, whether the appropriate amount of tax has been paid or not may be inquired into.

(vi) As far as verification of claiming of depreciation on capital goods is concerned, the verification should be made from the Income tax return filed by the assessee or from the Income Tax Audit Report.

2. Debit Notes
Nature of Documents:Debit Note is a statement informing the other party that his account has been debited for the reasons given in the Debit Note. The financial impact of a Debit Note is that the addressee is liable to pay the amount mentioned in the said statement to the person who has issued the Debit Note. In other words, the person issuing the Debit Note is eligible to receive the amount from the addressee. Debit Note may be issued for various reasons like return/short receipt of goods purchased, increase in the rate/quantity of the outward supply of goods made /services rendered, recovery of packing charges, warranty charges, after-sales service charges etc. from a customer. The job worker may raise a Debit Note for value of own material used by him. The principal may issue a Debit Note to a job worker for the value of scrap generated during job work process and retained by a job worker.

Types of Verification:

(i) Since the number of Debit Notes issued by a unit are generally not very large, therefore all the Debit Notes must be studied by a Tax Auditor.

(ii) The Debit Note itself shows the reason for its issue and most of the time the supporting documents are enclosed with the Debit Note. Therefore, such documents should be studied in detail.

(iii) Cases of additional recoveries from the customer or rejection and short receipt of inputs are generally noticed in the Debit Note.

 3Credit Note
Credit Note is a statement informing the other person that his account has been credited for the reasons mentioned in the Credit Note. The financial impact of issue of a Credit Note is that the addressee is eligible to receive the amount of credit note. Credit Note may be issued for the reason like return of goods by the customer (sales return) etc. 
4Journal Voucher (JV)
Nature of Document :-JVs are prepared for all adjustments which may not involve direct financial dealings. For example, accounting of raw materials consumed in a particular month, providing of depreciation or making provision for payment of royalty.

Types of Verification:

(i) As most of the adjustments are made at the end of the half year and at the end of the year, therefore, all the JVs for the half yearly period or yearly period (month of September or March in the case of units following April to March as accounting year) must be verified.

(ii) The narration given in the JVs should be studied in order to find out the exact nature of transaction being entered in the books of accounts.

(iii) Study of JVs may reveal accounting system followed by a unit. For example, a company following the system of cost centres may account for consumption of raw material for each centre on a monthly basis. In such cases, the raw material consumption by non-production department like construction department or maintenance department may be found out from the study of JVs which is passed at the end of each month. The said JVs may also be useful in quantifying the amount of wrong availment of ITC for entire year as only one JV is required to be examined for each month.

(iv) Adjustment entries passed for transferring the balance of one account to another related account may also be found out from the study of JVs. For example, Recovery of Packing and Forwarding Charges Account may be transferred to Packing and Forwarding Expenses account and for this purpose a JV is passed.

(v) Sometimes additional consideration may be collected from customer by issuing a simple letter to the customer (without issuing any debit note or sales invoice). In such cases these transactions are accounted for through JVs.

(vi) Similarly, for quantities short received or rejected quantity also the supplier may be compensated by way of intimation and the transaction is recorded through a JV. 

Internal Audit Report
Nature of Document:-This is the report submitted by internal auditors appointed by the company which looks into day-to-day activities and the systems followed by the unit. In the bigger company, it is mandatory also.

Types of verification:-

i) Call for sample audit reports and examine with respect to observations on loss of any input, excess availment of ITC, collection of additional consideration

ii) Verify whether any system changes have been advised and followed by the assessee. In that case for the past period any implication on Excise payment due to a week internal control needs to be examined.

iii) Internal Auditor also reports about stock verification and in case of shortages the ITC availment needs to be examined. 

6.Purchase/Inward supply Book 
Nature of Document:This shows credit purchase of raw materials and other inputs.

Nature of Verification:

(a) To find out major suppliers

(b) It may also show GST separately. In that case GST recorded in the purchase register may be reconciled with credit availed as per Electronic credit Register GSTPMT-01 

7.Purchase Return Book 
Nature of Document:This book gives details of goods returned to suppliers.

Nature of Verification:

Verify whether ITC has been expunged / such goods cleared on payment of duty. 

8. Tax Audit Report 
Nature of document:The Tax Audit Report is given by Chartered Accountant. The said report is given in the form 3 CD and it is required to be enclosed along with the Income tax return filed by the assessee.

Nature of verification:

Depreciation statement as per the provisions of Income Tax Act enclosed with Tax Audit Report may be verified to confirm the correctness of availment of ITC on capital goods.

(i) As per Clause 27(a) of the said report, amount of ITC availed or utilized during the year and its treatment in the Profit & Loss Account and treatment of outstanding ITC in the account is required to be given. Tax Auditor may compare the said information with the information as per excise records.

(ii) As per clause 35(a) to 35(c), details like opening stock, purchases, sales and closing stock of trading activities and in the case of manufacturing unit quantitative details or principal items of raw materials, finished goods and by-products showing opening stock, purchases, consumption, sales, closing stock, yield of finished goods, percentage of yield and shortages/excesses is required to be given. This information may be used by Tax Auditor to verify the input-output ratio. The reasons for excessive shortage/ excesses and whether duty has been paid on the sale of raw material as reported in the tax audit report may be inquired into. 

9.Income Tax Returns 
Nature of document:This return is filed by the assessee with the Income Tax department showing the calculation of income tax on the profit / loss earned by them. The return is filed in the prescribed format and along-with the return a statement namely computation of income is enclosed.

Nature of verification:

In the computation of income statement, a depreciation statement is also enclosed. The said depreciation statement shows depreciation claimed on various assets as per the provisions of Income Tax Act. The auditors should verify whether the value considered for claiming depreciation is inclusive of ITC availed by the tax payer or not.

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