GST Department Audit Notice is issued by GST Department to registered taxpayer in order to examining a taxable person’s records, returns, and other documentation. The goal of GST Department Audit Notice is to ensure that the turnover is declared, taxes paid, refunds claimed, and input tax credits claimed are valid, as well as to check compliance with GST regulations.
There are 3 types of audits as mandated by the GST law, they are – Statutory, Special Audit and GST Departmental Audit.
Table of Contents
Statutory Audit
Under Section 35(5) of GST Audit rules, if a registered taxpayer has an aggregate turnover exceeding Rs. 2 crores in a financial year, they were required to have their account books and returns audited by a professional chartered accountant. A certified copy of these audited accounts and a reconciliation statement were to be submitted in the form GSTR 9C via the common portal or through the Facilitation Centres as notified by the Commissioner. However, starting from 30th July 2021, the government has notified the removal of GST audit and certification done by CA/CMA. Hence, taxpayers are now required to submit a self-certified GSTR 9C from FY 20-21.
Special Audit
Section 66 and Rule 102 of the GST Audit Rules state that at any point during scrutiny, inquiry, or investigation, an authorized officer (not less than the rank of Assistant Commissioner) may hire a CA or CMA based on the complexity and nature of the business, and if the authorized officer believes that:
• The credit that was taken out is not within the typical ranges.
• The value has not been declared with accuracy.
Within ninety days of passing such an order, the registered dealer must arrange for the audit and examination of his records, including his books of accounts, by the designated professional CMA or CA. The authorized officer will issue the audit direction in Form GST ADT-03.
The commissioner bears the cost of these special GST audits and examinations. An extra ninety days may be added to the time frame needed for the account audit. The auditee receives the results of the special GST audit in Form GST ADT-04 after it is completed.
GST Departmental Audit
According to section 65 and Rule 101(3) of GST Audit Rules, a commissioner or an officer authorized by them has the authority to conduct a GST audit by sending GST Department Audit Notice. This audit aims to check the details of the records and books of account of a registered person. The authorized officer can be accompanied by a team of officers and officials.
After completing the GST audit, the authorized officer must communicate the findings, rights, obligations, and the reasons behind the findings to the registered person. This information should be provided within 30 days using FORM GST ADT-02. If the registered taxpayer is found to be at fault, for example, if they wrongly claimed or used Input Tax Credit (ITC), the authorized officer can take action following the procedure outlined in section 73 or Section 74 of GST Audit Rules.
In this blog, we will explore the GST Department Audit Notice issued to a taxpayer and discuss how the taxpayer should prepare for it.
Why is a Departmental Audit of GST Performed?
A company’s adherence to GST (Goods and Services Tax) laws and rules is examined through a GST Departmental Audit. When the GST Department suspects that a business is not properly disclosing its GST obligations or that it might not be following GST laws and regulations, they may conduct Audit by sending GST Department Audit Notice.
Important Things to Consider for a GST Departmental Audit Notice
Prior Intimation of notice: The Audit Officer (AO) needs to ask for specific documents and information, such as financial records, contracts, bills, tax payment records, and reports filed for various types of taxes like income tax and professional tax. This request should be made in advance using the official GST Department Audit Notice, and it should be done at least fifteen days (or as required) before the planned visit.
Audit location: The Company’s premises will always be the audit’s location.
Documents Required: The person who is registered must give a copy of the requested documents to the Audit Officer when asked for it. This requirement may vary depending on the circumstances.
Possible Liability: The audit officer, with authority granted by the Commissioner, will figure out the accurate amount owed and take action to get the money back if tax returns aren’t submitted or contain errors.
Verification of Stock: The Audit Officer is also able to confirm the goods’ stock.
Search of Premises: The audit officer is not permitted to conduct a premises search.
How to prepare for a GST Departmental Audit Notice?
There are numerous tasks that must be completed in order to get ready for a departmental audit of the GST. Some of the key things to remember are listed below.
Examine your GST returns and supporting documentation: It’s really important to double-check that your GST returns and all the paperwork that goes with them are correct and complete before the audit. Make sure you have all the required information and carefully check for any errors or things that don’t match up. Otherwise the GST Department will issue a GST Department Audit Notice.
Arrange your records: Make sure to organize and keep your GST documents and records in an easily accessible manner. Doing so will help save time during an audit and make it easier for the auditor to go through your records.
Educate your workers: Ensure that you teach your employees about GST laws and rules and emphasize the importance of precise reporting. Doing this will reduce the chances of errors in your GST filings and ensure that everyone is well-informed and aligned.
Understanding GST: Put all the important details about your company’s products, taxes, tax rates, exemptions, capital goods, reverse charges, and tax credit processes in one central place. This will help your company’s representatives or registered individuals get a complete picture of the company’s GST status, making it easier for them to explain it to GST officers.
Monitoring Progress: Monitor the progress of audits for various GST identification numbers (GSTINs), divisions, and legal entities within a group. Gather all necessary information until a tax dispute arises. Also, present a summary of completed audits, Show Cause Notices that have been issued, and audits currently in progress. Make sure that you can easily trace the history of all documents submitted during an audit.
Reviewing Legal Positions: Keep a record of all your tax-related situations, such as when you didn’t pay the Goods and Services Tax (GST), made incorrect claims for input tax credits, or tried to get improper GST benefits. Make sure you can also store any legal references or opinions that back up these positions.
With the many changes in GST regulations over the years, it’s important for businesses to be well-prepared and understand the details required for audits and legal matters under the GST framework. Furthermore, it’s vital to consistently handle and keep track of information, data, and documents related to audits, as they can have a significant impact on an organization’s management, operations, and financial stability.
Documentation Requirements
- Copies of invoices for purchases and sales in each respective year.
- Copies of self-generated invoices related to reverse charge mechanism and cross-charging.
- Copies of GSTR9, GSTR9C, GSTR1, and GSTR3B returns.
- Financial documents for each respective year.
- Copies of Form 27Q.
- Copies of Forms 15CA, 15CB, and 3CEB.
Note: Before meeting with the GST Officer, make sure you thoroughly understand the following:
- Familiarize yourself with your business operations.
- Conduct a comprehensive examination of the financials and notes to identify potential GST liability issues.
- Verify all the documents listed in the documentation.
When submitting any document, perform a thorough check to anticipate any potential similar outcomes.
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