Typical GST Audit Program, Detailed GST Audit Check list for professionals

Typical GST Audit Program: Section 35(5) of the CGST Act, 2017 (the Act) requires all taxable persons with a turnover exceeding rupees 2 crore to get the GST records audited by a Cost Accountant or a Chartered Accountant in practice. Here is an attempt to draw a typical audit program CMAs could adopt.

Records:

  1. Obtain copy of the audited financial statements of the company.
  2. Get all GSTR 1 and GSTR 3B Returns for the period July 2017 to March 2018.
  3. Ensure access to all books of accounts of the company

GSTR 1 and GSTR 3B Returns:

  1. Obtain list of invoice and debit note series in use.
  2. Check dates of filing of GSTR 1 and GSTR 3B Returns.
  3. Check whether all invoices/debit notes/credit notes have been reported in the GSTR 1.
  4. Check if there are any sales returns. Have credit notes been issued for sales returns.
  5. Are there any rate revisions to any invoices. If yes, have debit/credit notes been issued for such revisions. Have such debit/credit notes been reported in the GSTR 1.
  6. Check if IGST has been charged where address of the customer is out of the state but delivery has been made within home state.
  7. Check whether the client deals in goods which are exempt but would attract GST if sold as Registered Brand, Packed Goods, Processed Goods, Cattle Feed (?), etc.

ITC Credit:

1. Check whether ITC has been availed in respect of all inward supplies.

2. Tally ITC availed with corresponding entries in GSTR 2A.

3. Are there any purchase returns. If yes, has ITC been reversed in respect of such purchase returns.

4. Deliveries of goods in installments – Check if deliveries of goods for any invoices are to be received in installments. If so, ITC for the invoice is to be taken only upon receipt of the last installment.

5. a. Check if any of the supplier invoices were not paid within 180 days during the year. If so, check whether ITC was reversed when the invoices became overdue beyond 180 days.

5. b. Check whether interest @ 18% has been paid from the date of availment upon reversal of ITC.

5. c. Check whether ITC has been reinstated if such invoices were paid for subsequently.

6. Check whether ITC has been availed in respect of tax paid under RCM.

7. Check whether ITC has been availed in respect of bank charges.

8. Blocked ITC credits – Check whether ITC has been availed in respect of purchases of the following goods/ services on which ITC is not permitted in terms of S.17(5).

  • a. Motor vehicles and other conveyances except when meant for resale, passenger transport business, imparting training in driving or transportation of goods.
  • *b. Supply of food, beverages including outside catering.
  • *c. Beauty treatment, health services, cosmetic and plastic surgery.
  • *d. Membership of a club, health and fitness centre.
  • *e. Rent-a-cab and life insurance and health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force.

*Please note ITC will be available where such inward supply of any such goods or services is used for making an outward taxable

  • f. Travel benefits extended to employees on vacation such as leave or home travel concession.

9. Inputs lost, damaged, etc.- Check if any of the inputs on which ITC has been availed have been lost, damaged or written off. ITC availed on such lost inputs must be reversed.

10. Check if the client makes supply of any exempted goods or services. If so, common expenses are to be apportioned between taxable and exempt supplies. ITC to be taken only on that portion which applies to taxable supplies.

11. Sale of capital assets before 5 years – Check if any assets capitalized are sold during the year before completion of 5 years. In such cases GST will be payable on higherof the following:-

  1. i. GST calculated on the actual sale value of the asset;
  2. ii. 1/20th of the ITC availed for each of the remaining quarters of the balance period of 5 years.

12. If excess claim is on account of error, reverse the credit with 24% interest from the date of claiming.

Reverse Charge Mechanism:

A. Reverse Charge u.s. 9(3):

1. Check if there are purchases of any of the following goods:

  • i. Purchase from agriculturist of, Cashew nuts, not shelled or peeled, bidi wrapper leaves (tendu), tobacco leaves.
  • ii Purchase of silk yarn from manufacturers of silk yarn from raw silk or silk worm cocoons.
  • iii. Purchase of lottery tickets by a lottery dealer from State Government or local authority, GST is to be paid by the receiver of the goods listed above.

2. Identify the inward supplies of the Services listed in Notifications. 13/2017and 3/2018, CGST (Rate) viz. :

i. GTA Services

ii. Advocate services;

iii. Services by Arbitral Tribunals;

iv. Sponsorship services;

v. Services by Government or Local authority, except:

  • a. Renting of immovable property until 24-01- 2018.
  • b. Speed post, express parcel post, etc.
  • c. Transport of goods or passengers.
  • d. Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport.

vi. Services provided to a company by a director. vii. Services of insurance agent to insurance company.

viii. Services by bank recovery agent to a bank.

ix. Supply of services by an author, music composer, photographer, artistor the like by way of transferor permitting the use or enjoyment of a copyright GST is to be paid by the receiver of services in respect of all the services listed above.

B. Reverse Charge u.s. 9(4):

1. Check if there are any inward supplies from unregistered persons from July 1, 2017 to October 12, 2017. GST is payable on purchases of goods/ services from unregistered persons during the period July 1, 2017 to October 12, 2017.

2. GST is not payable on purchases of goods/services if purchases in one day are up to rupees 5,000/-. Prepare day-wise list of purchases of goods /services from unregistered persons.

3. Check if any advances have been paid to unregistered persons from July 1 to October 12, 2017. GST will be payable under RCM on such advances

C. Invoice for RCM expenses:

1. Check whether a consolidated invoice has been prepared at the end of each moth for the purpose of payment of RCM tax in respect of all invoices liable to RCM during the month.

2. Check whether the consolidated invoice has been included in the GSTR 1 for the month.

3. Check whether tax has been paid through the GSTR 3B for the month on the RCM supplies as per the consolidated invoice.

Miscellaneous items liable to payment of GST : Ensure that tax is paid on the following items

1. Telephone and other facilities provided to employees – Where telephone or other facilities are made available to an employee which could be partly used for personal purposes, reverse 5% of the ITC availed on such expenses.

2. Recoveries from employees – Canteen and Other recoveries from employees taxable.

3. Recoveries from customers – Ensure that GST has been charged on all recoveries from customers like penal interest, transport charges, liquidated damages, etc.

4. Receipt of advance payments – Please note

  • a. All advances received by registered persons till October 12, 2017 are liable to GST at the time of receipt of such advance.
  • b. Advances received by registered persons having turnover of Rs.1.50 crore from October 13.2017 are not subject to payment of GST on receipt of advance payment.
  • c. From November 15, 2017, advance payment received by all registered persons is not liable to payment of GST at the time of receipt of advance payment

5. Write-off of credit balances- Check if any credit balances have been written off. If so, ITC should be reversed on such write-offs.

Job work:

1. Check if any inputs were lying with job-workers as on July 1, 2017. If yes, please check whether such inputs have been received back December 31, 2017. If theses are not received by December 31, 2017, the ITC availed on such inputs is liable to be reversed.

The above audit program should cover the most commonly experienced situations in any business. CMA colleagues and others are welcome to forward their specific queries on email id [email protected]

DISCLAIMER: The contents of this article are solely for informational purpose. The author does not accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.