Procedures in GST

While we’ve been bombarded with GST-related information in the last few months, there hasn’t been much discussion regarding the audit and assessment processes. These procedures are carried out when there’s a mismatch between the tax owed by a taxpayer and the actual tax amount they have paid. A lot goes into these procedures to maintain the transparency of the tax system.

Audits

What is an audit?

An audit is a verification process used to validate a taxpayer’s financial records and legal documents. Usually, audits are carried out to check the accuracy of GST turnover declarations, tax payments, and refunds claimed. They’re also used to check the returns filed by the taxpayer. Audits help validate compliance ratings of businesses by assessing the degree of compliance of their activities.  

Threshold for an audit under GST

If a business’ turnover exceeds 1 crore in a fiscal year, the business owner will be liable for an audit session conducted by a Chartered Accountant.  

Requirements

Once the audit notice is sent, the taxpayer has to file GSTR-9B and upload a few documents, including a reconciliation statement, an audited copy of the annual accounts, and any other legal document requested in the audit notice.

Auditing process

When the conditions for an audit are met, the Commissioner of CGST/SGST will authorize a tax official to conduct the audit. The tax official will send the taxpayer a notice 15 days before the start of the audit. The audit itself takes place at the taxpayer’s place of business and will be completed within three months of the date of the notice.  

Special audit

When is a special audit needed?

The Assistant Commissioner can call for a special audit if the regular audit reveals disparities in the taxpayer’s records. These disparities could include inaccurate tax declarations or incorrect credits availed. The special audit process is carried out by a Chartered Accountant or Cost Accountant nominated by the Commissioner.  

Results of the auditing process

At the end of the prescribed audit period, the findings will be declared, and the audit report will be submitted to the Assistant Commissioner. Findings include any discrepancies in tax refunds, tax payments, or input tax credit between the audited financial statement and the information furnished by the taxpayer. After the findings are declared, the taxpayer will be given a chance to be heard by the tax officials.

Provisions relevant to special audit:

The concerned taxpayer will be convicted under Section 73 (non-fraud case) or Section 74 (fraud case), if they are found guilty of the following:

• Tax not paid
• Short payment of tax
• Incorrect tax refunds 
• Improper availing or utilizing of ITC

Demand and recovery

The Income Tax Department uses these procedures when there’s a mismatch between the tax owed by a taxpayer and the actual tax amount they have paid. These actions start with a tax official sending a notice to the taxpayer demanding payment of the taxes owed. This can happen in the following cases:

• Unpaid or short paid tax or incorrect refund, where no fraudulent activities are involved.
• Unpaid or short paid tax or incorrect refund that involves fraudulent activities.
• Failure to deposit tax with the government, despite collecting the appropriate amount.
• Making payments for SGST transactions where IGST had to be paid or vice versa.    

Note: If the amount demanded is not paid, the Income Tax department will begin its recovery procedure.  

Assessment

An assessment is a process used to calculate a taxpayer’s tax liability — in other words, how much tax they should pay. Under GST, there are five types of assessments:  

1. Self assessment

 Under GST, every registered taxpayer will assess the tax amount they must pay and file their periodic returns on time.  

2. Summary assessment

Summary assessment is carried out by a tax official, if they have a valid reason to believe that the delay in assessment would adversely affect the overall revenue, and they also possess evidence of the concerned taxpayer’s tax liability.

If the order is found to be erroneous (within 30 days of receipt) by the Joint Commissioner or the Assistant Commissioner, it can be withdrawn by them.

3. Provisional assessment

When the taxpayer is unable to accurately calculate their own tax rate, they can opt for provisional assessment, where the tax official will calculate the tax rate and notify the taxpayer of the result. The taxpayer can then pay their taxes at the rate set by the tax official. Click to learn more about CBEC’s rules and regulations on provisional assessment.   

4. Scrutiny assessment

The tax officer can scrutinize a taxpayer’s returns and related information, and seek explanation regarding any discrepancies. If the explanation is not satisfactory, corrective measures such as an audit or a special audit will be initiated.  

5. Best judgement assessment

If scrutiny assessment fails, a tax official will assess the taxpayer’s records using the available evidence. This is likely to happen when:

• The necessary documents, financial records, or returns are not furnished.
• The furnished documents or records are rejected by the tax official due to inaccuracy.
• Any taxable person fails to pay taxes despite being eligible to pay taxes under GST.  

Advance ruling

What is advance ruling, under the GST regime?

Under the GST regime, advance rules are clearly-written decisions provided by the tax officials to clear up questions that taxpayers are likely to have regarding the supply of goods and services.

Advance ruling can be sought in the following cases:

• Classifying goods and/or services
• Applicability of a notification issued under GST
• Determining the time and value of a supply of goods and/or services
• Determining whether input tax credit is permissible
• Determining the liability to pay tax on any goods or services
• Possibility of the applicant being registered under GST
• Determining whether a particular activity will result in a supply of goods or services

Process

The taxpayer should furnish an application form, along with the necessary financial records, to the tax official. The tax official may accept or reject the application, and their decision will be communicated to the registered taxpayer within 90 days from the date of receipt of the application.