Power of Tax Authorities to conduct Special Audit under GST Act

Ruchi Gandhi

20 Feb, 2021

GST is a type of trust-based regime of taxation wherein a registered GST dealer is required to self-assess his returns, compute his tax liability, and deposit taxes without any intervention by the department or tax officials.

Since the GST tax regime is mostly dependent upon self-assessment, therefore, a holistic and robust audit mechanism has been put into place by the department to evaluate the GST liabilities and to assure a taxpayer’s compliance with the relevant provisions of GST law.

This article explains all the provisions with regard to special audit under GST (a specific category of audit under GST law).

Definition of Audit under GST

An audit under GST aims to verify that the tax declaration has been correctly made by the registered persons, payment of taxes and refunds are accurately determined, and input tax credits are availed by taxpayers in conformity with the provisions of the Act.

What are the different types of audit from GST perspective?

Three kinds of audit are defined in GST:

• Turnover based GST audit: A registered taxpayer is needed to get his books audited u/s 35(5) of the CGST Act^[1], in case his annual turnover exceeds the threshold limit of Rs. 2 crores. Such an audit is executed by a chartered accountant or a cost accountant. The taxpayer is needed to furnish a copy of audited annual accounts and a reconciliation statement, duly certified in FORM GSTR-9C, along with his GST annual returns.

• GST normal/general audit executed by tax authorities:  By giving a 15 days’ prior notice to a registered taxpayer, an audit may be done by the Commissioner of CGST/SGST or an officer authorized by him. Such an audit may be carried out for such period, at such frequency and in such manner as may be prescribed later. However, such an audit needs to be completed within a period of 3 months from the date of its commencement (although the time limit is extendable by the Commissioner on valid grounds).

• Special audit under GST: A registered person in GST may be directed to get his books or records examined by a chartered accountant or a cost accountant during any stage of scrutiny, inquiry, investigation or any other proceedings, especially where the case is complex in nature.

Read our article:GSTR-9 : GST Annual Return Filing Form, Eligibility and Due Date

Special Audit under GST

Section 66 of the CGST/SGST Act gives a special power to GST authorities to conduct a special audit of taxpayers in certain cases.

When is Special Audit under GST conducted?

The GST authorities may conduct a special audit if, at any stage of scrutiny, inquiry, investigations or any other proceedings, they believe that the value of the tax is not correctly declared or input tax credit availed is not within the normal limits. In other words, when the department holds doubts about the accuracy of GST details declared by a registered taxpayer, it may conduct a special audit.

But usually, a special audit is instituted in limited circumstances where a complex case is brought to the notice of the department or when the revenue stake is high.

Special Audit under GST is conducted by whom?

The department may order a special audit to be conducted by a chartered accountant or a cost accountant, as may be nominated by it. More specifically, a chartered accountant or a cost accountant nominated by the Commissioner is authorized to undertake a special audit.

Who shall issue a notice of communication for special audit under GST?

The communication for the special audit has to be served to the concerned taxpayer by the Assistant Commissioner/Deputy Commissioner or any officer senior to him. Prior approval of the Commissioner is, however, necessary for the same.

Directions for Special Audit

The Assistant Commissioner or any officer senior to him can, by issuing FORM GST ADT-03, direct the registered taxpayer to get his records including books of account examined and audited by a specified chartered accountant or a cost accountant.

Who shall bear the cost of special audit?

All the expenses pertaining to special audit are to be determined and borne by the Commissioner. The term ‘expenses’ here is construed in a manner so as to comprise the remuneration payable to the chartered accountant or cost accountant.

The time limit for completion of special audit

The designated chartered accountant or cost accountant needs to submit an audit report within a period of 90 days of the direction issued by the department, duly signed and certified by him. Such a report needs to be furnished to the Assistant Commissioner.

However, this period may be further extended by the Assistant Commissioner by another 90 days in case an application for the same is made by the concerned taxpayer or the chartered accountant or cost accountant.

Immaterial if accounts are already audited

The provisions of special audit under GST shall apply and have due effect irrespective of the fact that the taxpayer’s accounts have been already audited under any other provision of the CGST Act or any other law. Even if the books of accounts of the taxpayer have been earlier audited by virtue of any other provision, a special audit under GST will still be conducted.

Communication of findings of special audit

Once the procedures of a special audit are concluded, the registered taxpayer is duly informed on the findings of the special audit. Such communication is done in the prescribed FORM GST ADT-04.

What action can be taken by the GST authorities after the completion of a special audit?

Depending upon the findings or observations of the special audit, the tax authorities may initiate appropriate action against the registered person under Section 73 or Section 74. This may be with regard to the demand and recovery of tax unpaid, erroneously paid or refunded, ITC fraudulently claimed, or tax short paid.

An opportunity of being heard to the taxpayer

In respect of any material information procured under special audit and before initiating any proceedings against a registered person under GST, the taxpayer is usually accorded a reasonable opportunity of being heard.

Conclusion

A special audit under GST offers a legitimate means to the tax officials to determine the tax liabilities of assessees in complex cases.

It allows the GST authorities to take the assistance of the professional expertise of a chartered accountant or a cost accountant in order to ensure that the interest of revenue is safeguarded at all times.