Expert Speak Details


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Abraham Kuruvilla, Senior Director
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Seema Zachariah, Director
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Madhushree, Deputy Manager, Deloitte India


GST Audit-Buckle up for the ride!

While Goods and Services tax (GST) law provides for trust based taxation mechanism through self-assessment to facilitate easy compliance by the registered person without any interference by the tax officers; the GST law also provides a mandatory audit requirement. Undoubtedly the spirit of GST audit is to ensure completeness and correctness of information declared as well as to verify and assess the taxes paid by the registered person; but historically, “audit” for most taxpayers triggers anxiety and uncertainty – of huge volumes of data, reports to be generated, specific disclosures, certifications to be obtained, various rules and regulations to be adhered and of course long hours of overtime.

Under the erstwhile Indirect Tax regime, audit and certification by a Chartered Accountant/ Cost Accountant was limited to Value Added Tax (VAT) laws and Section 35 of the CGST Act, 2017 continues this concept and is applicable for all taxable supplies of both goods and services provided the turnover of the registered person exceeds the prescribed limit. While the mentioned provisions of the GST law prescribed maintenance of accounts of prescribed particulars and the requirement of annual audit certification, there was uncertainty of the procedures as well as the forms/formats to be used for the annual GST audit certification. These have now been notified and Form GSTR-9C is required to complete the annual GST audit requirement for every taxpayer above INR 2 Crore turnover (in a financial year) which is required to be completed, along with certification by the GST Auditor.

Prima facie, Form GSTR-9C is a reconciliation statement for figures reported in GST returns (annual return) vis-à-vis the statutory (annual) books of accounts. The key details required in the certified Form GSTR-9C are as below:

• Reconciliation of turnover declared in audited annual Financial Statements vis-à-vis Form GSTR-9 (annual GST return)

• Reconciliation of tax paid

• Reconciliation of Input Tax Credits

• Reconciliation of ITC declared in GSTR-9 with ITC availed as per audited Financial Statements; and

•Auditor's recommendation on additional liability in cases involving discrepancies reported

Form GSTR-9 and Form GSTR-9C therefor would together in a sense provide the last opportunity for taxpayers to declare the correct information and transactions effected during the financial year. Taxpayers would have to be very diligent and undertake detailed review of all transactions to ensure that there is nothing missed out while finalizing the Annual Returns. The certifying Chartered Accountant/ Cost Accountant shares equal responsibility for Form GSTR-9C.

However, a closer look at the provisions of mandatory audit and the contents of Form GSTR-9C may actually imply that the exercise is more than just a reconciliation statement.

• Audited Financial Statements for the first Form GSTR-9C to be filed: It has been clarified that for Financial Year 2017-18, the details to be disclosed in GSTR-9C is from July 2017 to March 2018; while a taxpayer’s audited financial statements is for the entire Financial Year. This would mean that the GST auditor would have to rely on the breakup of the financials provided by the taxpayers or the additional cost/effort of requesting the statutory auditor to complete an audit of accounts for the limited period (of July 2017 to March 2018).

• Additional reporting requirement: While it has been clarified that this would be essentially a consolidation of the information submitted through monthly return by taxpayers, there are certain additional reporting requirements which may require additional effort (if the same is not already captured as a part of monthly reporting). This includes HSN wise summary of the inward, inward bifurcation from various categories of suppliers, segregation of inward suppliers into inputs, capital goods etc.

• Branch Accounting: While it is not mandatory for branches having same Permanent Account Number (PAN) to have separate audited financial statements under the Companies Act, 2013; under GST, each registered taxpayer (i.e. each GSTIN) is treated as distinct person, irrespective of PAN. Hence, the GST auditor would have to rely on the breakdown of the consolidated audited financial statements provided by the taxpayer.

• Certification of positions: GST is still in its evolving stage, many taxpayers may have taken positions on issues on taxability, exemptions, credit reversals, etc. and the jurisprudence around many of these positions may still be evolving as well. Therefore certifying the reconciliation statement in From GSTR-9C would also likely mean certifying the positions adopted by the taxpayers. It could therefore be open for discussion that this may place a large burden on the shoulders of the certifying Chartered Accountant/ Cost Accountant.

The deadline for completing the GST audit (Form GSTR-9C and certification) for the Financial Year 2017-18 has been notified by the Government as December 31, 2018 and the Annual Return (Form GSTR-9) has to be filed on or before this date. This being the first GST audit for taxpayers, an in-depth audit review would fairly be expected from or by GST auditors and would there be an argument that it would be appropriate to provide more time to do a detailed analysis, rather than rushing with the statutory requirement of completing the same for the sake of completion. As taxpayers and GST auditors start to embrace completion of this effort, more debate on the sufficiency of the time in hand is likely to follow.

 

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Disclaimer: Above expressed are the personal views of the author, and the publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it.