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Assessment and Audit under GST

CA MOHAN LAL KUMAWAT , Last updated: 08 January 2024  
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Goods and Services Tax (GST) is a comprehensive indirect tax that has been implemented in India to replace various indirect taxes like excise duty, service tax, VAT, etc. Assessment and audit are essential components of the GST system to ensure compliance and proper reporting of transactions. Here's an overview of assessment and audit under GST:

Assessment under GST

  • Self-assessment: In the GST regime, taxpayers are required to self-assess their tax liability. They need to file regular returns providing details of their transactions, and the tax liability is calculated based on this self-assessment.
  • Provisional Assessment under of the CGST Act/SGST Act 2017: Section 60 of the Act enumerates that the provisional assessment is carried out in case where a taxable person is unable to determine his value of supply or rate of taxes applicable there to the Proper officer may within 90 days from the receipt of application along with required document issue an order specifying the rate and value which tax has to pay on provisional basis. In terms of the section 60(2) a registered person are bound to execute the bond and furnish surety or security in the form of Bank Guarantee which shall not exceeding 25% of the amount covered under the bond.
Assessment and Audit under GST

The proper officer shall determine the tax liability on provisional basis within six months from the date of communication of the provisional assessment order after taking into consideration such information as may be required for finalizing the assessment. Joint or additional commissioner may record in writing the reason to extend the date of final assessment order to further six months maximum. The commission may extend the date for further period of 4 years. Thus, a Provisional assessment can remain provisional for a period of maximum of 5 years.

The registered Person shall be liable to pay interest on so much of the amount of tax payable on provisional basis which remains unpaid on the date of payment of taxes under section 60(4) of the act. A registered person shall be entitled for refund if the amount of taxes paid on provisional basis exceeds the actual liability determined on finalization of assessment.

  • Assessment in Special Cases under GST (Section 64): As per Section 64 (1), If the proper officer is having such evidences which proves that there is some discrepancies in the tax liability, then he may with the previous permission of the Joint Commissioner or Addl. Commissioner assess the tax liability in the interest of the revenue. Further, If the taxable person to whom the tax liability is imposed is not ascertainable, then the person in charge shall be liable to pay the assessed tax or any other dues.
  • GSTR Forms: Different GSTR (Goods and Services Tax Return) forms are prescribed for different types of taxpayers. For example, GSTR-1 for outward supplies, GSTR-2 for inward supplies, and GSTR-3 for the monthly summary return.
  • GST Return Filing: Regular filing of GST returns is crucial for compliance. Businesses need to file returns based on the type of registration (regular, composition, etc.) and the turnover.
  • Reconciliation: Taxpayers are required to reconcile the data reported in their GST returns with their financial statements. Any discrepancies need to be rectified through appropriate amendments.

Scrutiny of returns

Once the registered person furnishes the return the proper officer may scrutinize the returns and related particulars to verity its correctness. If there is any discrepancy, between the returns and available information, the same discrepancies will be communicated to the registered person for giving explanation on it. In terms of the section 60(3),if the registered person fails to furnish any

satisfactory explanation to the proper officer within 30 days from the date of communication of discrepancies, then the appropriate action will be taken against the registered person as per Section 65, 66, 67 and determine the dues or penalty if any as per Section 65, 66, 67 and determine the dues or penalty if any as per Section 73, 74.

 

Assessment of Non-Filers of Returns

As per Section 62 of the act The assessment of non-filers of returns is a crucial aspect of the Goods and Services Tax (GST) system to ensure compliance and identify taxpayers who have failed to fulfill their filing obligations. The government has implemented various measures to address non-compliance and encourage taxpayers to file their returns regularly. Here's an overview of the assessment process for non-filers of returns in GST:

Non-Filer Monitoring: Tax authorities continuously monitor the GST portal to identify registered taxpayers who have not filed their returns within the prescribed due dates. The GST system automatically generates reports and alerts for non-filers based on the periodicity of return filing (monthly, quarterly, or annually).

Notices to Non-Filers: Tax authorities issue notices to non-filers, informing them of their failure to file returns within the stipulated time. The notice typically includes details of the non-compliance, the applicable penalties, and instructions on how to rectify the situation.

Initiation of Assessment: If a taxpayer does not respond to the notice or fails to file the required returns within the specified time after receiving the notice, tax authorities may initiate the assessment proceedings. The authorities may proceed with the assessment based on the information available to them or seek additional information from the taxpayer.

Best Judgment Assessment: In the absence of filed returns, tax authorities may resort to a best judgment assessment. This involves estimating the tax liability based on available information, industry norms, and any other relevant data.

The taxpayer may be provided an opportunity to present their case and provide additional information during this assessment process.

  • Penalties and Interest: Non-filing of returns attracts penalties and interest. The taxpayer may be liable to pay a late fee for each day of delay in filing the return, subject to a maximum limit. Interest may also be levied on the outstanding tax liability for the period of delay in payment.
  • Cancellation of Registration: In extreme cases of non-compliance, tax authorities may cancel the GST registration of a taxpayer who consistently fails to file returns.

The cancellation of registration can have serious consequences, as the taxpayer would no longer be eligible to collect or pay GST and may face legal actions.

Recovery Proceedings: Tax authorities may initiate recovery proceedings to collect the outstanding tax, penalties, and interest from non-compliant taxpayers. Recovery can be made through measures like attaching the bank accounts, garnishee proceedings, or even auctioning of the defaulter's assets.

Assessment of Unregistered Person

 As per Section 63, a taxable person is liable to be registered in accordance with the provision of the Section 22 of Section 24 but fails to obtain registration or whose registration has been cancelled on account of circumstances mentioned in Section29 (2) but who was liable to pay tax the assessment of unregistered persons is a process carried out by tax authorities to determine the tax liability of individuals or entities that are not registered under GST but may still be liable to pay tax. Unregistered persons may include small businesses, casual taxable persons, or individuals engaged in certain specified activities. Here's an overview of the assessment process for unregistered persons in GST:

Identification of Unregistered Persons

Tax authorities may identify unregistered persons through various means, including data analysis, intelligence gathering, or specific information received from other sources.

The authorities may also conduct surveys or inspections to identify businesses that are not registered under GST but are required to be.

Notice to Unregistered Persons

Once an unregistered person is identified, tax authorities issue a notice informing them of their liability to register under GST and fulfill their tax obligations.

The notice typically includes details of the non-registration, the applicable provisions, and instructions on how to comply.

Registration of Unregistered Persons

The unregistered person is required to apply for GST registration within the stipulated time after receiving the notice.

Upon successful registration, the person is assigned a GSTIN (Goods and Services Tax Identification Number) and is required to comply with the GST provisions.

Assessment of Tax Liability

After registration, tax authorities may initiate the assessment of the unregistered person's tax liability for the period when they were not registered.

The assessment involves determining the taxable turnover, calculating the tax liability, and applying the relevant provisions for the unregistered period.

Best Judgment Assessment

In the absence of adequate information or records from the unregistered person, tax authorities may resort to a best judgment assessment. This involves estimating the tax liability based on available information and any other relevant data.

The unregistered person may be provided an opportunity to present their case and provide additional information during this assessment process.

Levy of Tax, Penalties, and Interest

The tax authorities calculate the tax liability for the unregistered period and may impose penalties and interest as applicable.

Penalties may be levied for non-registration, late registration, or any other contravention of GST laws.

 

Recovery Proceedings

After completing the assessment, tax authorities initiate recovery proceedings to collect the outstanding tax, penalties, and interest from the unregistered person.

Recovery can be made through measures like attaching the bank accounts, garnishee proceedings, or other enforcement actions.

Audit by Tax Authorities under GST (Section 65)

The GST regime continues to promote the scheme of self-assessment like erstwhile indirect tax laws and Audit of records of tax payers is the basis for the proper functioning of self-assessment based tax system. As per section 2(13) of CGST Act, 2017. GST Audit means examination of records, returns and documents maintained and furnished by registered person to check the following:-

a) Verify the correctness of turnover declared.

b) Input tax credit availed and utilized.

c) Exemptions and deductions claimed.

d) Rate of tax applied in respect of supply of goods or services etc.

The following three types of GST audit are envisaged under the GST Law:-

  • GST Audit u/s 35(5) of Act, if turnover exceeds prescribed limit (i.e Rs. 2 Crore)
  • GST Audit by tax authorities' u/s 65.
  • Special GST audit direction from department u/s 66.

GST Audit u/s 35(5)

Every registered person, whose turnover during the financial year exceeds the prescribed "GST audit turnover limit" i.e., 2 crore rupees, shall get the accounts audited by a Chartered Accountant (CA) or a Cost and Management Accountant (CMA). Registered person who is required to get his accounts audited in accordance with section 35(5)shall submit electronically the Annual Return as per section44 along with a copy of the audited statement of accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year. He shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in Form GSTR-9C along with annual return. Here the term used is aggregate turnover and not turnover in state. Aggregate turnover is computed on all India basis having same PAN. Therefore, if a registered person is liable to gets his accounts audited under section 35, then all the registration obtained under same PAN will also be liable to GST audit.

GST Audit by tax authorities' u/s 65

The Commissioner or any officer authorized by him, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed ina general or a specific order (Section 65 of CGST Act). The officers may conduct audit at the place of business of the registered person or in their office. The registered person shall be informed by way of a notice of not less than fifteen working days before the conduct of audit in Form GSTADT-01. As per Section 65(4) , audit of registered person shall be completed within three months from the date of commencement of audit. Further , if the Commissioner is satisfied that audit of the registered person can't be completed within three months , he may extend the time period for a further period not exceeding six months after recording the reasons for doing so in writing. The proper officer will inform the final findings of his audit to the registered person in form ADT-02.The finding under GST audit may be used by proper officer to initiate action u/s 73or 74.

Special GST audit direction from department u/s 66

During if at any stage of scrutiny, inquiry, investigation or any other proceedings, any officer not below the rank of Assistant Commissioner, is of the opinion that

  • the value has not been correctly declared or
  • the credit availed is not within the normal limits

The Assessing Authority may, with the prior approval of the Commissioner, direct such registered person to get his records including books of account examined and audited by a Chartered Accountant or a cost accountant as may be nominated by the Commissioner. The officer will issue direction in Form GST ADT-03 to the registered person in this regard. The Chartered Accountant or Cost Accountant so nominated shall submit a report of such audit duly signed and certified by him to the said Assistant Commissioner, within the period of ninety days, which can be further extended by ninety days. As per Section 66(3) of the act the special Audit may be directed even if account sand record of the registered persons are audited under any other law in force such such as The Company Act 2013 on the Income Tax Act 1961. The registered person shall be given an opportunity of being heard where any material gathered on the basis of special audit under this act is proposed to be used against him in any proceeding under the act. All expenses spent in connection with Special Audit including remuneration of Auditors to be determined and paid by commissioner as per Section 66(5)of the Act. All registered person shall be informed about the audit finding in Form GST ADT-04 after the audit is concluded. As per Section 66( 6) of the Act, if any discrepancy in terms of tax not paid, tax short paid or input tax credit wrongly availed, the officer, may proceed to initiate action under section 73 and 74 of the act.

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Published by

CA MOHAN LAL KUMAWAT
(Practising CA In Jaipur)
Category GST   Report

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