SPECIAL AUDIT UNDER GST

[Dr. Sanjiv Agarwal]

Special audit is a tool provided to the revenue to order for special audit under section 66 of the GST Act, 2017 to be carried out by a chartered accountant or a cost accountant. Such special audit shall be carried out on the directions of deputy or assistant commissioner with prior approval of the commissioner, if such officer is of the opinion that the assessee has not declared the value correctly or credit availed is not within the normal limits. Finance Act, 1994 contained section 72A for special audit of assessee by chartered accountants or cost accountants. In Central Excise Act, 1944, section 14AA provided for special audit.

In SKP Securities Ltd. v Deputy Director (RA-IDT) 2013 (1) TMI 549 - CALCUTTA HIGH COURT , it was held that condition precedent to order for special audit is reason to believe that person liable to Service Tax is within circumstances stipulated in section 72A (wrong declaration of value of taxable service, mis-utilization of credit of tax etc). Such insinuation of wrongful act affects citizen in his social life, and comes within scope of civil consequences.

In that view, such an order has to comply with principles of natural justice. Reference in this context be made to the judgment of the Supreme Court in Sahara India (Firm), Lucknow v Commissioner of Income Tax, Central-I and Another reported in 2008 (4) TMI 4 - Supreme Court . The Supreme Court held that the expression ‘civil consequences’ encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella.

Principles guiding special audit

The deputy/assistant commissioner should consider the following factors before taking a decisions to direct special audit under section 66 of the GST Act, 2017:

(a)   nature and complexity of the case

(b)    Interest of revenue

These principles should guide his opinion that :

(a)   Value has not been correctly declared, or

(b)  Credit availed is not within the normal limits, ie there are instances of abnormal variation in credit amount.

How can special audit be ordered or directed

Special audit under section 66 of the GST Act, 2017 can be ordered or directed:

(i)     with prior approval of the commissioner,

(ii)    by deputy or assistant commissioner,

(iii)   in writing to the auditee tax payer,

(iv)   to get records including books of account examined and audited,

(v)    to get audit done by a chartered accountant or cost accountant nominated by commissioner (not by deputy or assistant commissioner).

Specified form for special audit

As per sub rule (1) of rule 102 of the GST Rules, 2017 with the prior approval of the Commissioner, the Assistant Commissioner or any officer senior to him can direct the registered person in FORM GST ADT-03 to get his records including books of account examined and audited by a specified chartered accountant or a cost accountant. The chartered accountant or a cost accountant shall be nominated by the Commissioner.

Nomination and directions

 A chartered accountant or cost accountant shall be nominated (appointed) by the  Commissioner. The taxable person is not allowed to appoint the auditor for the purpose of special audit.

 While nominating the chartered accountant or cost accountant, auditor may be directed to mention or report on specified particulars, besides audit report.

Reporting requirements

 The auditor appointed for carrying out special audit is required to submit audit report duly signed and certified by him, within ninety days to the Deputy/Assistant Commissioner. The report shall also contain other particulars in the report as may be specified in terms of reference of his appointment.

The deputy/assistant commissioner may relax or extend the period by upto another  ninety days in the following situations :

(a)   on application by taxable person, or

(b)  on application by chartered accountant/cost accountant, or

(c)   for any other material and sufficient reasons.

The discretion to extend time rests with the deputy/assistant commissioner.

As per sub rule (2) of rule 102 of the GST Rules, 2017 on conclusion of the special audit, the registered person shall be informed of the findings of the special audit in FORM GST ADT-04 by the auditor.

Special audit can be ordered even where taxable has been audited

The special audit is an overriding provision and special audit can be directed even when accounts of taxable person are audited or subjected to audit under:

(a)   any other provision of the GST Act, 2017, or

(b)  any other law in force.

Impact of Special Audit

The department is free to use the audit findings as well as material gathered during the course of special audit against the auditee tax payer. However, he shall be given an opportunity of being heard and defend himself following the principles of natural justice. Such proceedings can be under any of the provisions of GST law or rules made under the provisions.

Where the special audit conducted results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 73 of the GST Act, 2017.

Proceedings under section 73 of the GST Act, 2017 can be initiated for determination of tax, levy of interest and/or penalty if the audit reveals any evidence of:

●     Tax not paid/short paid, or

●     Input Tax Credit (ITC) erroneously availed, or

●     Tax erroneously refunded.

The auditee should be afforded an opportunity of hearing if the findings of special audit are proposed to be used in any proceeding against him.

The expenses of, and incidental to, the examination and audit of records including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the commissioner and that such determination shall be final. The taxpayer shall not bear such expenses.