IMC CHAMBER OF COMMERCE AND INDUSTRY

IMC CHAMBER OF COMMERCE AND INDUSTRY

GST Annual Return and Audit

12

th

October, 2018

All India VAT – Challenges

GST Audit – Legal Provisions

Contents of Form 9 and 9C

GST Audit – Approach

GST Audit

– Reconciliations

GST Audit – Major Challenges

Contents

All India VAT – Challenges

Varying provisions in respective state VAT laws

Local consultants – quality & efficiency

State wise Trading and Profit and Loss account – Not available in most cases

Overall reconciliation with financials

Decentralised function, systems and approach to tax management

State VAT Audits – relevance during VAT assessments

State VAT departments

Value PropositionsAll India VAT – Challenges

GST Audit – Legal Provisions

Section 2(13)- Audit means 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 into tax credit availed, to assess his compliance with the provisions of this Act or the rules made thereunder

Section 35(5) read with Section 44(2) of the CGST Act

Following documents to be furnished electronically by the assessee upon conclusion of the audit-

1) Annual Return

2) Copy of audited annual accounts

3) Reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited financial statements in Form GSTR 9C, duly certified 4) Such other particulars, as may be prescribed

GST Audit – Legal Provisions

Rule 80 of CGST rules amended in Sep 2018 to prescribe format of Annual Return and Audit Report. Every

registered person

whose aggregate turnover during

financial year

exceeds 2 Crores shall get his accounts audited.

Every registered person

other than (Even if not covered under audit)

1) An ISD 2) Person required to deduct tax at source (TDS) 3) Person required to collect tax at source (TCS) 4) Casual taxable person (CTP) and 5) Non resident taxable person Shall furnish an annual return for the F Y electronically in form GSTR 9Separate Annual returns for a) Composition supplies – GSTR 9A b) E-Commerce operators – GSTR 9B

GST Audit – Legal Provisions

GST Annual Return and Audit – Form 9 and 9C

Form 9 Consists of VI parts -

Part I – Basic Details

Part II- Details of all outward supplies and advances received for which annual return is filed

Part III – Details of all ITC availed and reversed in the financial year for which the annual return is filed

Part IV – Actual tax paid during the financial year

Part V – Transactions for the previous financial year but declared in the returns of April to September of current FY or date of filing annual return whichever is earlier

Part VI – Other information

Form 9C - Reconciliation of Outward supplies, ITC, Tax paid and Refund claimed as per returns with Financial statements

Contents of Form 9

Aggregate value of supplies made to consumers and unregistered persons net of debit and credit note

Aggregate value of supplies made to registered persons to be reported separately. Details of Debit and Credit notes to be reflected separately

Similarly value of exports, sales to SEZ’s, details of amendments, exempted, NIL rated and Non GST supplies to be declared separately

Total ITC is to be classified ass ITC on inputs, capital goods and input services

ITC availed, reversed and then reclaimed in ITC ledger to be separately declared in 6H

ITC availed on inward supplies attracting reverse charge to be disclosed separately for Registered and Unregistered Vendors

Contents of Form 9

None of the fields is auto populated in Part II

i.e

Outward supplies

Few fields are auto populated in part III

i.e

Inward supplies

Complete post mortem of the transactions and details – Is this required ?

Sanctity of auto populated details i.e ITC as per GSTR 2A, ITC on imports etc – What happens if there is a error in the auto populated details

Contents of Form 9

Form 9C Part A consists of V parts -

Part I – Basic Details

Part II- Reconciliation of Turnover declared in

audited Annual Financial statement

with turnover declared in Annual Return

i.e

GSTR 9

Part III – Reconciliation of Tax Paid Part IV – Reconciliation of ITC Part V – Auditors recommendations on additional liability due to non-reconciliation Form 9C Part B is the certification by the statutory auditor conducting GST audit or other auditor conducting GST audit. Clause 3(b) in the certification by the statutory auditor is skipped in the certification by other auditor

Contents of Form 9C

Starts with Turnover as per

audited

financial statements

for the state/UT

(For Multi GTIN units under same PAN the turnover shall be derived from Audited annual financial statements)

Drills down to Turnover as per Annual Return

Turnover to be considered for financial year as a whole and not for 9 months period

Turnover for April to June 17 to be deducted separately

Contents of Form 9C

GST Audit – Approach

Finalization of GST Auditor – Centralized V/s Decentralised approach

Business and Process Notes

Assess capabilities of IT systems to provide desired data/details

Compiling basic details

Bifurcation of Annual Turnover in case of Multi state operations

Identification of transactions outside financial statements

Commercials calls/decisions to be taken on taxability of few transactions

i.e discounts, high sea sales etc Value PropositionsSteps to be taken for GST Audit

Inventory records and reconciliation – unit wise, state wise, entity wise

Important reconciliations to be completed at the earliest

i.e

GSTR 2A with Books etc

Classification

i.e

Mixed Supply/Composite supply etc and GST rates on the products/change of rates

Reconciliations – Discussed separately Team allocation for GST Audits – Plant wise/Unit Wise/Corporate office State VAT Audits and GST Audit – Which audit to be completed firstUse of IT software vis-à-vis GSTN utilities Value PropositionsSteps to be taken for GST Audit

GST Audit - Reconciliations

Reco

of Outward supplies between GSTR 3B, GSTR 1 and books

Reco

of Outward supplies with 26AS (especially in case of services)

Reco

of ITC between GSTR 3B, GSTR 2A and books

Reco

of expenses subject to RCM with 3B Reco of qty/description of stock declared in TRAN -1 with stock records as on 30th June 2017Reco of qty/description of outward supply in TRAN -2 with GSTR 1 and stock records (July to Dec 17)Job work movement reco with ITC 04Value Propositions

Reconciliations in GST Audit

Reco

of outward supplies with E Way bills (18-19 onwards)

Reco

of total turnover for F Y with VAT/Excise returns and GST Returns

Reco

of closing stock with ITC balance as on 31-03

Reco

of Balance in E-cash ledger (PMT 5) with books Reco of Balance on E-credit ledger (PMT 2) with books Reco of Electronic liability ledger (PMT 1) with books Value PropositionsReconciliations in GST Audit

Period of Reconciliation in GST Audit

Whether July 17 to March 18

or

July 17 to September 18

or

April 17 to March 18 orApril 17 to September 18

Reconciliations in GST Audit - Issues

Schedule I activities shown in GST returns but transactions may be netted off or not recorded in financials (Clause 5D)

Schedule III transactions (Clause 7B)

Non GST debit/credit notes received/issued

Sale by SEZ units to DTA units (Clause 5K)

Reverse charge transactions (Clause 7D)

April to June 17

transactions (Clause 5G)Pure Agent reimbursements (Clause 5M)Other states supply/turnover in case of Multi Location Organization (Clause 5O)

Reconciliations in GST Audit - Issues

Deductions allowed from valuation

but recorded gross in financials e.g. airline agent, second hand goods dealer

etc

(Clause 5M)

Sale of capital assets –

Sale of vehicles (changes in taxability)

Expenses netted off but reported at gross in GST returns Works Contract/Construction Contracts – Unbilled revenues, revenue recognition as per AS 7 (Clause 5B and H) NON GST items – petroleum products, transaction in securities (Clause 7B) Employee recoveries Consideration in kind/barter transactions ( Airline offering free tickets in IPL and in turn branded as travel partner)

Method of accounting (cash basis as per IT V/s accrual as per GST) (

Eg

Chartered Accountants)

GST Audit – Major Challenges

Multiple Legislations (Excise, VAT, Service tax etc + GST) in same year

GST Audit much wider than Tax audit/Stat audit – how much time will be available to dealer as well as auditor for conducting quality review

State wise P & L and Balance Sheet

Multiple soft wares/ ASP’s/GSP’s

– Issues with GST network

Plethora of notifications/circulars/confusing AAR’s – what stand to be taken while finalising the audit report

Transitional issues especially credit carry forwardsTiming difference in due dates for filing state VAT Audit reports and GST Audit report April to June 17 turnover in state VAT Audit report and GST Audit report – can it be different ? Value PropositionsGST Audit – Challenges

Multiple details to be prepared for various audits, Conflicting views of different auditors

Degree of Non Compliance vis–a-vis reporting

Value Propositions

GST Audit – Challenges

Thank You