Dr D Mukhopadhyay
Goods and Services Tax has emerged as one of the most important fiscal vehicles for garnering revenue for the Government of India as well as the State Governments in Federal India. Since the Goods and Services Tax Act , 2017 came into force with effect from the First day of July, 2017, many myths and ifs and buts have become the prominent issues concerning implementation process of the said fiscal law by the Government of India and compliance procedures and practices that are needed to be honoured by tax payers who are technically known as the Assesses. The objective of this write up is to offer a bird’s eye view on the GST Compliances and Practices to be adopted by the tax payers and the Auditors’ responsibility to the Governments and the Assesses. Before the emergence of Goods and Services Tax regime, there were also requirements of tax compliances by the tax payers and audit thereof by the Qualified Accountants who are essentially Chartered Accountants (CAs) and Cost & Management Accountants (CMAs). The Tax Professionals used to conduct audits under the Excise , Sales and Service Tax Laws remaining in force in the country in those days in order to evaluate tax compliances and ensure that tax liability is discharged within the prescribed statutory timeframe so that the Assesses do not suffer from the loss arising out of payment of interest and penalty in one hand and they enjoy the benefits of Inputs Tax Credit within the ambit of legal framework on the other. The timely tax compliances ensure hassles free revenue collection for the Governments and saving in litigation cost for the tax payers. In other words, it had a positive impact of indirect taxes in the form of value addition for the society at large. More or less in similar manner, currently the tax payers are also required to deposit the collected taxes in time, file the prescribed returns and get the compliances and practices audited by the Qualified Practicing Accountants i.e. CAs and CMAs within the framework of the Goods and Services Tax Act, 2017.
It is the tax auditor who makes the assesses informed about the mandatory compliances management, maintenance of the necessary records and books of accounts, preparations required from the Assesses as necessary under the GST Laws. It is worth mentioning that more than thirty percent of government-revenue comes from indirect taxes and that is why Government of India casts a huge responsibility on the Auditor. It is therefore both the tax payers and the Auditor must be well conversant with the nature, peculiarity and complexity of compliances management and audit requirements and procedures. The audit under the GST Act, 2017 can only be conducted either by a Practicing Chartered Accountant (CA) or a Practicing Cost & Management Accountant (CMA) after the Financial Statements are prepared and audited and GST Annual Return is filed. It is the responsibility of the auditor to ensure that proper books of accounts and records are maintained by the registered person in compliance with the provisions of the GST Act, 2017 and Rules framed there under. GST audit within the meaning of Section 2(13) of the GST Act, 2017 means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the Rules made there under or under any other laws for the time being in force to verify the correctness of turnover declared , taxes paid, refund claimed and input tax credit availed and to assess the compliances with the provisions of this Act or the Rules made there under. Form GSTR-9C is the most important statement showing the reconciliation between the Annual Return (GSTR-9) duly filed for a Financial Year and the Figures as per the Audited Annual Financial Statement of the registered person.
It is the prime responsibility of the Auditor to prepare GSTR-9C which contains detailed information for the purpose of useful analysis of revenue collection by the revenue department at any point of time for various purposes with regard to national planning and other requirements. The Form GSTR-9C must be certified either by a Practicing Chartered Accountant (CA) or by a Practicing Cost & Management Accountant(CMA). The objective of GST Audit is to report on whether the registered person has declared the turnover correctly, assessed his or her liability correctly and paid taxes thereon correctly, claimed Input Tax Credit correctly, , claimed the refund if any correctly, maintained books and relevant documents correctly, filed the prescribed Returns as per the provisions of the GST Act, 2017 and finally to report whether the registered persons complied with the provisions of the GST Law, Rules and the Notifications as have been issued by the appropriate authority from time to time. Section 35(5) of the GST Act, 2017 is the enabling provision for GST Audit by either a Practicing CA or a Practicing CMA. Section 35(5) read in conjunction with Section 44(2) of the GST Act, 2017 provides that the registered person is required to furnish electronically Annual Return, Copy of the audited Annual Accounts, Reconciliation Statement, reconciling the value of supplies declared in the return furnished for the Financial Year with the audited Annual Financial Statement in Form GSTR-9C duly certified by the Auditor and any other particulars and information as may be required .
The Auditors must keep in view the enormous scope of GST Audit and accordingly audit each and every particulars contained in GSTR-9C in minute details in order to ensure that they are free from any material-mis-statement. It is also to ensure that the said audit is conducted in accordance with the Generally Accepted Auditing Standards and Practices in India. The Management of the registered person and entity is also responsible to maintain books of accounts and records properly and ensures effectiveness of internal control mechanism for safeguarding the assets of the entity and detecting and preventing any frauds, errors and other irregularities. The auditor should obtain a ‘Management Representation Letter’ as per the demand of the situations. It may not be out of place to mention that the Letter of Representation may act as a safeguard for the auditor on a later date in the event of litigation arising in future if any. The auditor must be careful to understand the meaning of definition of ‘audit’ and in simplicity it is ‘ to verify the correctness of ‘ which is not defined in the GST Act, 2017 and in this case the meaning of the terms ‘ verify’ and ‘correct’ as available in English Dictionaries may need to be understood.
The New International Webster’s Comprehensive Dictionary provides that the term ‘ verify’ refers to prove to be truth or accurate, substantiate, confirm, test or ascertain the accuracy or truth and on the other hand the term ‘ correct’ refers to rectify or remove error from, make right, point out the errors, set aside etc. It may be mentioned that GST Law suffers from several inherent limitations which hardly allow an auditor to prove the accuracy and correctness of the information and particulars as provided in GSTR-9C. GST Law involves many interpretational issues and many dimensional interpretations of a term may take place depending on the distinct characteristic feature of a particular situation and even a Court of Law may take different view on the very same fact as has been dealt with by the auditor. Secondly, GST is levied on nonmonetary transactions also besides monetary transactions. But GST audit is conducted on financial data as contained in the Financial Statements.
Transactions between distinct persons are made without consideration and in such cases the auditor can only offer his or her opinions and judgments and it is constrained to verify the correctness of the same. Moreover, audit is normally conducted on a date being later than the period for which the audit is conducted. In other words, much time gets elapsed from the period under audit and the actual date of audit and during this gap, there is scope for data manipulation by the client. Under such circumstances, the auditor can offer only the opinion on presented data and certainly cannot verify the correctness of the same. However it is suggested that the auditor must ensure that there is no material mis-statement and there is adequate disclosure of facts and figures which influence the decision makers and users of audited information. The auditor is expected to exercise adequate care, caution and due-diligence to ensure that there is fair disclosure of facts by the client, scope of disclosure of method and procedures of auditing and limitation thereof. Finally the auditor must obtain the ‘Letter of Engagement’ from the registered person which would help the auditor in performing the professional duties and discharging professional responsibilities under the ambit of the Generally Accepted Auditing Standards practiced in India.
The registered person is recommended to take a note of the provisions of Section 47(2) of the GST Act, 2017 which provides that the entity shall be subject to a late fee for Rupees One Hundred per day and maximum of a quarter percent of the turnover for such period during which it fails to submit the Annual Return within the time as specified by Law. Section 125 of the GST Act, 2017 provides for a general penalty up to Rupees Twenty Five Thousands when any person contravenes any of the this Act or any Rules made there under. The client and the auditor are expected to take the notes of the salient features of compliance and audit under the newly emergent GST Act, 2017 so that they can jointly work and contribute to the cause of economic development of the country. To pay correct tax is the responsibility of the business and to ensure that correct tax has been paid by the assesses is the responsibility of the auditor. The GST Law is an epoch making fiscal legislation after the British Government transferred the ruling power to India on 15th August, 1947. The Central Government is recommended to review the impact of GST on the business and society periodically after making any amendment in the said Act and the auditor is suggested to adopt the best auditing practices keeping in view the peculiarity and complexity of the fiscal law such as the GST Act, 2017.
(The author is the Vice Chancellor, Shri Mata Vaishno Devi University, Katra)
Dr D Mukhopadhyay