From the financial year 2020-21 onwards, the mandatory Goods and Services Tax (GST) audit performed by a Chartered Accountant (CA) or Cost Accountant (CMA) for taxpayers with an annual turnover exceeding ₹2 crore has been removed. Instead, Form GSTR-9C must now be self-certified and submitted by taxpayers whose turnover is ₹5 crore or more, starting from FY 2020-21. This significant change was recommended by the 43rd GST Council meeting on May 28, 2021, and subsequently notified by CBIC through Notification No. 29/2021 \u2013 Central Tax, dated July 30, 2021. This article outlines the general principles of GST audits, even as the specific mandatory audit by professionals has been revised.

Purpose and Definition of a GST Audit

A GST audit involves a thorough examination of records, returns, and other documents maintained by a GST-registered individual or entity. Its primary purpose is to verify the accuracy of declared turnover, taxes paid, refunds claimed, input tax credit availed, and to assess overall compliance with the GST Act. An authorized expert conducts this verification.

The GST framework operates on a trust-based system, requiring taxpayers to self-assess their tax liabilities, pay taxes, and file returns. Therefore, a robust audit mechanism is essential to ensure the correctness of these self-assessments. Audits are among the various measures implemented by the government to ensure the effective operation of GST.

Categories of GST Audits

GST audits are categorized based on who conducts them and when they are initiated:

It is important to note that the requirement for a CA/CMA to conduct a GST audit was removed from the financial year commencing April 1, 2021, onwards, as per the Finance Act, 2021, and further confirmed by CBIC Notification No. 29/2021 \u2013 Central Tax, dated July 30, 2021. Previously, businesses with an annual turnover below ₹5 crore were exempt from filing GSTR-9C up to FY 2019-20 via various CBIC notifications.

Turnover-Based Audit Under Section 35(5) of CGST Act (Historical Context)

Previously, if a registered taxpayer\u2019s annual aggregate turnover surpassed ₹2 crore in a financial year, their accounts needed to be audited by a Chartered Accountant or Cost Accountant annually. A financial year spans from April to March. For FY 2017-18, the turnover limit specifically covered the period from July 1, 2017, to March 31, 2018, excluding the first quarter, as clarified by a government press release on July 3, 2019. Businesses with an annual turnover below ₹5 crore were exempt from filing GSTR-9C for FY 2018-19.

Aggregate turnover is calculated by summing the value of all taxable (inter-state and intra-state) supplies, exempt supplies, and export supplies of all goods and services. The total turnover calculation is PAN-based, meaning that if the aggregate turnover across all business entities registered under the same PAN exceeded ₹2 crore, all those entities were subject to a GST audit for that financial year.

Components Included in Aggregate Turnover Calculation

• All taxable inter-state and intra-state supplies, excluding those subject to reverse charge.
• Supplies made between distinct business verticals.
• Goods supplied to or received from a job worker on a principal-to-principal basis.
• Value of all export or zero-rated supplies.
• Supplies made by agents or job workers on behalf of the principal.
• All exempt supplies, such as agricultural produce sold with branded ready-to-eat food.
• All taxes other than those falling under GST, like entertainment tax on movie tickets.

Components Excluded from Aggregate Turnover Calculation

• Inward supplies where tax is paid under the reverse charge mechanism.
• All taxes and cesses levied under GST, including CGST, SGST, IGST, and compensation cess.
• Goods provided to or returned by a job worker.
• Activities not classified as either supply of goods or services under Schedule III of the CGST Act.

Eligibility and Qualifications for a GST Auditor

Only a Chartered Accountant or a Cost Accountant was previously authorized to conduct a GST Audit under Section 35. Key considerations included:

• An internal auditor could not simultaneously serve as a GST Auditor.
• The GST Act did not permit a GST practitioner to conduct an audit. The authority was granted exclusively to CAs or CMAs practicing or employed by a CA/CMA firm. Therefore, a Chartered Accountant should not have been registered as a GST practitioner for the purpose of issuing the Audit Report.
• For organizations with multiple GST-registered branches across different states/UTs, the cumulative aggregate turnover of all branches determined if the ₹2 crore threshold was met. If the combined turnover exceeded this limit, a GST audit applied to all branches, regardless of individual branch turnover. In such scenarios, either a single auditor for all branches or separate auditors for each branch could be appointed. When multiple auditors were involved, Standards on Auditing: SA 299 \u2014 Responsibility of the Joint Auditors might apply for reporting GST audit observations.

Process of Conducting a GST Audit and Issuing the Report

Appointment of GST Auditor

A proprietor, partner, or Board of Directors (for a company) typically appointed a GST Auditor at the start of the financial year.

Accounts for GST Auditor Review

Important accounts and records for review included:

• Sales register
• Stock register
• Purchase register and expense ledgers
• Input tax credit availed and utilized
• Output tax payable and paid
• e-Way bills generated, ensuring compliance with rules
• e-Invoices and Invoice Reference Numbers (IRN) generated and recorded
• Any communications received from the GST department pertaining to the audit year.

Forms for Annual Return and GST Audit

Below is a summary of forms to be filed by different taxpayer types:

Review of Auditor Comments

The auditor was responsible for reporting any unpaid tax liabilities identified through reconciliation and audit observations. Taxpayers had the option to settle recommended taxes using Form DRC-03.

Submission of GST Audit Report and Annual Return

The final GSTR-9C could be certified by the same CA who conducted the GST audit or by another CA who did not perform the audit for that specific GSTIN. The GST auditor or certifier was required to confirm:

• Whether all necessary accounts and records were maintained.
• Whether financial statements were prepared based on books of accounts at the principal or additional places of business.
• The accuracy of information presented in GSTR-9C.
• Any audit observations, reservations, or comments.

Further details can be found in articles discussing the Contents of GSTR-9C.

Documents to be Furnished by the Taxpayer

• Audited financial statements (PAN-based)
• Annual return in Form GSTR-9 (for each GSTIN)
• Certified reconciliation statement in Form GSTR-9C, showing reconciled values of supplies and tax amounts declared in GSTR-9 against audited financials in Part-A, along with the audit report in Part-B.

Due Dates for Submitting the GST Audit Report

GSTR-9 and GSTR-9C are generally due by December 31st of the subsequent fiscal year. This due date may be extended through CBIC notifications.

Penalties for Non-Submission of GST Audit Report

While no specific provision outlines penalties solely for non-submission of the GST Audit report, non-compliance is typically subject to a general penalty of ₹25,000.