Crucial areas to be covered in GST Audit

The main objective of GST Audit is to check the veracity of declaration of information in records in accordance with the GST Rules. The most pivotal role-play of a GST audit is to ensure the reconciliation of records in the books to avoid GST evasion.

In this article, I have tried covering the core areas whose reconciliation carries the most importance:

#1 Reconciling GSTR 3B with GSTR 1 & GSTR 2A

The two important points to be covered under this heading are:

Interest and penalties in the GST Act

Under this sometimes recipient can claim the extra input tax credit, which attracts the liability to make payment of interest @ 24% on the extra amount. The auditor needs to reconcile the GSTR 3B with GSTR 2A (an autopopulated return generated when the seller furnishes their GSTR 1) to make sure that the organization does not claim the extra input tax credit. When the GST authorities might come to know about inconsistencies between GSTR 3B and GSTR 2A, the taxpayers might have to bear additional penalties.

Amendment in GSTR 1

When the auditor comes across such disparities in data, he shall recommend the management to make amendments in the summary details of GSTR 1.

#2 Examining the particulars of Invoice

There are well-defined rules for details to be incorporated in the invoices. If the format of the Invoice deviates from the prescribed standards, the auditor shall advise the management to make amendments and include the requirements of the GST Rules.

#3Reversal of the input tax credit for non-payment in 180 days

Sec. 16(2) of the Central Goods & Services Tax (“CGST”) Act, 2017 provides for reversal of ITC on account of non-payment.

At this juncture, the auditor has to examine that:

1. The difference between the Invoice date and date of payment should not exceed 180 days.
2. The payment made should be equal to the amount of the Invoice inclusive of GST. If the amount of payment appears to be less than the invoice amount plus GST, the Input tax credit availed earlier to that extent shall get reversed and added to his output tax liability, along with interest thereon.

#4 Matching e-way bill with Invoices

To further dwell in this process, we first need to understand about an e-way bill.

 What is an E-way bill?

E-way bill is an electronically generated document that is required to be generated for inter-state and intra-state movement of goods except for Delhi. A GST registered person cannot transport goods in a vehicle whose value exceeds Rs 50,000 without an e-way bill. For the movement of goods within Delhi, the value of goods should be more than Rs 100,000.

An e-way bill is generated:

• In relation to a ‘supply’
• For reasons other than a ‘supply’ ( say a return of goods)
• Due to inward ‘supply’ from an unregistered person

During the review of the e-way bill against invoices, two important points to be considered are as follows:

• The details mentioned in the e-way bill should match those in the invoice. It should be further noted that an e-way bill can neither be altered nor canceled. However, it can be canceled within 24 hours of its generation. In the case of the movement of goods without an e-way bill, a fine can be imposed by appropriate authorities.
• Whenever transportation of goods takes place in non-motorized vehicles, the necessity of issuing an e-way bill does not arise. As some business houses are maligning such practice in order to avoid the e-way bills, the internal auditors need to scrutinize closely.

#5 Cross-checking the stock pending with job worker

According to sec 19 of the CGST Act, the input goods lying with the job work must be received within one year i.e. 31^st  June 2017 and capital goods must be brought back within three years i.e. 31^st June 2019.