Crucial areas for GST audit and GST audit checklist
A taxpayer registered under GST will undergo GST Audit which would involve examination of GST returns, documents, accounting records to identify any possibility of GST evasion. So, before rushing on the all the minute areas which are covered under GST audit. Let us first pay more emphasis upon crucial areas.
Crucial areas in GST audit
#1 Anti profiteering rules
Before implementation of GST, rumors were getting spread about the inflation in prices of goods and services after the launch of GST. Goods and Service tax was aimed to reduce double taxation.
Anti-profiteering rules were launched on 18th June 2016. The rules were made to protect the consumers from retailers who will not pass the benefit of reduction in tax rate to the ultimate consumers.
If there is any reduction in tax rate then the benefit of reduction in tax rate must be passed upon to the consumers by reducing the prices.
There is a list of goods and services which are blocked under GST. Check out the list of updated goods and services here.
“Blocked Credit” here refers to the goods and services on which the input tax credit cannot be claimed by the taxpayers. The benefit of ITC is not available for these goods and services. For instance: ITC on Food and Beverages, Construction of Immovable property.
When the GST was launched in the month of July, 2017. Taxpayers were having no clarity over Input tax credit provisions and blocked credit was claimed by many companies. So, auditors should check the GST returns of July- Sep thoroughly.
The transition forms Tran 1 and Tran 2 were launched to claim Input Tax credit on old stock. Auditors should verify that the credit transferred to Tran 1 or Tran 2 was an eligible credit and Transition forms must be filled for each GSTIN separately.
Under GST, Delivery Challan format has been prescribed for movement of goods from the principle to the job worker. Auditors should verify the appropriateness of Delivery Challans.
There are separate provisions for Input goods and Capital goods in Job work. Input goods must be returned within one year and Capital goods in three years. What if goods are not returned in the specified time period? Then, it would be considered as “Deemed Supply”.
#5 Input Service Distributor and concept of Cross Billing
What is cross billing in GST?
Cross billing is applicable on the transactions between separate registrations of a single person. Whether the transactions should be considered as “supply”.GST applicability in case of cross billing is a highly debatable topic.
Who is Input service Distributor?
It can be regarded as the office of the supplier of goods and services or both which received tax invoices towards receipt of input services and issues a document for the purpose of distributing the credit of GST to its branches.
Auditors should check whether the manner of distribution of credit by the Input service distributor specified under Section 20 and Rule 39 has been followed.
#6 RCM under GST
Although the list of services specified under Reverse Charge Mechanism in GST is similar to those of in Service tax law. But there are some services which need to be focused upon the auditor.
-Services through an e-commerce operator
-Import of services
-Services provided by way of sponsorship to anybody corporate or partnership firm
-Services supplied by a director of a company or a body corporate to the said company or the body corporate
Also, Auditors should focus upon ‘time of supply’ provisions in GST in case of RCM services.
#7 Rule 37, Rule 42 &43 of CGST/SGST rules
Rule 37 deals with reversal of GST of Input tax credit in case of nonpayment of consideration ofr in ward supply of goods and services within the prescribed limit.
Author advice: Auditors should perform ageing analysis of vendors to analyze the probable reasons for long outstanding vendors.
While Rule 42 and 43 deals with reversal of Input tax credit attributable for making exempt supplies or for supplies meant for non business use.
Auditors should thoroughly understand how ITC will be apportioned in Rule 42/43 before commencing any GST audit.
#8 Debit Notes and Credit Notes under GST
Debit Notes and Credit Notes are posing huge problems; Auditors are not able to reconcile Debit Note issued with Credit Note obtained. Some taxpayers have changed their policies of debiting the vendor. For example: Some are issuing Purchase return Note, Debit Notes or directly inflating the sales and Purchases.
Auditors should pay emphasis upon the procedure of issuing debit notes and credit notes and whether those are reflected in GST returns like GSTR-1 and GST 3B.
#9 Place of Supply in GST
Place of supply has also been a matter of concern for many taxpayers. Whether IGST will be levied or CGST/SGST, this has been a doubt for many taxpayers. Auditors should properly examine the provisions of Place of Supply in GST and should read list of services on which different provisions are applicable.
#10 Import and Export in GST
How the companies are exporting under GST? Whether your client is paying IGST on supplies or exports are made through by issuing LUT? Check whether IGST refund has been received by the taxpayer or did you checked the Notification Number of issuing LUT is mentioned upon the invoice.
Whether the Import and Export supplies have been reflected in GST return? What if any debit note is issued by the foreign customer? Whether GST number is mentioned upon Bill of Entry at the time of Import?
After analyzing the points of paramount importance, let us now jump upon the sample GST Audit checklist which can be used for conducting GST audit in an effective way.
Detailed GST Audit Checklist
Following the comprehensive GST Audit Checklist which can be used while conducting GST audit.
|1)Obtain list of all the GSTINs and address of the company at various location.|
|2)Check if any location in same state is shown as ‘additional place of business’|
|3)Obtain letter of undertaking in current financial year, if the entity is an exporter.|
|4)Compare the turnover of the entity in current and previous financial year.|
|5)List the HSN/SAC numbers used by the company for making any supplies.|
|6)Checked whether there is any change in tax rate on specified HSN and SAC.|
|7)Is the GSTIN number displayed on the board at the main gate of the company?|
|8)Is the GST registration certificate displayed at the prominent place of the business?|
|9)Is the same disclosure has been done at the registered premises?|
|10) Reconcile GSTR-1 and GST 3B|
|11) Ascertain the reasons for the differences in reconciliation, if any|
|12) Reconcile the accounting records with GSTR1 & GST 3B|
|13) Ascertain the reasons for any difference, if any|
|14) Reconciliation above should be made separately for Outward Supplies and Input tax Credit.|
|15)Whether the ITC appearing in GST-3B reconciled with GST 2A by the management.|
|16) If any difference in GST 3B and 2A has been observed, whether any communication has been made to the defaulter.|
|17)What policy has been adopted by the company for persistent GST defaulters?|
|18)Has the entity raised accounting debit notes to entities whose ITC is not appearing in GSTR-2A?|
|19) Check whether GSTR 9, 9A,9C has been prepared by the management?|
|20) Ascertain the source of data in Annual return. It should be accurate, no chances of any error.|
|21) Check whether GSTR1 is filled monthly or quarterly?|
|22) Whether the returns are filled before the due date?|
|23) Calculate the amount of Penalty or Interest levied in GST returns|
|24) Check whether the same is matching with the amount mentioned in Tax Audit report.|
|25) Ascertain whether data has been prepared for GST ITC 04?|
|26)If the entity is registered as Composition Dealer, are GSTR-4 being filed on time? List dates of filing.|
|27) Whether any GST registration was cancelled?|
|28)Check how inter branch transfers are made to other states, using a tax invoice.|
|29)Has the company sold any fixed assets ? If yes, then GST would be levied if sold above written down value as per IT act,1961|
|30) List all the transaction with the related parties. Whether same rate is applied or different?|
|31) Thoroughly examine the rate and HSN levied on ‘scrap sales’.|
|32) In case of composite dealer, check whether ‘composite taxable person’ is mentioned upon the invoice.|
|33)In case of composite supplier, no GST will be charged on the invoice, and only paid as percentage of sales|
|34)GST Composition Supplier will mention his GSTIN and the fact of composition registration on the invoice|
|35)Check whether tax invoice is issued for rental and other incomes?|
|36)Have bills of supply issued for exempt supplies?|
|37)Check whether composite supplies have been taxed as per rate applicable on primary product?|
|38)Check whether mixed supplies have been taxed at the highest rate applicable in the entire bundle of goods and services?|
|39)Whether any gifts have been given to the employee over Rs. 50000. Ascertain whether GST has been levied?|
|40)Has the company deposited GST on advances?|
|41) Ascertain whether the advances shown in returns have beend adjusted in subsequent period?|
|42) Check whether the receipt note has been prepared for the advances.|
|43) Ascertain the reason for issuing debit notes?|
|44) Check whether E-way bill for transportation of goods over Rs. 50000 was prepared if material was rejected and debit note was raised?|
|45) Check whether Credit note has been obtained for corresponding debit note?|
|46)Have GST Credit Notes been issued for reduction in taxable value for invoice already issued?|
|47) Examine the reason for issuing any credit note always.|
|48)Check whether proper effect of Debit notes and credit notes have been taken in GST return and accounting records.|
|49) Have all the exports made without payment of tax under LUT?|
|50) Check whether Notification No. is mentioned upon the invoice under LUT|
|51) Check whether any export is made with payment of tax?|
|52) Trace whether any refund on tax paid on export is pending or any case of litigation.|
|53) Verify whether export sales have been shown correctly in GST return.|
|54) Tax invoices under GST should always be serially numbered. Check whether they have been shown correctly in GST return?|
|55) Interest at 18% p.a. is payable in case of short payment of output tax|
|56)Interest at 24% p.a. is payable in case of wrongful availment of Input tax credit, which requires reversal.|
|57)Check whether any late fees or interest is paid on filling of GST returns.|
|58) In case of Job work, Input goods should be returned under 1 year.|
|59) In case of Job work, Capital goods should be returned under 3 years.|
|60) In case goods are not returned within specified time, it will considered as deemed supply.|
|61) Verify whether E-way bills are being prepared for the movement of goods.|
|62)Check whether correct data is getting entered in E-way bills on sample basis.|
|63) Check whether IGST has been levied on Interstate sales and CGST/SGST on Intra state sales.|
|64) Verify whether all the vendors are properly charging IGST and CGST/SGST on inward supplies.|
|65) Examine whether IGST has been levied on exports|
|66)Have any supplies been made in relation to some fixed immovable property? Like architecture fees, accommodation services? |
67) Check place of supply, in case of supply of goods requiring any movement?
|68) Ascertain place of supply if goods are directly transferred to third party?|
|69)If goods are installed at a site, then place of supply will the place where the goods are installed.|
|70) If training is provided to unregistered person, the place of supply is the place where such services are performed.|
|71) If training is provided to registered person, the place of supply is the place where recipient is registered.|
|72)Check whether GST has been charged on gross value of freight, other charges?|
|73) If any interest/penalty has been recovered for delayed payment, then whether GST has been levied on such payment.|
|74) Has discount separately shown upon the invoice|
|75) After sale discounts must be reduced from the taxable value by issuing a credit note. GST should be levied on that.|
|76) Has proper ledger have been maintained in accounting records for separate recording of IGST,SGST and CGST?|
|77) Check whether ITC has been claimed on goods imported in India and IGST has been charged on custom duty?|
|78) Check whether GST has been paid on RCM services?|
|79) Examine the RCM invoice made. It should be as per the format prescribed under GST.|
|80)Has payment voucher been made for all such payment covered under RCM?|
|81) Reverse charge should be paid in Cash not by utilizing any ITC in electronic credit ledger.|
|82) Check whether ITC credit has been claimed on RCM invoices in subsequent month?|
|83)Has TDS been deducted by government recipient on payment being made to the entity? If yes, is the credit being taken in each GSTR-3B as per GSTR-7A? |
|84) Check whether any credit will reversed under Section 17(5).|
|85)Verify whether all the conditioned mention in Section 16 to claim ITC have been complied.|
|86) Check whether Credit has been apportioned under Rule 42/43.|
|87) Perform ageing analysis of creditors to trace the credit which needs to be reversed under Rule 37.|
|88) Check whether GSTIN of both supplier and customer has been mentioned upon the invoice.|
|89) Manner of adjusting Input tax credit has been changed quite few times. Check the appropriate law prevalent at that time.|
|90)If the goods are received in lot, ITC will be claimed on the last installment.|
|91)Obtain copies of GST notice received from authorities and corresponding replies made.|
|92) Check the status of demand based on notice sent by the department.|
|93) In case of any GST search; check whether proper actions have been action to avoid any subsequent penalties.|
|94) Has the company applied for any advance ruling, If yes details thereof.|
|95) Check If any reduction in tax rate, benefit in reduction has been transferred to customer by mitigating price.|
|96)Obtain copies of past orders under previous indirect taxes such as VAT, Service Tax and Excise to examine corresponding GST compliance.|
|97) Examine the time of supply provisions.|
|98)Determine the time of supply in case of change in rate of tax|
|99) Check the exclusions and inclusions in value of supply mentioned under Section 15|
|100) The accounting records should be preserved for 72 months from the due date furnishing the annual return for the year which it relates.|