BBA SEM 6

GST
UNIT 4

Audit in GST
Audit under GST involves examination of records, returns and other documents
maintained by a GST registered person. It also ensures correctness of turnover
declared, taxes paid, refund claimed, input tax credit availed and assess other such
compliances under GST Act to be checked by an authorized expert.

GST is a trust-based taxation regime wherein a taxpayer is required to self-assess

his tax liability, pay taxes and file returns. Thus, to ensure whether the taxpayer has
correctly self -assessed his tax liability a robust audit mechanism is a must.
Various measures are taken by the government for proper implementation of GST
and audit is one amongst them.

Types of GST Audit

Types Performed By When Initiated

Chartered Accountant or Cost If the Turnover exceeds 2 crores^
Turnover based
Accountant appointed by the the taxpayer has to get his accounts
Audit
taxpayer & records audited
Normal Commissioner of
On order of Commissioner by
audit/General CGST/SGST or any Officer
giving 15 days prior notice
Audit authorized by him
A Chartered Accountant or On order of Deputy/Assistant
Special audit Cost Accountant, nominated Commissioner with prior approval
by Commissioner of Commissioner

Accounts That Need To Be Audited By The GST Auditor

Here is the list of documents that need to be audited by the GST auditor:

1. Register of Sales
2. Register of purchase
 3. Register of Stock
4. Expenses ledgers
5. Input tax credit (ITC) claimed and utilized
6. GST payable and paid
7. All the e-Way bills generated
8. Any other document or record as may be necessary for that relevant period.

Objectives of GST Audit Under Law

As per the Audit definition under section 2(13) of the Central Goods and Services
Tax (CGST) Act, the GST audit has the following objectives:-

 An audit is scrutiny of returns, records, and other similar documents.

 The returns, records, and other documents should be issued or maintained
under GST or more laws.
 The scrutiny takes place for the verification of

 Declared Turnover
 Paid Amount of Taxes
 Claimed Refund
 Availed Input Tax Credit
 The inspection also takes place to assess the auditee's compliance with the
laws of the GST Act and its rules.

The objective of the audit under GST is to ensure that the declared turnover,
claimed refunds, input tax credit, and paid taxes are correct. The verification is
done in compliance with the GST Act. Additionally, GST Audit ensures that the
intents comply with GST Rules.

Audit by Tax Authorities

 The Commissioner of CGST/SGST (or any officer authorized by him) may

conduct an audit of a taxpayer. The frequency and manner of an audit will be
prescribed later.
 A notice will be sent to the auditee at least 15 days before.
 The audit will be completed within 3 months from the date of
commencement of the audit.
 The Commissioner can extend the audit period for a further six months with
reasons recorded in writing.
Obligations of the Auditee
The taxable person will be required to:

1. provide the necessary facility to verify the books of account/other

documents as required
2. to give information and assistance for timely completion of the audit.

Findings of Audit
On conclusion of an audit, the officer will inform the taxable person within 30 days
of:

 the findings,
 their reasons, and
 the taxable person’s rights and obligations

If the audit results in the detection of unpaid/short paid tax or wrong refund or
wrong input tax credit availed, then demand and recovery actions will be initiated.
Special Audit under GST
When can a special audit be initiated?
The Assistant Commissioner may initiate the special audit, considering the nature
and complexity of the case and interest of revenue.
If he is of the opinion during any stage of scrutiny/ inquiry/investigation that the
value has not been correctly declared or the wrong credit has been availed then a
special audit can be initiated. A special audit can be conducted even if the
taxpayer’s books have already been audited before.
Who will order and conduct a special audit?
The Assistant Commissioner (with the prior approval of the Commissioner) can
order for special audit (in writing). The special audit will be carried out by a
chartered accountant or a cost accountant nominated by the Commissioner.
What is the time limit to initiate a special audit under GST?
The auditor will have to submit the report within 90 days. This may be further
extended by the tax officer for 90 days on an application made by the taxable
person or the auditor.
Who will bear the expenses of the special audit?
The expenses for examination and audit including the auditor’s remuneration will
be determined and paid by the Commissioner.
How are the findings of the special audit dealt with?
The taxable person will be given an opportunity of being heard in the findings of
the special audit. If the audit results in detection of unpaid/short paid tax or wrong
refund or input tax credit wrongly availed then demand and recovery actions will
be initiated.
For further understanding, read our articles on GST audit:

 Turnover based Audit under GST

 All about GSTR-9C- Reconciliation Statement under GST
 Introduction to Assessments, Advance Rulings & Demand and Recovery

Assessment under GST

Goods and Service Tax or GST will consolidate all indirect taxes under one
umbrella and help Indian businesses become globally competitive. To facilitate
easy calculation and payment of taxes, GST has provisions for assessments such as
self-assessment.
Assessment is calculation of tax liability of the taxpayer under GST law. It is the
process of figuring out how much tax is to be paid by an individual each month.
Self-Assessment
Every person who is a registered taxable person can assess his tax liability on his
or her own and furnish returns for each taxation period. GST also allows self-
assessment just like the other tax liability such as VAT, Excise and Service Tax
under current taxation regime. Self assessment is stated under Section 59 of the
GST act.
After doing self assessment , the person is required to pay tax based on this
assessment.
In this regard Section 59 of the GST Act states
“Every registered person shall self-assess the taxes payable under this Act and
furnish a return for each tax period as specified under section 39.”

Provisional Assessment
Under section If an assessee is unable to determine his tax liability value or rate he
or she can request the officer for provisional assessment. This further gives two
conditions under which this assessment is done :
  If the taxpayer is unable to determine value due to difficulty in calculation of
the transaction value or confusion regarding inclusion of certain receipts or
not.
 If the taxpayer is unable to determine the rate of tax due to difficulty in
classification of goods and services or whether any notification is applicable
or not.

Procedure for Provisional Assessment

 The assessee has to request the GST officer for provisional assessments in
writing.
 Within 90 days of receipt of such request the officer will pass an order after
reviewing the application. This order is for allowing a payment of tax on
provisional basis or at a GST rate or value specified by him.
 The assessee who is making payment on provisional basis has to issue a
bond with a security promising to pay the difference amount between
provisionally assessed tax and final assessed tax.
 The GST officer will pass the final assessment within a period of six months
from the date of order of provisional payment.
 Provisional assessment will be followed by final assessments.

Interest Payable for Provisional Assessment

If in any case the taxpayer is liable to pay more tax after final assessment than paid
at the time of provisional assessment, the person is liable to pay interest at a
specified rate on such tax payments. The interest to be paid by the taxpayer is
calculated from the actual due date of tax till the actual tax payment made. The
interest will be charged maximum at the rate of 18%.
Refund under Provisional Assessment
If in any case the taxpayer was liable to pay less after the final assessment than
paid at the time of provisional assessment, the person will be refunded back with
the same amount as well as interest will be paid on such refund under section 56.
The rate of interest paid will be maximum 6%.
Time Limit for Final Assessments
The final assessment will be done within 6 months of the provisional assessment.
The time limit can be extended for 6 months by the Joint or Additional
Commissioner. The commissioner can even extend this time period to 4 years if
required.
Scrutiny Assessment
  To verify the correctness of the returns, the GST officer scrutinize it. Return
is scrutinize by proper office as per the provision of section 61 of CGST
Act.
 In case any discrepancy found, he shall furnish the notice to the registered
persons about the discrepancy and seeking the reply from the person.The
person shall within 15 days from the date of the notice shall furnish the
reply.
 The registered person may accept the discrepancy as mentioned in the notice
and pay the taxes, interest and any other amount due and inform the same to
proper officer.
 If proper office found the information is acceptable the proper office shall
inform the registered person accordingly.
 In case if discrepancy is not accepted by the person then he shall give
explanation to the proper officer.
 This is not mandatory for the officer as it is not a legal or judicial
proceeding. The officer for the same can ask for explanations if any
discrepancies noticed. The officer can take the following actions after
receiving the explanations for the same:
1. When Explanation is Satisfactory- The officer will inform the
taxpayer and no further actions will be taken in this regard.
2. When Explanation is not Satisfactory- The taxpayer has not given the
explanation within 30 days or has not rectified the discrepancies the
officer may
 Conduct a tax audit under section 65.
 Inspect and search the places of the taxpayer’s business
 Start a special audit under section 66
 Initiate demand and recovery provisions
 Send notices for outstanding demand or shortfall of when there
is no willful intention of doing fraud under section 73
 Send notices for outstanding demand or shortfall when there is
willful intention of fraud under section 74.

No order can be passed under scrutiny assessment as it is not a legal or

judicial proceeding
Best Judgment Assessment
The Assessing Officer under this assessment has an obligation to make an
assessment of the total income or less of a taxpayer to the best of his judgment in
the following cases.
Assessment of non-filers of returns
Under section 62, in case if a taxpayer fails to furnish the returns even after the
notice under section 46, a GST officer is required to conduct an assessment. The
GST officer in this case access the tax liability of the taxpayer to the best of his
judgement taking into consideration all the relevant materials that are available.
The officer can issue an assessment order within a period of five years from the
date of furnishing of annual return for the financial year for which the tax has not
been paid. After receiving this order , if the concerned taxpayer furnished a valid
return within 30 days from the issue of assessment order, the order can be
withdrawn.
In this case the taxpayer will be liable to pay late fee under section 47 and/or
interest under section 50(1)
Assessment of Unregistered Person
Under section 63, if in case any taxpayer fails to obtain a GST registration or
whose registration has been cancelled under section 29(2) even if he is liable to be
registered and pay tax, the GST officer can process his or her tax liability to the
best of his judgment. This has to be done for the relevant period for which the tax
is unpaid. The officer can issue an assessment order within five years from the date
specified under section 44 for furnishing annual return for the financial year for
which taxes are unpaid.

Summary Assessment
This type of assessment is stated under Section 64. The authorized office is
required to obtain prior permission of additional commissioner or joint
commissioner to take this assessment. To protect the interest of revenue, a GST
officer can proceed to assess the tax liability of a person showing a tax liability
with any evidence . The officer can also issue an assessment order id he has proof
that the delay in assessment can adversely affect the interest of revenue.

 Inspection under GST

When does inspection under GST occur?
A Joint Commissioner (or an officer of higher rank) may have “reasons to believe”
that in order to evade tax, any person has done the following-
 Suppressed any transaction of supply
 Suppressed stock in hand
  Claimed input tax credit in excess
 Violated of any of the provisions
 Any transporter or owner/operator of a warehouse has kept goods that have
escaped tax payment or have kept accounts and/or goods in such a way as to
evade tax
Then he can authorise any officer in Form GST INS-01 to inspect places of
businesses of:
 the taxable person or
 the transporter or
 owner/operator of warehouse
He can also examine any other place if he sees fit.
What is meant by ‘reasons to believe’?
‘Reason to believe’ means having knowledge of facts (although does not mean
having direct knowledge), that would make any reasonable person, knowing the
same facts, to reasonably conclude the same thing. As per the Indian Penal Code,
1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient
cause to believe that thing but not otherwise.” Reason to believe is a determination
based on intelligent examination and evaluation. It is different from a purely
subjective consideration, i.e., an opinion. It is based on facts rather than an
interpretation of facts.
Is it necessary to record the ‘reasons to believe’ in writing, before issuing
order for Inspection/Search/Seizure?
GST Act does not mention recording the reasons to believe. In fact, Finance Act
2017 has amended Sec 132(1) & (1A) of Income Tax Act retrospectively stating,
that reason to believe, shall not be disclosed to any person or any authority or the
Appellate Tribunal.
Search under GST
What is the difference between search & inspection?
‘Search’ involves an attempt to find something. Search, in tax/legal parlance, is an
action of a government official (a tax officer or a police officer, depending on the
case) to go and look through or examine carefully a place, person, object etc. in
order to find something concealed or to discover evidence of a crime. The search
can only be done under the proper and valid authority of law.
‘Inspection’ is the act of examining something, often closely. In tax/legal
language, it is a softer provision than search. It enables officers to access any place
of business of a taxable person and also any place of business of a person engaged
in transporting goods or who is an owner/operator of a warehouse or godown.
Who can order search under GST and when?
On the basis of results of inspection or any other reason, Joint Commissioner of
SGST/CGST or a superior officer can order for a search if he has “reasons to
believe” –
 There are goods which are liable for confiscation
 Any documents or books or other things which will be useful during
proceedings and are hidden somewhere
He can, on his own or through an authorized officer, search and seize the goods
and documents.
Seizure under GST
What is meant by seizure?
The term ‘seizure’ has not been specifically defined in GST. In legal
parlance, seizure is the act of taking over something or someone by force through
legal process, such as the seizure of evidence found at the scene of a crime. It
generally implies taking possession forcibly against the wishes of the owner.
What is the difference between Seizure and Detention?
Not allowing the owner any access to the seized goods by a legal order/notice is
called detention. However, the ownership & possession of goods still lie with the
owner. It is issued when it is suspected that the goods are liable to confiscation.
Seizure is taking over or actual possession of the goods by the department. But the
ownership is still with the owner. Seizure can be made only after
inquiry/investigation that the goods are liable to confiscation.
Procedure for seizure
The proper officer will give an order of seizure in FORM GST INS-02.
What are the powers of the officer authorized to search?
The officer authorized to search will have the power to seal the door of the
premises. He can also break open the door of any premises if access is denied. He
can also break open any cupboard or box in which goods, books, documents etc.
are suspected to be concealed.
What happens if it is not possible to seize the goods?
If it is not practicable to seize the goods, the proper officer will order the owner not
to remove these goods without prior permission of the officer. The officer will
issue an order of prohibition in FORM GST INS-03.
How long will the books/documents remain with the officer?
The officer will keep the books and documents as long as it is necessary for
examination and inquiry. Other books which are not relevant to the issue of notice
will be returned within 30 days from the date of notice. The seized goods can be
released on a provisional basis against a bond for the value of the goods in FORM
GST INS-04. The owner must also furnish a security in the form of a bank
guarantee for the amount due (applicable tax, interest and penalty payable). If the
owner fails to produce the provisionally released goods at the appointed date and
place then the security will be encashed and adjusted against the amount due.
What happens after seizure?
1. The person, whose documents are seized, can make copies only in the
presence of an officer.
2. If notice is not issued within six months (extendable by 6 more months) of
the seizing the goods, they will be returned.
3. The Government can issue a list of hazardous or perishable goods which can
be disposed off as soon as they are seized.
4. All goods seized will be listed properly by the officer.
Does the Code of Criminal Procedure apply in such cases?
The provisions of the Code of Criminal Procedure will apply to search and seizure.
Other ways to check/inspect
The Commissioner or an authorized officer can purchase any goods and/or services
from a taxable person. This will be done to check the issue of tax invoices, whether
they are maintained correctly, and whether GST amount is clearly displayed. When
the goods are returned, the amount will have to be refunded by the taxable person
and the sales invoice will be canceled.
Arrest under GST
The term ‘Arrest’ has not been defined in GST. However, as per judicial
pronouncements, it denotes ‘the taking into custody of a person under some lawful
command or authority’. In other words, a person is said to be arrested when he is
taken and restrained of his liberty by power or color of lawful warrant.
As per section 69 (1), If the Commissioner has reasons to believe that a person has
committed an offence u/s 132, he may, by order, authorize any officer of central
tax to arrest such person.
The arrested person will be informed about the grounds of his arrest. He will
appear before the magistrate within 24 hours in case of cognizable offence [section
69(2)].
Power to summon persons for evidence (Section 70)
The proper officer under this Act shall have power to summon any person whose
attendance he considers necessary either to give evidence or to produce a
document or any other thing in any inquiry in the same manner, as provided in the
case of a civil court under the provisions of the Code of Civil Procedure, 1908.
Access to business premises (section 71)
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 installed 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.
Officers to assist proper officers (Section 72)
i. All officers of Police, Railways, Customs, and those officers engaged in the
collection of land revenue, including village officers, officers of State tax and
officers of Union territory tax shall assist the proper officers in the implementation
of this Act.
ii. The Government may, by notification, empower and require any other class of
officers to assist the proper officers in the implementation of this Act when called
upon to do so by the Commissioner.