IS GST AUDIT IS APPLICABLE ON TURNOVER EXCEEDING RS. 2 CRORES

[Yogesh Narang]

In the present article I am going to discuss the law and procedure of Audit to be conducted by the department and special audit as prescribed under GST law. The concept of Audit is not a new concept, the tax payers are already required to get his books of accounts audited under various law like Income Tax Act, 1961, VAT Act, 2005 and Companies Act, 2013.

INTRODUCTION:

Section 2(13) of the CGST Act, 2017 defines “Audit” means the examination of records, returns and other documents maintained or furnished by the registered person under the GST Acts 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 the GST Acts or the rules made thereunder.

NEED OF AUDIT:

1. That to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed by assessee.
2. That to examine the record of return and other document maintained or furnished by the assessee.
3. That GST is a self assessment based tax, so to keep an eye to prevent the frauds in GST  a robust audit mechanism to measure and ensure compliance of the provisions of law by the taxable person.

TYPE OF AUDIT:

GST Act, 2017 envisages three types of Audit. That are as follows:

1. Audit by chartered accountant or a cost accountant:

Section 35(5) of CGST Act, 2017 states that “Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.

“Provided that nothing contained in this sub-section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”

The first audit is by a chartered accountant or a cost accountant. Every registered person whose aggregate turnover during a financial year exceeds two crore rupees has to get his accounts audited by a chartered accountant or a cost accountant and furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C.

It is noteworthy to mention here that for businesses with an annual turnover of less than ₹ 5 crore, filing of GSTR-9C for FY 2018-19 has been waived off.

2. Audit by department:

Section 65(1) of CGST Act, 2017, states that “The Commissioner or any officer authorized 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.”

In the second type which is the normal audit, GST law vested power of Audit to the Commissioner or any officer authorized by him, can undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

3. Special Audit:

Section 66(1) of CGST Act, 2017, states that  “If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.”

The third type of audit is called the Special Audit. In Special Audit the registered person can be directed to get his records including books of account examined and audited by a chartered accountant or a cost accountant during any stage of scrutiny, inquiry, investigation or any other proceedings; depending upon the complexity of the case.

AUDIT BY CHARTERED ACCOUNTANT OR A COST ACCOUNTANT

Section 35(5) and Section 44 of CGST Act, 2017, and Rule 80 of CGST Rules, 2017 deals with law and procedure of the Audit conducted by the department, which we will discuss herein below:

WHO IS REQUIRED TO GET HIS BOOKS OF ACCOUNTS AUDITED UNDER GST:

Section 35(5) of CGST Act, 2017, states that “Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited……..”  

The Act says that all the registered person whose turnover exceeds the prescribed limit i.e Rs. Two crore for the F.Y 2017-18 and Rs. Five Crore for the F.Y 2018-19, shall bound under law to get his accounts audited under GST.

WHO IS AUTHORISED TO DO AN AUDIT UNDER GST:

As per Section 35(5) of CGST Act, 2017, the following persons are authorized under GST Act to do an audit u/s 44 of the CGST Act, 2017;

1.  Chartered Accountant
2.  Cost Accountant  

ANNUAL RETURN

As per Section 44(1) of CGST Act, 2017,it is stated as under:

1. That every registered person shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed under the Act.
2. That the following person are not required to file annual return under this section;

1. Input service distributor
2. a person paying taxes u/s 51 or 52 of CGST Act, 2017
3. a casual taxable person
4. a non-resident taxable person

3. That the Commissioner is vested with the power to extend the time limit of Annual return by issuing the notification, either on the recommendation of GST council or for reason recorded in writing.
4. That further, this section provided that any notification for extension of time limit of annual return by the Commissioner of SGST or Commissioner of UTGST, shall be treated as notification by Commissioner.  

Here, Rule 80(1) of CGST Rules, 2017, states that;

1. That every registered person shall furnish an annual return as specified in section 44(1) of CGST Act, 2017, in Form GSTR -9.
2. That a person paying taxes u/s 10 of CGST Act, 2017, (composition dealer) shall furnish an annual return in Form GSTR -9A.
3. That the form shall be filed electronically through the common portal of GST either directly or through facilitation centre notified by the Commissioner.

RECONCILIATION STATEMENT:

Section 44(2) of CGST Act, 2017,states that every registered person who is required to get his accounts audited u/s 35(5) of CGST Act, 2017, shall furnish an annual return as prescribed u/s 44(1) of CGST Act, 2017, shall furnish an audited annual accounts and reconciliation statement, reconciling the value of supply declared in the return furnished for the financial year.

Here, Rule 80(3) of CGST Rules, 2017, states that;

1. That every registered person shall furnish reconciliation statement along with annual return in Form GSTR -9C.
2. That the form shall be filed electronically through the common portal of GST either directly or through facilitation centre notified by the Commissioner.

TURNOVER LIMIT AND TIME LIMIT FOR FILING GSTR -9 AND GSTR-9C:

GSTR-9 (Annual Return):

That every registered person whose turnover exceeds an amount of ₹ 2,00,00,000/- (Two Crore Rupees) in a financial year, shall bound under law to file annual return, in Form GSTR 9.

Now, GSTR -9 for the F.Y 2018-19 is due and the last date of filing GSTR -9 for the F.Y 2018-19 is 30^th September, 2020.

GSTR-9C (audit report and reconciliation statement):

The 39^th GST Council meeting was held on 14.03.2020, wherein it has been recommended that;

Annual Return:

1. Relaxation to MSMEs from furnishing of Reconciliation Statement in FORM GSTR-9C, for the financial year 2018-19, for taxpayers having aggregate turnover below ₹ 5 crores;

That from the above recommendation, in my views, the GST Council gave relaxation only to the MSMEs not to every registered person. The GST Act, does not define the word “MSMEs” and for this purpose we have to rely upon The MSME Development Act, 2006, which is as under:

MSME stands for Micro, Small, and Medium Enterprises. In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions.

1. Manufacturing enterprises – engaged in the manufacturing or production of goods in any industry
2. Service enterprises – engaged in providing or rendering services

On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional principle of turnover alongwith the investment.

Existing or old MSME Classification
Criteria: Investment in Plant & Machinery or Equipment
Classification	Micro	Small	Medium
Mfg. Enterprises	Investment below ₹ 25 lacs	Investment below ₹ 5 Cr.	Investment below ₹ 10 Cr.
Service enterprises	Investment below ₹ 10 lacs	Investment below ₹ 2 Cr.	Investment below ₹ 5 Cr.
New or revised MSME Classification
Criteria: Investment in Plant & Machinery or Equipment
Classification	Micro	Small	Medium
Mfg. and service  Enterprises	Investment below ₹ 1 Cr.  and  Turnover below ₹ 5 Cr.	Investment below ₹ 10 Cr.  and  Turnover below ₹ 50 Cr.	Investment below ₹ 20 Cr.  and  Turnover below ₹ 100 Cr.

Therefore, in my considered views, from the above classification of MSMEs, it is clear that every registered person is not covered in category of MSMEs due to following reasons:

1. That MSMEs covered only manufacturer and service provide and do not cover the category of traders i.e both whole seller and retail of goods.
2. That further as per new classification, if any manufacturer or service provider is having turnover below ₹ 5 Crore but its nvestment is more than one Crore, also does not falls under this category to get the benefit of relaxation provided by the GST Council.

Due Date of Filing GSTR 9C:

Now, GSTR -9C for the F.Y 2018-19 is due and the last date of filing GSTR -9C for the F.Y 2018-19 is 30^th September, 2020.

CONCLUSION:

In my opinion, every registered person who is not covered in the definition or classification of MSMEs, shall have to file GSTR 9 and GSTR 9C, if there turnover for the F.Y 2018-19, exceeds ₹ 2 Crore. Further, if any registered persons, who falls in the classification MSMEs shall have to file GSTR 9, if turnover exceed ₹ 2 Crore and is having option to file GTSR 9C upto the turnover of ₹ 5 Crore and if the turnover exceeds ₹ 5 Crore, shall have to file GSTR 9C mandatory, unless and until it is further clarified by the government.