1. sub regional conference Organised by wirc of icaI
DATE : 16th June, 2018
VENUE : ICAI Bhawan, Atladra, Vadodara
TOPIC : GST Audit & State of Preparedness (Including Its Impact On Finalization Of Accounts)
By S. S. GUPTA
CHARTERD ACCOUNTANT

2. Statutory provisions –
As per section 35(5) of GST Act read with rule 80(3) of GST Rules, every registered person whose aggregate turnover exceeds Rs.2 crore is required to get his accounts audited and shall furnish copy of audited account and reconciliation statement duly certified in form GSTR-9C. As per section 44(2) every person who is required to get his accounts audited shall furnish electronically annual return with copy of annual accounts and reconciliation statement reconciling the value of supply declared in the return for the financial year with audited annual financial statement and such other particulars as may be prescribed. Thus, it is not only reconciliation between the value of output supply declared in Return 3B and shown in the audited financial statement is required to be furnished but such other particulars as may be prescribed is required to be furnished.

3. The aggregate turnover has been defined in section 2(6) of GST Act and it means turnover of all the registration and not of the individual registration. Thus, turnover of all States will be considered for computing the amount of Rs.2 crore. This will also include interest on loan.
The other particulars [form 9C] is still not notified but the objective of the audit will be to ensure that the assessee has paid GST properly and has not contravened provisions of the Act or the Rules made there-under. Considering this objective, it appears that the verification will involve many areas. They are discussed below.

4. (a) Reconciliation with financial account The amount of output supply is required to be declared in 3B and subsequently GSTR-1 is also required to be filed. It is essential that the amount shown as output supply in 3B reconcile with the amount shown in financial accounts. The reasons for difference between the amount shown in 3B and financial accounts should be explained in the report. The reasons for difference can inter-alia be supply of goods or services between distinct person or supply made without consideration. Section 7 define supply and provide that following items will be considered as supply even when rendered without consideration: 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

5. Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both 3. Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

6. As per section 15, value of taxable supply is the amount received in money as well as money equivalent of the consideration received in non-monetary terms. The amount received in non-monetary terms is never reflected in the books of accounts. Therefore, the auditors may have to review some of the contract to understand the nature of consideration received.
Determine the value for transaction between related person.
Accounting standard (AS) – 18 requires that the company mention the names of related person in the annual accounts. The value has to be determined in terms of rule 28 of CGST Rules, which is as follows:

7. 28. Value of supply of goods or services or both between distinct or related persons, other than through an agent.-The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall- (a) be the open market value of such supply; (b) if the open market value is not available, be the value of supply of goods or services of like kind and quality; (c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

8. Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person: Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

9. (d) Credit note/Debit note issued under section 34 is required to be reviewed. The manner of ensuring that other party has not availed credit of full amount or reversed proportionate amount of credit shall be determined to ascertain the accuracy of adjustment. (e) Many companies make promotional scheme to promote their product. For example, one free for purchase of ten. Review the circular to determine the information to the customers and the manner of passing on the discount.

10. In case the company registration in all States, study the manner of computing the value for the services provided by Corporate Office to Branches and vice versa.
Verify whether the company has obtained registration as ISD. If yes, verify the manner of distribution of credit.
Determine the place of supply to decide charging of CGST, SGST or IGST. Please verify manner of determination of place of some for some of the transactions. Interpretation of provisions of section 10(1) of IGST Act, reproduced below, can be an area of dispute.
10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,––
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;

11. (b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person; (c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient; (d) where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly; (e) where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.

12. Time of supply is required to be determined as per section 12 and 13 of IGST Act. Some of the invoices are required to be verified to determine the time of supply.
(j) Rate of tax. Classification of various items is required to be reviewed to determine the correct rate of tax. It should also be ensured that conditions stipulated in exemption notification has been complied with in order to ensure that exemption has been properly availed. For example, entry No. 3(v) of notification No. 11/2017-CT (Rate) (applicable to builders) is reproduced below:

13. (v) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) railways, excluding monorail and metro; (b) a single residential unit otherwise than as a part of a residential complex (c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation

14. (d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under – (1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (2) any housing scheme of a State Government (e) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or (f) mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages

15. (k). Payment of GST on reverse charge. Following transaction
(k) Payment of GST on reverse charge. Following transaction shall be reviewed:
Supply received from unregistered suppliers [upto 12th October 17]
Import of services
Other categories like GTA, Sponsorship, etc
(l) Export of goods and services are zero-rated supply as per section 16 of IGST Act. Execution of LUT shall be verified. If LUT is not executed, basis on which conclusion of export of goods or service is drawn.

16. Provisions of transitional credit is contained in section 140
Provisions of transitional credit is contained in section The assessee is required to file TRAN-1. TRAN-1 may be verified to arrive at the proper availment of credit. Details of input tax credit taken shall be reviewed in order ensure that conditions stipulated in section 16 have been complied with These are –
Credit has not been taken on items which are listed in section 17(5)
Amount has been paid to the supplier within 180 days from the date of receipt.
Recipient has paid the tax

17. Registered person has received the goods and services or both
Return has been furnished.
Proportionate amount of credit has been reversed under rule 42 & 43 of CGST Rules.
Compliance of provisions of ISD
(n) In case of supply to SEZ, it must be ensure that the specified officer has endorsed the documents
(o) Recovery of amount from employees and its consequence on availment of credit or payment of tax.
(p) Verify whether the provisions related to anti-profiteering has been complied with. Section 171 reads as follows:

18. 171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. (q) Verify return to ensure that they have been filed in time and all information has been properly disclosed.

19. S.S.GUPTA BALANCED VIEW PRESENTED BY THANK YOU
Chartered Accountant , Topiwala Centre,
Topiwala Theatre Compound,
Near Goregaon Railway Station,
Goregaon (W), Mumbai
TEL: /