DEPARTMENTAL

AUDITS IN GST
Presented By:
Pulkit Khandelwal (CA, CS, LL.B.)
Partner | D P K & Associates | Chartered Accountants
GST – THE JOURNEY SO FAR
 A complex indirect tax structure
 Various unresolved mysteries
 Continuous updates & amendments in law & procedures
 Conflicting decisions of AAR
 Issues in ITC

CA. Pulkit Khandelwal

MEANING OF AUDIT
 Section 2(13) of the CGST Act, 2017, defines ‘Audit’ as:

“the examination of records, returns and other documents maintained or furnished by the
registered person under this Act or Rules made thereunder or under any other law for the time
being in force to verify, inter alia, the correctness of turnover declared, taxes paid, refund
claimed and input tax credit availed, and to assess his compliance with the provisions of this
Act or rules made thereunder”

CA. Pulkit Khandelwal

MEANING OF AUDIT
 Examination of:
 records,
 returns and
 other documents
maintained or furnished by the registered person
 To verify the “correctness” of:
 turnover declared,
 taxes paid,
 refund claimed and
 input tax credit availed, and
 to assess his compliance

CA. Pulkit Khandelwal

TYPES OF AUDIT UNDER GST
 Type 1: Audit by Professionals (GSTR-9C) – now foregone
 Type 2: Departmental Audit (under Section 65 of the Act) [similar to Business Audit]
 Type 3: Special Audit (under Section 66 of the Act) [conducted by professional like CA]

CA. Pulkit Khandelwal

SECTION 65. AUDIT BY TAX
AUTHORITIES
 (1) The Commissioner or any officer authorised by him, by way of a general or a specific order, may
undertake audit of any registered person for such period, at such frequency and in such manner as may be
prescribed.
 (2) The officers referred to in sub-section (1) may conduct audit at the place of business of the registered
person or in their office.
 (3) The registered person shall be informed by way of a notice not less than fifteen working days prior to
the conduct of audit in such manner as may be prescribed
 (4) The audit under sub-section (1) shall be completed within a period of three months from the date of
commencement of the audit:
Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be
completed within three months, he may, for the reasons to be recorded in writing, extend the period by a
further period not exceeding six months.
Explanation.— For the purposes of this sub-section, the expression “commencement of audit” shall mean the
date on which the records and other documents, called for by the tax authorities, are made available by
the registered person or the actual institution of audit at the place of business, whichever is later.
CA. Pulkit Khandelwal
SECTION 65. AUDIT BY TAX
AUTHORITIES
 (5) During the course of audit, the authorised officer may require the registered person,—

(i) to afford him the necessary facility to verify the books of account or other documents as he
may require;
(ii) to furnish such information as he may require and render assistance for timely completion of
the audit.
 (6) On conclusion of audit, the proper officer shall, within thirty days, inform the registered
person, whose records are audited, about the findings, his rights and obligations and the
reasons for such findings.
 (7) Where the audit conducted under sub-section (1) results in detection of tax not paid or
short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper
officer may initiate action under section 73 or section 74

CA. Pulkit Khandelwal

SECTION 65. AUDIT BY TAX
AUTHORITIES
 Order – general or specific
 Auditee – only RP
 Period – FY or part thereof or Multiples thereof (Rule 101) – subject to limitation period
prescribed under Sec 73/74
 At POB of RP or at their office (desk audit)
 Prior notice of 15 days (atleast) before audit is conducted
 To be completed within 3 months from commencement
 Date of “commencement of audit” – refer explanation to Sec 65
 Extension of 6 months by the Commissioner

CA. Pulkit Khandelwal

SECTION 65. AUDIT BY TAX
AUTHORITIES
 Duties of taxpayer:
 Provide facility to verify BOA & other docs
 Provide other assistance as required

 Findings of audit to be informed within 30 days of conclusion of audit

 Actions may be initiated under Sec 73 / 74 of the Act on the basis of audit results

CA. Pulkit Khandelwal

SECTION 71. ACCESS TO
BUSINESS PREMISES.
 (1) Any officer under this Act, authorised by the proper officer not below the rank of Joint Commissioner, shall have access to any
place of business of a registered person to inspect books of account, documents, computers, computer programs, computer software
whether installed in a computer or otherwise and such other things as he may require and which may be available at such place, for
the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
 (2) Every person in charge of place referred to in sub-section (1) shall, on demand, make available to the officer authorised under sub-
section (1) or the audit party deputed by the proper officer or a cost accountant or chartered accountant nominated under section 66—
 (i) such records as prepared or maintained by the registered person and declared to the proper officer in such manner as may be
prescribed;
 (ii) trial balance or its equivalent;

 (iii) statements of annual financial accounts, duly audited, wherever required;

 (iv) cost audit report, if any, under section 148 of the Companies Act, 2013;

 (v) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961; and

 (vi) any other relevant record,

for the scrutiny by the officer or audit party or the chartered accountant or cost accountant within a period not exceeding fifteen working
days from the day when such demand is made, or such further period as may be allowed by the said officer or the audit party or the
chartered accountant or cost accountant.

CA. Pulkit Khandelwal

RULE 101. AUDIT.-
 (1) The period of audit to be conducted under sub-section (1) of section 65
 shall be a financial year [or part thereof] or multiples thereof.
 (2) Where it is decided to undertake the audit of a registered person in accordance with the
provisions of section 65 , the proper officer shall issue a notice in FORM GST ADT-01 in
accordance with the provisions of sub-section (3) of the said section.
 (3) The proper officer authorised to conduct audit of the records and the books of account of
the registered person shall, with the assistance of the team of officers and officials
accompanying him, verify the documents on the basis of which the books of account are
maintained and the returns and statements furnished under the provisions of the Act and the
rules made there under, the correctness of the turnover, exemptions and deductions claimed,
the rate of tax applied in respect of the supply of goods or services or both, the input tax credit
availed and utilised, refund claimed, and other relevant issues and record the observations in
his audit notes.
CA. Pulkit Khandelwal
RULE 101. AUDIT.-
 (4) The proper officer may inform the registered person of the discrepancies noticed, if any, as
observed in the audit and the said person may file his reply and the proper officer shall finalise
the findings of the audit after due consideration of the reply furnished.
 (5) On conclusion of the audit, the proper officer shall inform the findings of audit to the
registered person in accordance with the provisions of sub-section (6) of section 65 in
FORMGST ADT-02.

CA. Pulkit Khandelwal

SAMPLE RISK PARAMETERS
FOR SELECTION OF CASES
FOR AUDIT
 Volume of the Taxpayer’s turnover/net profit,
 If any changes happened in the Taxpayer’s turnover/net profit for the previous years,
 Volume of Exemptions claimed by the taxpayer’s year wise,
 Higher incidence of supplies without issuance of E-Way Bills
 Taxpayer who does not file periodical return but issues E-Way Bills and inconsistency in the data
declared in GSTR-1 and E-way Bills generated,
 Financial ratio analysis and if any major variations observations ,
 Volume of Tax Refund claimed by the taxpayer’s year wise comparison and if any variations
observations,
 Multitude of the taxpayer’s legal relationships with other entities,
 Taxpayer has multiple branches,
CA. Pulkit Khandelwal
SAMPLE RISK PARAMETERS
FOR SELECTION OF CASES
FOR AUDIT
 Taxpayer who has requested waiver or is bankrupt,
 Taxpayer categorized as High Risk,
 Taxpayer’s return was previously investigated for evasion,
 Taxpayer who has not been audited in the pre-GST era for a long period i.e. 4 to 5 years under VAT
or Service Tax,
 Any specific information received from other Government authorities i.e. Income Tax, ROC,RBI,
Local tax authorities or any written compliant received from the person.
 Difference in the turnover as declared in Form GSTR-1 and GSTR-3B returns for continuous period,
 Difference in ITC availed and utilized as per GSTR-3B and ITC available as per GSTR-2A,
 Wrong classification of goods or services provide, effecting wrong levy of tax,
 Mismatch in the details of Export reported under GSTR-1 and information lodged on ICEGATE,

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS BY
AUDIT TEAM AND AUDIT NOTES:
 (i) Books of accounts as per Section 35 of the CGST Act read with Rule 56 Prescribes
Accounts and record requirements for a registered person,
 (ii) Tax Invoices, Bill of Supply, Delivery Challans, Credit Notes, Debit Notes, receipt
Vouchers, payment vouchers and refund etc.,
 (iii) If the taxpayer is having multiple branches, stock transfers amongst branches must also be
reconciled. Stock Register reflecting opening balance, receipts, supply and goods lost, stole
Destroyed and the closing stock,
 (iv) If the taxpayer is a manufacturer, production records including break up of raw Materials,
finished goods, scrap, etc.,
 (v) Details of Advances received and paid during the audit period,

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 (vi) Records pertaining to Input Tax Credit availed and utilized like if the taxpayer claimed extra
ITC , he will have to pay interest @24% on the excess tax amount ,the auditor would need to
reconcile that businessman does not claim excess Input Tax Credit. Input Tax Credit should be
reversed for non-payment within 180 days and this should be checked by the auditor,
 (vii) If the taxpayer has maintained electronic records, log of all the entries modified or Deleted
etc.,
 (viii).If the taxpayer is a Job worker, Job work register etc., Was there any good which was sent on
approval basis and it’s exceeding the time limit of 6 months and not offered to tax? If yes, then add
that amount in turnover and increase the tax liability
 (ix) Details of E-Way Bills register as per GSTN data,
 (x) Copies of GST Returns like GSTR-1, GSTR-2A,GSTR-2B, GSTR-3B, GSTR-4,GSTR
5,GSTR-5A, GSTR-6, GSTR 9/9C, GSTR-10, ITC-01, ITC-05, ITC-05A and RFD-01 and copies
of tax payment challan etc., for the audit periods.
CA. Pulkit Khandelwal
VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 (xi) Audited financial Statements including Audit Report etc., for the audit periods,
 (xii) Copy of Income Tax Return(filed) for the audit periods,
 (xiii) Copy of Form 26AS provided by I.T. Department for the audit periods.
 (xiv) Copies of Inward and Outward Ledgers,
 (xv) Copy of the GST registration certificates of Principal Place of Business and branch and
other place of details whether incorporated or not,
 (xvi) Ledger of stock maintained at where house by the taxable person,
 (xvii) Copy and details of Trans-1, Trans-2 and 2A and Trans-3 etc., for the year 2017-18
along with stock register and copies of original invoice relating to ITC claimed in Trans-1 for
the period prior to July’2017 as per Sec.143 of CGST Act,2017.

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 Director’s Report:
 important happenings like fire and loss of material in the company, ‘
 details of new products launched,
 change in the marketing pattern etc. reported in the report may be useful to the auditor.

 Auditor’s Report:
 Auditor may report that goods meant for outward supply, available in stock were not reconciled or
provision for obsolete items have not been made during the year
 CARO - whether the fixed assets records have been maintained properly or whether physical
verification of inward supplies and goods meant for outward supply was undertaken and whether any
discrepancies were noticed on such verification or whether the company has maintained proper
records for unserviceable or damaged goods.
 CARO also shows disputed tax liabilities separately for Customs, Income Tax, GST etc. Cases booked
under Income Tax may be examined to find out any implication on GST.

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 Profit & Loss Account
 Scrutiny of supplies
 Other incomes like scrap, insurance claims receipt, profit on sale of fixed assets, commission received, erection
and commissioning, freight and insurance recovered etc.
 value of inward supplies on which GST is payable under Reverse Charge - Section 9(3)
 Balance Sheet
 Study of schedule of Share Capital may reveal if the company is subsidiary company and in case the company is
holding company, in that case, the name of subsidiary company will be disclosed in the Schedule of Investment.
If there are supplies between holding company and subsidiary & vice versa, valuation aspects needs to be
examined in the light of CGST Rules.
 additions and deductions to the fixed assets during the year. For the deductions made during the year,
verification may be made as to whether appropriate GST has been paid.

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 Notes to the Accounts
 accounting policy in the areas like revenue recognition or determination of obsolete stock
 Cases of use of inputs for other purposes (not in the course of business or furtherance of business)
may also be noticed from the study of such information. Adjustment for shortages, losses etc. may
also be reported in the said information
 Related party transactions

 Trial Balance
 Accounts which have a prima facie relevance for GST payment or availment of ITC
 Unusual ledger accounts like Loss of inputs or unusual income accounts may also be noticed in the
Trial Balance
 Various income accounts (credit balances) available in the Trial Balance like Job Work Income
Account, Erection and Commissioning Income Account, Commission Account, Recovery of
Freight/Advertisement Charges Account Technical Consultation Income Account etc.

CA. Pulkit Khandelwal

VERIFICATION OF RECORDS
BY AUDIT TEAM AND AUDIT
NOTES:
 Scrutiny of the Tax Audit Report
 Clause 18 of the Tax Audit Report provides information about amount of depreciation under Section
32 of the Income Tax Act, 1961 and that of ITC availed on capital goods.
 Clause 27(a) of the Tax Audit report gives the details of ITC claimed. It also provides the details of
credit available and carried forward to the next year. Hence, the Auditor can authenticate the amount
of credit carried forward in the GST returns with the information provided in terms of this clause.
 Clause 21(b) of the Tax Audit Report also gives information regarding prior period incomes and
expenses booked in the year under Tax audit. The Auditor may check that GST on such supplies is
paid on these amounts as per the provisions of Time of supply under CGST Act.
 Clause 38 of the Tax Audit Report provides the information relating to Cost Audit.
 Clause 40 of the Tax Audit Report provides the important accounting ratios

CA. Pulkit Khandelwal

COMMON DEPARTMENTAL
ISSUES
 ITC – GSTR 3B vs 2A / 2B
 Data of GSTR 1 vs GSTR 3B
 Late Fees
 Interest on late payment
 Gross Vs Net
 RCM issues – 9(3), 9(4)

CA. Pulkit Khandelwal

INPUT TAX CREDIT - ISSUES
 Section 16 – Conditions for ITC admissibility:
 Possession of tax invoice or debit note
 Invoice details communicated to recipient (w.e.f. 01.01.2022)
 Receipt of goods or services
 Not restricted under Section 38 (w.e.f. 01.10.2022)
 Tax has been paid to the government
 Return furnished under Sec 39

CA. Pulkit Khandelwal

LITIGATION TRENDS
 GST Audits & Assessments
 Show Cause Notices issued
 Demand Orders raised
 System generated demands
 Orders of First Appellate Authority
 GST Tribunal
 Writ Petition

CA. Pulkit Khandelwal

DISCUSSIONS:
 Time period prior to conduct the audit:-
 The proper officer after receiving intimation and authorization from the Commissioner about
GST Audit under Sec.65 of CGST Act, 2017, where it is decided to undertake the audit of a
registered person, shall issue a notice not less than 15 working days prior to the conduct of
Audit ,
 Time Limit for completion of Audit by the GST department:-
 The GST Audit officer is required to complete within 3 months from the date of
commencement of audit. The period can be extended for a further period of a maximum of 6
months by the Commissioner,

CA. Pulkit Khandelwal

DISCUSSIONS:
 Relevant comparisons to be done by audit officers:
 Reconciliation between taxable value and tax liability declared in GSTR 3B and GSTR 1.
 2. Reconciliation between Input Tax Credit claimed in GSTR 3B and that reflected in GSTR
2A/2B
 3. Reconciliation of Tax liability declared and ITC Claimed in GSTR 3B with books of
accounts.
 4. Reconciliation of Taxable value as per GSTR 9C/9 with that in the Trial Balance.

CA. Pulkit Khandelwal

 THANK YOU!!
Pulkit Khandelwal
(CA, CS, LL.B.)
Certified in GST & NPOs by ICAI

Partner | D P K & Associates | Chartered Accountants

E: [email protected] | M: +91-9783592230
O: 303. Third Floor, Soni Paris Point, Collectorate Circle, Jaipur-302016
Youtube: https://www.youtube.com/channel/UC4NKr_wkaAWRZFBcJ2Lts2g
LinkedIn: https://in.linkedin.com/in/pulkit-khandelwal-53b0b445

CA. Pulkit Khandelwal