GST Audit Exercise Advantages. To an assessee – Normally, the tax department conducts an audit or assessment after the close of a financial year. It is customary to expect that the departmental audit / assessment is conducted after the close of the financial year except in cases where investigations, inspections or special audits are taken up. Naturally, any levy of additional taxes either due to non-compliance or incorrect comprehension of the complex tax laws would result in taxes plus consequential interest and penalty. GST being a tax on supplies, would tend to wipe out the top line in such cases.
GST Audit Exercise Advantages
Given the time lag between the date of committing an error and the date of ascertaining / rectifying such error, the consequence in such situations can be quite alarming in as much as the very liquidity of an entity can be under jeopardy. This would be the scenario, even where there is no mala fide intent on the part of the assessee to evade or avoid taxes that are legally due to the Government. Consequences that can arise in respect of issues that arise on account of classification or interpretation or judicial pronouncements can be disastrous.
It is a basic fact, that no assessee would be in a position to collect such additional tax levies from customers long after the transaction stands closed. On the other hand, there may also be cases where eligible credit may not have been availed, and it cannot be claimed at a later date since it is either time barred or claims have not been preferred through the returns.
Therefore, where a review is undertaken periodically, the discrepancies will be noticed at the time of omission / commission and corrective measures can be taken in a timely manner. Thus, it would lead to maximization of credit availment and minimization of tax / other outgoes owing to proper planning and timely compliances.
To the department / Government – The tax department / Government would also stand to benefit from a periodic review by way of receipt of information that are duly classified, correct determination of total and taxable turnovers, review of rates of taxes, proper application of relevant notifications, circulars, clarifications, Government orders and adherence to the tax compliances. The audit report would also take into cognizance the relevant judicial precedents that are applicable to the registered person. Unlawful claims for benefits / unethical tax management practices adopted by the assessees would be filtered out, since tax professionals would intimate and persuade the assessees of the consequences of such practices, and also bring out the discrepancies in their reports.
When audits are performed by tax experts, the time spent by the tax authorities on the scrutiny would be minimized, thereby allowing them to utilize the available time for more meaningful and productive purposes. Voluntary compliances by the assessee would encourage the department / Government to simplify the law and procedures, and develop a mechanism for ease of doing business. It would be a win-win situation.
To the professionals – Tax Professionals are compelled to conclude the audits (mandated by statutes) in a time bound manner within a fixed period of time.
However, where auditees engage them to carry out periodic reviews voluntarily, the said tax professionals will be in a position to deploy experts and spend adequate time and efforts, in order to go through the records and documents in detail. This will help them to better understand the operations of the auditee, resulting in value addition. Instead of carrying out the audit at the end of the year, for all the assessees, a periodic audit will help the auditee in understanding the short-comings that can be duly adhered to within time and would, in a way, avoid any further consequences.