1. GST Audit
ICAI-IDTC | WIRC-Baroda
Aug, 2018

2. Quick Background Relevance of ‘entity’ Role of ‘Place of Supply’
Extent of ‘coverage’
Classification
Effect of ‘credit’
Claim of ‘credit’
Purpose of ‘valuation’
Effect of ‘errors’
Scope of ‘GST’
Definition of ‘exports’
Registration
Taxability
Limited exclusion
Rate of tax
Cost-Price
Returns or books
Quantification
Repeat payment-Refund
Visible-Invisible
New and unusual

3. Quick Background All transactions covered Contracts review
Other income
Composite-mixed
Netting-off payments
Time/Place challenge
Validate by comparison
Notes to accounts
Accounting policies
Not apparent
Discover supplies
Taxable payments
Rate of tax
Exchange transaction
Double demand
Sole consideration, test
Nature of disclosure
Nature of supply

4. Scope of GST Audit

5. Scope of GST Audit Audit and Reconciliation Two records:
Sum of monthly returns
Financial books
GSTIN-wise books:
As per AS/IndAS
All GSTIN-wise books to match PAN-level books
Identify ‘audit’ trail:
Prepared or maintained
Specially prepared
AR-Reco mismatch:
Permissible mismatch
Desirable mismatch
Impermissible mismatch
Price-Cost relationship:
Tax effect on Price
Credit effect on Cost
Records and books:
Deficiencies
Effect of adjustments
Disclosure

6. Outward Supplies Scope of ‘business’: Classification:
Actual / notional supplies
Non-GST / exempt supplies
Personal transactions
Appropriation transactions
Classification:
Trade-Contract-Tariff
Rate conditions / options
Back-to-back or new rate
Composite-mixed tax rate
Tax-free items, exemption
Time and Place ‘challenge’
Invisible supplies:
Return supplies (negative)
Incentives / cash-back
Promotional distribution
‘Net off’ expenses
Service transfer
Central/HO AP effect
Job-work non-returns
Sale-on-approvals’ ageing
EWB ‘link’ review

7. Outward Supplies Valuation adjusted for: Validate by comparison:
Discounts-inclusions
Contract sum to Invoice
Non-monetary supplies:
Bought-outs / made-ups
Margin / service uplift
Cost construction method
Stock / service transfer
Negative adjustment
Validate by comparison:
Price is sole consideration
Refer OMV-LKQ-C+10%
Contracted / obligatory
Other aspects:
Revenue recognition:
Unbilled revenue
Unearned income
PoC-CC treatment
Advance-deposit-adjustment
Uncertified work done
ZRS compliance-reporting
RCM outward supplies
Interest and debit note
Bad-debts and credit note
Staff recoveries / deduction
Supplies ‘linked’ to RCM

8. Inward Supplies Recording method: All ‘debits’ reported:
Capitalization / disclosure
Inventorized credit value
All ‘debits’ reported:
Direct procurement
‘Paid for’ procurement
‘Pass through’ costs
‘Reimbursed’ costs
‘Agreed’ obligations
‘Awarded’ obligations
Contingencies ‘reported’
Non-inventory items:
Expended / written-off
Promotion / own-use
Statutory / Government
Perquisites / Tools-of-trade
Other aspects:
Vendor-dependent (rate)
Provisions / write-back
FEMA-Tax reporting effect
Immovable property items
Policy-driven items

9. Journal Entries for GST
Accounting
Inward Supplies
Plain vanilla
With Control Accounts
(Supplier debited for default, if any and balanced by Control accounts)
Payment
(Reverse any balance in Control accounts once post-supply conditions met)
Adjustment
(Credit to defer or refund or utilize; carry forward only when no outward supply)
GST-default
(RCM by non-defaulting party)
IGST accounts on same principle
(not included in illustration above)
In case credit partly available, add non-creditable portion of tax paid back to inventory and reduce from Control accounts without change in dues to supplier

10. Government Services

11. Input Tax Credit Credit ‘link’ to business: Credit ‘conditions’ check
Normal wastage
Abnormal wastage
Diversion of end-use
Ineligible-related review
Use / dis-use / mis-use
Credit ‘conditions’ check
Capitalization:
100% dep. / write-off
Impairment / charged-off
Substantial revenue exp.
Services ‘received’ test
Use in ‘exempt’ supply:
Extended definition
Unfructified activities
Credit control accounts:
Accrued but not due / due
Deferred (60m) / refundable
Other aspects:
RCM ‘pay-earn’ check
Creditors ageing effect
AP ‘link’ reversal review
Credit ‘entry-exit’ review

12. Tax-Credit Relationship

13. Disclosure Considered private: Considered public: Reporting: Approach:
Non-GST / non-taxable
Exemption conditions
Classification alternates
Credit conditions
Rule 42/43 revision
Contingent issues
Considered public:
Corroborative
Linked by reference
Available on search
Reporting:
Mandatory
Directory
Desirable but not essential
Optional yet beneficial
Unwarranted
Approach:
Complete and precise
Complete but general
Adverse and suspect
Ambiguous

14. Legal Action Advance ruling: SCN: EWB reports:
Self or others
Impact and effect
Treatment and disclosure
SCN:
Issue and demand
Position and reply
Outcome and treatment
EWB reports:
Accepted and rejected
Auto-acceptance
Unauthorized use (in)
Cancellation (out)
Inspection reported
Impact in annual report:
Payment and recovery
Treatment and disclosure

15. Inward Supplies Outward Supplies Other income Other expenses
Inventorized credits
Actual or notional supplies
Direct procurement
Non-GST or exempt supplies
Capitalized value of asset
Personal
Time and Place ‘challenge’
‘Paid for’ procurement
Inward Supplies
Appropriation
Outward Supplies
‘Pass through’ costs
Rate ‘conditions’ and ‘options’
‘Reimbursed’ costs
Classification driver “Trade-Contract-Tariff”
‘Agreed’ obligations
Composite-mixed tax rate
Other expenses
Other income
Back-to-back or new rate
Tax-free (exempt or excluded)
‘Awarded’ obligations
Return supplies (negative)
Incentive or cash-back
Contingencies ‘reported’
Promotional distribution
Expended or written-off
Job-work ‘non-returns’
Service transfers inter se distinct persons:
management and stewardship services
collaborative project execution
Centrallized AP-AR, IT, book-keeping, CRM, back-office support and shared services
Sale-on-approvals’ ageing
Promotions or own-use
Perquisites or tools-of-trade
Interest or delay charges and use of debit notes
Valuation ‘adjusted’ for:
Discounts and inclusions
Contract Sum ‘to’ Tax Invoice
Non-monetary supplies:
Bought-out or made-ups
Margin uplift or service uplift
Cost construction method
Stock transfer or service transfer
Negative adjustments (3P price intervention)
Statutory or Government (RCM)
‘Net off’ expenses
Vendor-dependent (rates)
Validate by comparison:
Price is sole consideration
Apply OMV-LKQ-Cost+10%
Contracted costs and obligatory costs accepted
Provisions or write-back
FEMA-Tax reporting
ZRS compliance-reporting
Revenue recognition:
Unbilled revenue
Unearned income
PoC and CC treatment
Advance-deposit-adjustment
Uncertified work done
Immovable-property items
EWB ‘link’ review
RCM ‘outward’ supply
Policy-driven items
Supplies ‘linked’ to URD-RCM
Staff recoveries or deduction
Bad-debts and use of credit notes

16. Input-input service credit reversal (r.42)
Test of Disallowance
Input-input service credit reversal (r.42)
CG credit reversal (r.43)
Ineligible credits
Entry into ITC (r.40)
Entry by sale-M&A (r.41)
Exit from ITC (r.44)

17. Components of Supply (review every year within Sept)
Credit reversal linked to end-use ‘formula’ in rule 42
S.17(1) restricts credits to extent exclusively ‘attributable’ for business purposes
S.17(2) restricts common credits
‘attributable’ to taxable and zero-rated supplies
S.17(3) declares following to be ‘exempt’ supplies to restrict credit:
Taxable on reverse charge
Transactions in securities
Sale of land and building
Supplies ‘in’ business
(Taxable and Zero-rated) T4 C2
After allocating ITC ‘exclusively’ used for each activity, balance is ‘common credits’ to be reallocated as prescribed u/r 42 C3
(balance)
17(5) T3
D1=C2*Exempt TO/TTO in State
Supplies in business ‘but’ Exempt T2
D2=5%*C2
Supplies ‘not’ in business T1
C1=T4+C2
Components of Supply (review every year within Sept)
T=Total Credits
Report in GSTR-2

18. Components of Supply (review every year within Sept)
Credit reversal linked to end-use ‘formula’ in rule 43
S.17(1) restricts credits to extent exclusively ‘attributable’ for business purposes
S.17(2) restricts common credits
‘attributable’ to taxable and zero-rated supplies
Credit of ‘capital goods’ also requires end-use examination
Interchangeable ‘end-use’ of capital goods attracts ‘quarterly’ review
Supplies ‘in’ business
(Taxable and Zero-rated) F
A (Tc)
After allocating ITC ‘exclusively’ used for each activity, balance is ‘common credits’ to be reallocated as prescribed u/r 43
#1: Tc/60=Tm
#2: Tr=Tm1+Tm2+….
17(5) ….
Supplies in business ‘but’ Exempt E
#3: Te=(E/F)xTr
Supplies ‘not’ in business
5% per quarter
Components of Supply (review every year within Sept)
T=Total Credits
Report in GSTR-2

19. Inter-State Tax Invoice
Sales returns in GST
Not applicable to returns during transition
Credit note
Invoice value excessive
Higher rate tax applied
Goods returned $
Goods-services deficient $
Incentive or Commission #
Debit note
Invoice value deficit
Lower tax rate applied
Short receipt of payment #
$ Only ‘goods’ can be returned but ‘deficiency’ can be in supply of both goods and services
# Look for incorrect use of credit note / debit note. S.34 does not refer to these Cr/Dr notes as understood in accounting parlance
Intra-State Returns
Inter-State Returns
Tax Invoice
Tax Invoice
Supplier
Recipient
Supplier
Recipient
Credit Note
Credit Note
Goods Return
Goods Return
Inter-State Tax Invoice
Supplier
(o/s State)
Time limit for sales returns is Oct 20th of following year or filing of annual return (earlier)
B2B returns can also be carried out as ‘return supplies’ without any time limit
B2C returns can be undertaken as illustrated above (intra-State or inter-State) but within time limit stated above
B2C returns can be undertaken as illustrated above even when two different PAN-holders are involved (supply-by and returned-to)

20. GST on employer-employee transactions
Transactions ‘in the course of or in relation’ to his employment enjoy exclusion from GST by entry 1, sch III
Sch III – Activities or Transactions which shall be treated neither as a supply of goods not a supply of services
1. Services by an employee to the employer in the course of or in relation to his employment.
2. …….
Employer
Transactions ‘not’ in the course of or in relation to his employment – is supply
Exclusion by sch III:
In the course of
In relation to
His employment
Expenses incurred by employer to facilitate work-performance by employee – not supply
Employee
All payments ‘in the course of or in relation to’ his employment – must be accounted as ‘salary and wages’ in employer’s books
Payments accounted as ‘business expense’ by employer –indicates payment ‘not’ in course of or in relation to his employment. No implied agency, not pure agent at all
Payments made to employee towards business expenses:
Not reflected in employer’s GSTR-2
Invoice issued by actual supplier in name of employee
Accounting of expense is based on ‘expense claim form’
All inward supplies to be supported by invoice s.31
Inward supply without invoice to comply with s.31 (3)(f)
Employer liable to GST by s.9(4) r/w s.31(3)(f) on above
Exclusion by sch III does not apply to such payments

21. Registration Rules
Pre-registration declaration of particulars – PAN, and mobile number 1
GST REG 01 Part A
Online submission of verified application
GST REG 01 Part B
Generation of e-acknowledgement 2
GST REG 02
Deficiencies to be communicated in 3 days
GST REG 03 4
Resolve deficiencies by “clarification”, “information” or “documents” in 7 days
GST REG 04 4
Rejection of application within further 7 days
GST REG 05
Registration in 7 days
GST REG 06
Application for TDS / TCS registration 3
GST REG 07
Application by NRTP (non-resident taxable person) 3 days prior to commencement of business
GST REG 09
OIDAR supplier
GST REG 09A
Registration in 3 days
GST REG 06
Application for extension of registration duration by CTP/NRTP
GST REG 10
Suo moto registration by Officer
GST REG 11
Application for UIN registration
GST REG 12
1 Verification of PAN with CBDT database and / mobile with OTP
Separate application in GST REG 01 if registration required for each business vertical or change in PAN
2 Casual taxable person to receive temporary identification number to make deposit u/s 27
Changes effective on e-filing in GST REG 11 within 15 days and substantive changes effective only when allowed within further 15 days in GST REG 13
3 All change / cancellation (GSTIN or TDS-TCS) registration in GST REG 08

22. Registration Cancellation Rules
Voluntary cancellation of registration 5
GST REG 14
Notice proposing cancellation of registration 6
GST REG 16
Order-of-cancellation or order-of-satisfaction within 30 days
GST REG 18 / 19
Application for revocation of cancellation within further 30 days
GST REG 20
Rejection of application for revocation
GST REG 05
Revocation of cancellation of registration 7
GST REG 21
Registration certificate to migrate persons registered under current laws
GST REG 25
Provisionally registered taxable persons to file application within 3 months
GST REG 24
Grant of registration
GST REG 06
Order-of-cancellation of provisional registration 8
GST REG 26
Person seeking to cancel provisional registration granted
GST REG 28
Verification report of business premises inspected
GST REG 29
5 Persons who voluntarily registered need to retain registration for 1 year
If application for revocation not liable for prima facie rejection, deficient information to be called for and notice for adjudication in GST REG 19 required to be issued for disposal of revocation application
6 Reply to notice in GST REG 17
7 Notice in GST REG 22 and reply to notice in GST REG 23
8 Notice in GST REG 27

23. Thank You