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Selection of scrutiny or audit as per audit manual 2023 risk parameters

Question BankCategory: Goods & Service Tax (GST)Selection of scrutiny or audit as per audit manual 2023 risk parameters
Kollipara sundaraiah asked 6 months ago

A registered regular scheme jewellery business dealer sale turnover rs:145 lacs year:21-22
Sales turnover rs:105 lacs year:22-23.
Question:
Dealer selection of scrutiny returns or audit provisions applicable risk parameters as per audit manual-2023 

5 Answers
Manish answered 6 months ago

AS PER Section 61 of CGST ACT i.e Scrutiny of returns
(1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.
(2) In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.
(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.
 
Scrutiny assessment is done to verify the correctness of details submitted in GST returns. If AO see any sign default or fraud, then the tax officer can take decision of scrutiny assessment.
The GST Network has launched the automated return scrutiny module in May 2023 from FY 2019-20 onwards. The Automated Return Scrutiny Module is integrated with the ACES-GST backend application. It is made accessible by tax officers to conduct GST scrutiny easily, transparently and faster. 
A scrutiny notice is issued in Form ASMT-10 intimating discrepancies in GST return along with tax, interest and penalty if any. A reply of this notice is to be submitted in Form ASMT-11. 
Hence on the basis of the given data, it cannot ascertained whether your case will be selected for scrutiny or not. It depends on many factors. 
TYPES OF AUDIT IN GST
Three types of audit are there in GST Law:-
Audit by Tax authorities:-   

  • As per provision of section 65 of the CGST/SGST ACT 2017, and as per rules 101 of the CSGT/SGST rules 2017, this audit is to be conducted by an authorized officer , under the power delegated by the Commissioner. There is no Turnover limit for this audit. 
  • The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.
  • The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office. 
  • The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed. 
  • The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit. Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months. Explanation. – For the purposes of this sub-section, the expression ‗commencement of audit‘ shall mean the date on which the records
    and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later. 
  • During the course of audit, the authorised officer may require the registered person,— (i) to afford him the necessary facility to verify the books of account or other documents as he may require; (ii) to furnish such information as he may require and render assistance for timely completion of the audit.
  • On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings. 
  • Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.
  • Where it is decided to undertake the audit of a registered person in accordance with the provisions of section 65, the proper officer shall issue a notice in FORM GST ADT-01 in accordance with the provisions of sub-section (3) of the said section.
  • The proper officer authorised to conduct audit of the records and books of account of the registered person shall, with the assistance of the team of officers and officials accompanying him, verify the documents on the basis of which the books of account are maintained and the returns and statements furnished under the
    provisions of the Act and the rules made thereunder, the correctness of the turnover, exemptions and deductions claimed, the rate of tax applied in respect of supply of goods or services or both, the input tax credit availed and utilised, refund claimed, and other relevant issues and record the observations in his audit notes. 
  • The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished
  • On conclusion of the audit, the proper officer shall inform the findings of audit to the registered person in accordance with the provisions of sub-section (6) of section 65 in FORM GST ADT-02

Special Audit in GST:-   

  • Special Audit is done by Chartered Accountant/ Cost Accountant on the order of an officer (non below the rank of Assistant Commissioner) upon prior approval of the Commissioner. Special Auditor is appointed by Commissioner under section 66 of the CGST/SGST Act 2017 read with rule 102 of the CGST/SGST rules 2017. 
  • If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.
  • The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified.Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further period of ninety days.
  • The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.
  • The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.
  • The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.
  • Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

 
Turnover based Audit in GST:-   

  • Turnover based audit was done under section 35(5) of the CGST/SGST Act 2017 read with rule 80(3) of the CGST/SGST rules 2017. Turnover based audit was done by a Chartered Accountant / Cost accountant. This audit was done only when aggregate turnover exceeds the prescribed limit ( i.e. Turnover limit for GST audit Rs. 2 crore in FY 21-22). Please note that section 35(5) has been omitted w.e.f 1st August 2021 (as proposed in Finance Act, 2021). Hence this audit is no longer applicable. 

Hence on the basis of the given data, it cannot ascertained whether your case will be selected for GST audit (Audit by Tax authorities u/s 65 / special audit u/s 66). It depends on many factors. 

Sunil answered 6 months ago

Three types of Audit in GST

  1. Audit by Tax Authorities.(Section 65 read with rule 101)
  2. Special Audit by CA/CMA(Section 66 read with rule 102)
  3. Turnover based audit by CA/CMA (section 35(5) read with rule 80(3)) omitted w.e.f. 01.08.2021.

Click here for audit manual 2023(Source: GST council)

Manish answered 6 months ago

Please note that reduction of turnover is not a reason for selection of case for scrutiny & GST audit. 
There may be other factors. Hence with the given data, if cannot be ascertained whether your case will be selection for scrutiny / Audit or not.  

Sunil answered 6 months ago

Selection of taxpayer for GST audit is on the basis of risk parameters i.e. risk-based selection of auditees. 
These Risk parameters are developed in response to a certain compliance environment and aggregate compliance 31 Model All India GST Audit Manual 2023: Prepared by the CoO on GST Audits
behaviour, as well as yield of past selection criteria. 
Hence, no selection criteria can be set in stone. However, certain certain broad areas from which selection criteria can be chosen are briefly discussed below:-

  1. Turnover
  2. Tax
  3. ITC
  4. Refund
  5. Sector
  6. NON-Compliance.

Specific benchmarks may be fixed against the risk criteria for each of the major heads. Some major heads are discussed below:-

  • Entity level risks (e.g. Turnover, Tax, ITC, Refund, Commodity such as Iron & Steel, Paints & Chemicals, Textiles, Cement, Medicine, Footwear, Branded food grain, Automobiles etc., Service: Works contract, Real Estate, Information Technology, Consultancy service, Manpower service, Hospitality, Travel & Tourism, Leasing etc.).
  • Risks associated with compliance behaviour (e.g. late filer of return, non-submission of Form GSTR-1, Form GSTR-3B, Form GSTR-9 & Form GSTR-9C).
  • Various ratios, e.g. (1) Taxable turnover: Exempted turnover (2) Export/SEZ turnover/ total turnover (except in case of export houses) (3) Output tax : Input tax (4)  Cash payment: Output tax (5) Set-of using e-credit ledger : Set-of using e-cash ledger (6) Inter-state supply: Intra-state supply etc.
  • Exceptional Reports e.g.
    o ITC claimed in Form GSTR-3B vs. ITC auto-populated in Form GSTR-2A/GSTR-2B
    o Turnover declared in Form GSTR-3B vis-à-vis Form GSTR-1
    o claim of ITC from cancelled RTPs, aggregate turnover in GST return vis-à-vis Turnover disclosed in Income Tax return
    o Turnover declared by RTP in Form GSTR-3B compared to turnover on which TDS deducted as reflected in Form GSTR-7 submitted by TDS deductor
    o Turnover declared by RTP in Form GSTR-3B compared to turnover on which TCS collected as reflected in Form GSTR-8 submitted by TCS collector
    o Turnover declared by RTP in Form GSTR-3B compared to minimum turnover expected on the basis of e-way bills generated in respect of the said RTP
    o Refund-claim against purchase from taxpayer having no auto-population of ITC in Form GSTR-2A
    o purchases from non-existent RTPs
    o RTPs having adverse reports in VAT/Service Tax/Central Excise who are operative in GST etc.)
  • Some of the steps and broad principles that may be followed for selection are given below:-
    A. Taxpayers under the State/Central jurisdiction, i.e. the taxpayers who are required to file Form GSTR- 3B and Form GSTR-1, may be selected by the respective Commissioner.
    B. Those tax-payers who have filed at least such a minimum number of returns as the administration would decide, in the financial year or those who have been granted a refund beyond a certain amount may be selected.
    C. The taxpayers‘ pool may be divided into 3 segments namely Large, Medium & Small based on turnover, or on some other logical criterion.
    D. All risk parameters are required to be identified and all probable aspects need to be considered to identify non-compliance and non-payment / short payment of tax, interest, late fee, penalty etc. and evasion of tax.
    E. To select taxpayers for audit in an effective manner, secondary data sources (such as VAT/Service Tax/Central Excise/Custom data, Income Tax data etc.) may be also considered and referred to along with the primary data sources (i.e. GST data).
    F. The weightage of each parameter may vary depending upon its importance in selection of taxpayers for audit as well as effectiveness of risk parameters chosen in the preceding Financial Year (s).
    G. Based on the average weight considering all the parameters, a final score may be calculated on the basis of which the final selection may be done.
    H. The final selection of taxpayers to be audited may be done based on the descending order of the final score thus calculated. In case, more than one RTP has the same final score, the parameter of declared liability may then be considered and a taxpayer with more declared liability may be selected first.
    I. A Selection Committee may be constituted to identify various risk parameters for selection for audit, considering all the aspects where there are chances of lack of compliance with the Act resulting in short payment of tax etc. such as:
    J. The final score may be calculated based on the data for each financial year and the parameters as well as the weightage adopted may undergo necessary modifications if required.
    K. In case the RTP selected for audit has multiple registrations under the same PAN / TAN in the State, it is suggested that all such registration numbers may be selected for audit.
    L. A certain percentage of the selection of the taxpayers may be done on a random basis. The percentage may be fixed by an audit administration based on their audit strategy. Random samples can serve as useful controls and uncover latent compliance issues.
    M. A certain percentage of taxpayers can also be selected for audit based on local parameters such as intelligence inputs, past compliance behaviour, etc.
    N. Suo-motu selection: If an officer comes across any specific information relating to a RTP and has specific reasons to believe that Audit of the said RTP‘s books of accounts is required to be done for one or more financial years, or, if any audit officer in the course of audit has specific reasons to believe that an observation made upon audit will have revenue impacts in other periods also, he/she may send a proposal in this regard to the Commissioner/appropriate authority. Similarly, an audit officer or his/her higher authority can propose an audit of a taxpayer for adequate reasons which are recorded in writing. The Commissioner/appropriate authority upon consideration of all such proposals may select some/all of such RTPs for audit. GSTN has developed a module to facilitate such proposals for suo motu selection of any taxpayer for audit.

Hence reduction is turnover is not a factor for selection of your case for GST audit. There is are a number of factors as given above (source: GST audit manual) which may result in selection of a case for audit. 
Hence on the basis of given data , it cannot be ascertained whether your case can be selected for GST audit or not. 
 

Manish answered 6 months ago

Apart from selection of taxpayer (for GST audit) on the basis of risk parameter, Random selection may also be done. Tax payers (roughly around 10%) may also be selected randomly on the basis of local intelligence networks which otherwise may not be covered strictly by the overall risk parameter selection. The discretion for selecting cases may rest with the appropriate authority of a Zone or a Division

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