Checklist of Different Types of Reviews / Audit in GST

Audit in GST

Audit in general terms means inquiry, verification of the documents, events, and processes for verifying the facts and also to conclude the accuracy of recording of the facts and also the efficiency of the system. In present times, the concept of audit broadly covers a risk-based audit. The GST law mainly functions under the principles of self-assessment wherein the taxpayers determine the tax liability themselves and discharge the liability, which brings various challenges. These multiple challenges in the new GST law make taxpayers tend to mistakes or errors. The mistakes or errors will lead to unnecessary departmental interventions or can cause litigations or revenue leakages to exchequer. This article describes the Checklist of Different Types of Reviews / Audit in GST.

What is the Definition of Audit in GST?

According to Section 2(13) of CGST Act,2017, the term Audit means the examination of the records, returns and any other documents maintained or provided by the registered person as per this act or the rules made thereunder or according to any other law for the time being in force to authenticate the accuracy of:

  • The declared turnover.
  • Details of the paid taxes.
  • To claim a refund to the taxes paid.
  • To get knowledge about input tax credit availed, and
  • To levy his compliance with the provisions of this act or the rules made thereunder.

Types of Audit in GST

There are mainly three kinds of audit specified in GST law. All of them are not mutually exclusive, and a registered person may be subjected to one or more of them periodically.The type of audits in GST are enumerated below:

Types of Audit in GST

Statutory Audit

The statutory audit is performed as per Section 35(5) of the CGST Act and CGST Rule 80(3).

In this type of audit every registered person having an aggregate turnover exceeding Rs. 2 crores during a financial year shall get his accounts audited by a Chartered Accountant (CA) or a cost accountant and shall submit:

  • A copy of audited annual statements.
  • A reconciliation statement as per section 44(2).
  • A duly certified Form GSTR-9C, electronically through a common portal either directly or through a Facilitation center as notified by the commissioner.
  • Section 44 further states that every registered person who needs to get his accounts audited following the provisions of section 35(5) shall file, electronically on or before 31st December for the following year the below-mentioned documents:
  • Annual Return-GSTR 9
  • Audited Annual Accounts
  • Reconciliation statement-GSTR 9C
  • Other particulars as may be prescribed. 

Important Aspects to be Remembered by GST Auditor While Making Audit in GST

Some of the essential aspects which must be considered by a GST auditor while doing an audit in GST are as follows:

  • The calculation of Aggregate Turnover is done on all India bases having the same PAN.
  • In case a registered person is liable to get the accounts audited as prescribed in Section 35(5) of the GST Act. The other registrations that have been obtained using the same PAN will also be liable for Audit in GST.
  • The Role of a Chartered Accountant (CA) or CMA is bounded to reconciling the values declared in the annual return with the audited annual accounts of the taxpayer.
  • The Input Tax Credit (ITC) relating to the expenses availed in GSTR-9 shall be reconciled with costs in audited financial statements in Table 14 of GSTR-9C.

Best practices to be adopted for Audit in GST

  • Assessing the risks involved and also conveys the intention clearly to the auditee on reporting aspects.
  • The offer must clear the elements such as management, scope, responsibility, and limitation.
  • To ensure that there is no conflict in accepting the offer. For Instance, the internal auditor or book-keeping is not eligible for the GST audit.
  • The auditor must take the engagement letter or appointment letter.
  • Must have a management representation letter wherever necessary.
  • Have a checklist of the audit program.
  • The observations must not be unclear or based on just oral explanations of the auditee. It must be in a written form.
  • Verify the input service distributor (ISD) mechanism and cross charge, including the valuation mechanism.

Departmental Audit / Audit by Tax Authorities

Departmental audit or audit by tax authorities is performed as per Section 65 of the GST Act and Rule 101 of GST Rules.

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It is necessary for the tax department to conduct the audit of the records maintained by the taxpayers, just to ensure that the registered person is calculated correctly and has discharged its tax liability. Section 65 authorises the conduct of audit by the commissioner or any other officer authorized by him by way of a general or special order of the registered persons. The time period of this audit shall be financial year or part thereof or multiples thereof.

The audit shall be conducted in the registered business place or office of the registered person with an intimation of audit at least 15 days in advance in Form GST ADT-01. The audit must be completed within three months from the date of commencement of the audit, which can be extended by the commissioner, whenever required, by a further period not exceeding six months.

According to Rule 101(3), the proper officer who is authorised to conduct an audit of the ‘records’ and the ‘books of account’ of the registered person shall verify the details with the help of the team of officers and officials accompanying him.

During the close of audit, the proper officer shall, within a span of thirty days, inform the registered person, whose records are audited, regarding the findings, his rights and obligations, and also the reasons for such results in Form GSTADT-02.

In cases where the pending tax liability is identified during the audit or the input tax credit is wrongly availed or utilised by the auditee, the procedure laid down under Section 73 or section 74 must be followed.

Special Audit

The special audit is conducted as per section 66 of the GST Act and Rule 102 of CGST Rules.

To avail, the services of experts is an old practice in the due process of law. As per Section 66 of the CGST Act, the audit officer at any stage of investigation, inquiry, scrutiny, or any other proceedings under the act, where the officer must not be below the rank of assistant commissioner. He must duly approve to avail the services of a CA or a CMA by considering the nature and difficulty of the business and in the interest of revenue believes that:

  • The declared value is not correct.
  • The Credit received is not within the normal prescribed limits.
  • By issuing a direction in the Form GST ADT-03, to the registered person to get his records audited by a CA or CMA mentioned in the said direction.
  • The Assistant Commissioner must obtain the prior permission of the commissioner to issue the specified direction to the taxable person. The expert here must be nominated by the commissioner and not by the registered person.
  • The CA or CMA so appointed needs to submit the audit report, mentioning the specified particulars there, within a  period of 90 days, which can be further extended by another 90 days in accordance with the provision of Rule 102(2) in Form GST ADT-04.
  • The registered person must be provided an opportunity of being heard in respect of any material collected during the special audit which is proposed to be used in any proceedings under this act.
  • The commissioner whose decision shall be final will pay remuneration to the expert. In case during the audit any possible tax liability is identified, the procedure under section 73 or section 74 as the case may need to be followed.
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Types of Reviews

The internal audits and reviews that businesses can start from the standpoint of GST can be as under:

Types of Reviews

Complete Health Check Reviews

The GST health check reviews can be conducted on a monthly basis covering all the functions having GST impact. This could include procurements, sales, procurements, inventory, etc. This type of reviews is also helpful for GST mandatory statutory audit, and mostly it provides management with the comfort on the level of compliance in the organisation. Broadly, this type of reviews  would cover the following:

  • Reviewing GST outward supplies, concessions, exemptions claimed, export benefits etc.
  • Review the GST input tax credits claimed.
  •  Reviewing the procedural compliances including GST registrations obtained, payment of taxes, filing of returns, disclosure of ITC & outward supplies in returns, movement of goods for job work, carry forward of credits etc.
  • Review of the reverse charge compliance is done by reviewing the expense ledgers on a sampling basis or payments made or availment of re-credit after amount or eligibility of such credits, rate, and reductions claimed, including the documentation.

Area-specific reviews

The managements conduct the area-specific reviews as per the requirement and need of the organization. The areas to be reviewed on a specific basis for GST are sales, IT/ERP systems, ITC Credits etc. Areas specific covers more in-depth review and help the management in streamlining and strengthening the business process being reviewed.

Inter-branch transactions review

With the advent of ‘distinct persons,’ the transactions which would have gone untaxed are not only brought to tax but are required to be reported as inward-outward supply, respectively. In the consolidated financials, the transactions cancel each other. As such, identifying the inter-branch transactions, reviewing the accounting entries, and also reporting them for GST purposes during each tax period needs close attention. After the introduction of IT systems, trade has almost forgotten the branch-departmental account, which GST is checking. In the case of banks, the option in section 17(4) increases the importance of this review.

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Review of invisible-supplies

Non-monetary transactions are also liable to GST. The deal not having an accounting entry needs to be reported for GST purposes and reconciled in Annual Returns. For Instance, the exchange of goods will not involve any accounting entries, as there is no monetary consideration. This type of review values the invisible transactions which do not have any accounting entry.

Due Diligence reviews

While restructuring the business, the tax due diligence of the buyer is required. This may be done voluntarily by the buyer, or the seller will make a specific direction related to it. The primary purpose of this review is to highlight the tax exposure, which may carry on to the new organisation. This becomes more crucial in cases where the entity is exposed to various indirect tax laws. The review recognises areas of non-compliance in the long term, potential risks and even threats, changes required if any in terms of the contract, and also suggest alternative structuring strategy to optimise tax incidence.

Systems and processes reviews

Indirect tax systems affect all the financial transactions of a business. The complex business structure, along with system automation, needs a sound tax system inbuilt as a sturdy system in all the processes of the company. Therefore, this type of review helps the management in identifying the risks and the gaps at different levels of GST compliance and also the possible threat if the same remains unaddressed. This review assists the management in fixing various preventive controls at multiple levels of a business process. It also helps in streamlining and strengthening the entire process of the business cycle from its incorporation to the end, which eventually lowers the chances of mistakes or errors and frauds, thereby improving the overall compliance system.

IT/ ERP systems review

GST is dependent on IT. The GSTN is the crucial point of compliance. Many taxpayers have automated this process and event the filing of GST Returns is done electronically with the services provided by the GSTN as well as some independent vendors. The key objective is to keep the data confidential. Any error made in the initial configuration or set up, data entry, or transfer can have a substantial effect on the business. Therefore the companies must get an audit of the IT/ERP systems and validation of software.


There is an evolving GST law with Government working actively on it and regularly seeking to amend the law for fitment of rates, Act, and Rules to make GST law simple and easy. The compliance followed in this period is therefore challenging, and its applicability would depend on the date of amendment. Some of the issues are not very clear for which one needs an in-depth understanding. Hence, the Chartered Accountants[1] having this knowledge and audit skills need to get tech knowledge, and then they will be well placed to fulfill their services as employees and provide the review services as practitioners.

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