Possible positive impact of GST Audit by a CA or a CWA

As per section 35(5), 44(2) of the CGST Act, 2017 read with rule 80(3) of the CGST Rules, 2017, every registered person whose aggregate turnover during a financial year exceeds two crore rupees, shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.  

Initially there was no clarity whether a separate audit will have to be carried out for the purposes of GST or the audit done under the existing laws would suffice. However, with the Form GSTR – 9C being notified it had become clear that a separate audit report need not be issued for the purposes of GST and that the already existing audited financials of the assessee can be attached to the reconciliation statement that is furnished in Form GSTR-9C.

For the above stated reasons it has been a view of a number of professionals that a separate detailed audit need not be carried out for the purposes of checking GST compliances and disclosures. This more so for the reason that it cannot be expected of a person carrying out audit under other laws to be aware of the nitty-gritty of the GST law.

However, going by the reporting requirements in the Form GSTR-9C and the extent of confirmations required from the GST auditor therein, certain other professionals are of the view that GST audit requires independent examination of the books and records of the assessee with prime focus on the GST aspects (which is missing during the audit under other laws). This is more so when the term ‘audit’ is defined in the Act u/s 2(13) to mean the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify 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 the rules made thereunder.

From the above definition it seems that there is a vast responsibility laid on the GST auditor whereby he has to go the extent of assessing the level of compliance with the provisions of the Act. However, since the paper writer’s intention in the present case is not to resolve the above conflict but to bring out what positive can be taken out of this audit exercise, it is not discussed here as to which view is correct in law. Further, before getting into the subject of the positive impact, let us classify the assessees into the following basic categories:

1. Those who do not wish to take any risk and take the conservative approach in complying with the law.
2. Those, for whom business needs are the first preference and are ready to take an aggressive view and face the legal consequences in future, when it comes.
3. Those who would like to know the possible views i.e. legally and the departments’ perspective, and then make a reasoned decision on a case to case basis.

All these assessees, who under the earlier laws were not required to undergo any professional audit mandatorily w.r.t. the indirect taxes, had to face department audits or assessments after say 3 to 4 years of the transactions having been completed. After such audit/assessment the assessees were under immense pressure to decide whether to pay taxes that they bonafidely believed were not liable, along with huge interest and penalties or opt for litigation which was a very costly and a time consuming affair.

So there existed a lot of unintentional non-compliances (termed as fraud, collusion, mis-representation, etc. by the department) which led to loss of revenue to the Exchequer (as only a fraction of the non-compliance would get identified and reported) and in cases of assessees who came under the department scanner, were burdened heavily with interest, penalties and litigation costs. All in all, it was creating a very negative environment when it came to compliance under the indirect tax laws.

However, the scenario should be a little different (if not more) under GST. Under GST the assessee has the chance of getting an audit done by a qualified professional and to understand the nuances of the law (including the procedural aspects) by way of a comprehensive compliance report whereby the assessee can take a reasoned decision on various aspects while being aware of the risk that it is carrying for the non-compliance, if any. Further, all of this being within a reasonable time of the completion of the transaction, as compared with 3 to 4 years under the earlier laws.

Another way of reducing the risk of non-compliance and to facilitate a reasoned decision making w.r.t. GST would be the services of a professional as a consulting retainer who would:

1. Clarify the law (as applicable to the assessee in specific), which is in its evolving stage as is evident from the vast amendments and clarifications being issued.
2. Provide opinions to assessee which would demonstrate the bonafide belief of the asseessee on a particular issue.
3. Assist in putting systems in place so that GST compliance happens as a part of the day to day routine without having to specifically devote time only during return due dates.
4. Update the formats of MIS reports and other reporting to assist the management in decision making and to monitor key aspects of GST like tax costs, credits available, tax payouts, interest / penalty payments, etc.
5. List out the requirements to be incorporated in the accounting software so that GST compliance happens at the time of accounting itself, and many more.

Thus, by the GST audit and with the assistance of a professional, minor mistakes and escapes will be captured early and assessee will be better educated of the provisions of the law that have to be complied with, as against the scheme of things that existed under the earlier laws.

It is pertinent to point out here that the penalties under Indirect tax laws are more stringent than those in the direct tax laws as IT is on income whereas IDT is on revenue. Hence the stakes are very high (which could many times be fatal to the business). Hence, there is a need to be more cautious under the IDT laws.

Under GST when the audited financials are submitted with the reconciliations in Form GSTR-9C, it will become very difficult for the department to invoke the extended period of limitation. Further another benefit of the audit provision is that now it would be mandatory for all assesses crossing the prescribed limit to get the IDT audit done, which would have otherwise not been sanctioned by the management of the small assesses. Hence it would be very important to hire a professional who has very good knowledge of the law to get the maximum benefit out of the GST provisions.