DG Audit discloses GST audit plan & strategy for the year 2019-20. Audit to cause least inconvenience and shall be desk-based for small category of taxpayers.
The Directorate General of Audit (DG Audit), an organization under Ministry of Finance, Department of Revenue was created by the Central Board of Excise and Customs (renamed as Central Board of Indirect Taxes and Customs) in July 2000 with headquarters at New Delhi.
The Charter of the functional responsibilities of the DG Audit is that it does not envisage that the Directorate General should conduct primary audits in Central Excise, Service Tax, GST etc. on its own. Instead, it is meant to oversee the creation and institutionalization of a credible audit system.
Some of the important responsibilities mentioned in the Charter of functions are:
(a) To develop and provide policy direction and programme leadership to Central Excise, Service Tax, GST internal audit. Ensure its effective and efficient implementation, including periodic review and updating of the audit manual.
(b) Further to develop, enhance and monitor implementation of Risk Assessment module with information technology solution with the help of the Directorate General of System
(c) To plan, organise and ensure implementation of post clearance Customs audits under the Customs Act 1962 in coordination with the Directorate General of Systems, as and when directed by the Board.
(d) To interact with National Academy of Customs Indirect Taxes and Narcotics (NACIN) to develop strategies for timely training of auditors including refresher courses for them
(e) To evolve a mechanism for assessing and ensuring audit quality assurance by simple review of major audit reports, setting up standards and norms for evaluating the quality of audit and to bring about uniformity in the audit system across the country.
(f) To study the level of compliance including recoveries of dues relating to important audit objections/ points at all India/ Zonal and Commissionerate levels.
(g) To collect and disseminate information having a bearing on tax evasion/ avoidance/ compliance and having revenue ramifications which are noticed during conduct of audit.
DG Audit chalks out GST audit plan & strategy for the year 2019 -20
In a recent letter issued to All the Principal Chief Commissioners/Chief Commissioners of GST and Central Excise, the DG Audit has disclosed the strategy and plan of GST audit for the year 2019 -20.
The Directorate General in association with DGARM have developed a Risk Assessment programme, wherein list of taxpayers with risk scores will be generated and made available to each Audit Commissionerate. The said list of taxpayers in three categories Large, Medium and Small alongwith their Risk Scores has been made available to the field formations by DGARM. The categorization of taxpayers is based on the annual turnover. By and large the categorization is uniform across the Audit Commissionerates subject to the availability of more risky taxpayers in a particular category which is as under,-
(ii) Medium – taxpayers with turnover between Rs.10/7.5 to 40/30 crores.
(iii) Small – taxpayers with turnover below Rs. 7.5/10 crores.
It has been stated that the Directorate General has also worked out the approximate number of audits in each category that can be conducted by each Audit Commissionerates.
This said calculation is based on the number of audit parties available and the working strength of officers as provided by the Audit Commissionerates and it contains following parameters:-
(i) Audit Groups for large units, medium units and small units should be in such numbers that the following distribution of manpower deployment in audit groups is achieved.
a. 40% of manpower for large units
b. 30% of manpower for medium units
c. 20% of manpower for small units
d. 10% of manpower for planning, coordination & follow up and administration etc.
(ii) The calculation is also based on the following number of days required for conduct of audit
a. For large units – 7 working days
b. For Medium units – 5 working days
c. For small units – 3 working days.
It has been decided that the list of taxpayers provided by DGARM to each Audit Commissionerate contains about 80% of the taxpayers out of which 7/8th (i.e. 70 % of the total available taxpayers) taxpayers have to be audited in each category in the order of sequence. The extra 10% has been given so that if audit of any taxpayer cannot be undertaken due to various genuine reasons then the taxpayer from this additional number can be selected. Further 10 % of the total taxpayers have to be selected randomly by the DGARM’s system and given to the Audit Commissionerates.
The remaining 20% of the taxpayers to be audited have to be selected by the Audit Commissionerates based on local risk factors, after obtaining approval from the jurisdictional Chief Commissioner.
The list of taxpayers alongwith risk scores as provided by DGARM shall be kept confidential and should be shared with the auditors as and when the audit is scheduled for a particular taxpayer.
Legal authority to conduct audit in GST id governed by Section 65(1) of CGST Act, 2017 and Rule 101 of The Central Goods and Service Tax Rules, 2017
It has been advised that initially only those taxpayers should be selected for audit who have filed their Annual Return in GSTR Form 9/9A. Therefore, the selection of taxpayers as mentioned in para 8 above should be carried out only of those taxpayers who have filed their Annual Return. If sufficient number of taxpayers who have filed annual return are not available then Audit Commissionerates should continue conducting legacy audits under Central Excise and Service Tax, upto 31st August 2019, in case assessees are available for such audits and also efforts should be made to liquidate the pendency related to audits of erstwhile Central Excise and Service Tax including action to close the pending audit paras.
To provide non-intrusive environment to taxpayers, it has been decided to move from the present system of premises based audit to desk-based (office) audit in case of small category of taxpayers. Such desk based audit may be carried out on the basis of information / data made available to them. However in case of non-cooperation by the taxpayers, premises based audit may be carried out after approval by the Commissioner. Further in cases where it is felt at any stage of audit that there are inherent weaknesses in the internal control system of the taxpayers, the officers may switch to premises based audit with the approval of the Commissioner. However, in respect of Large and Medium Category of taxpayers, the premises based audit has to be conducted.
As per the audit plan 2019-20, the Audit should be conducted in such a manner so as to cause least inconvenience to the taxpayer. There should not be any disruption in the conduct of business by the taxpayers. In view of the fact that some of the taxpayers may be new to the concept of audit by this department for the reason that they were earlier registered with State authorities, special care should be taken of such taxpayers and to minimize the litigations in case of any bonafide mistake noticed during audit. The officers should also be sensitised to educate the taxpayers with respect to the provisions under GST, should such requests arise during audit and encourage voluntary compliance.
Local Risk Parameters
The following are example of local risk parameters criteria that may be considered during selection of units for audit. The planning section, Hqrs of Audit Commissionerate may consider all or some of the below criteria, depending on available data and resources, and may also use additional criteria not listed below.
i. The Taxpayer did not provide or delayed in providing documents sought by the Audit Team
ii. The Taxpayer was not previously audited;
iii. The Taxpayer is newly registered;
iv. Length of time since last audit;
v. The Taxpayer had / did not have substantial assessment during previous audits;
vi. The size of the Taxpayer’s turnover / net profit;
vii. The size of the Taxpayer’s loss, if any;
viii. The size of the Taxpayer’s refund, if any;
ix. The size of change in the Taxpayer’s turnover/net profit from the previous year;
x. The size of the impact detected mistakes had on the Taxpayer’s turnover / net profit;
xi. The ratio of expenses/turnover;
xii. The ratio of turnover/total assets;
xiii. The ratio of loans/total assets;
xiv. The size of income from high risk activities (e.g., real estate income);
xv. The size of exemptions, if any;
xvi. The percent of the net profit in comparison to the activity average;
xvii. The percent of the total profit compared to the activity average;
xviii. The Taxpayer requested waivers or is bankrupt;
xix. The Taxpayers files inconsistently;
xx. The Taxpayer is currently involved in legal disputes;
xxi. The Taxpayer’s return was previously investigated for evasion;
xxii. The Taxpayer received notices from other governmental entities;
xxiii. The quality of the Taxpayer’s books and records (manual / automated; not well-kept);
xxiv. The Taxpayer’s returns is prepared by questionable accountants;
xxv. The specific sector, in which the Taxpayer operates (e.g., typical high-risk activities include restaurants and hotels, apartment rentals, professionals, car rental, spare parts for vehicles, chemicals, telecommunications, retail);
xxvi. The form of the legal entity (e.g., corporation / partnership);
xxvii. The multitude of the Taxpayer’s legal relationships with other entities;
xxviii. The Taxpayer has multiple branches;
xxix. The Taxpayer has multiple activities;
xxx. Audit differences (past audit assessments).
xxxi. The Taxpayer has supplied goods on which there has been reduction in rate of duty, in order to examine the possibility of profiteering under Section 171 of the CGST Act, 2017
xxxii. The Taxpayer has stopped filing GST returns.
xxxiii. The Taxpayer has applied for surrender of its registration.
xxxiv. Where there is increase in ratio of Exempted Supplies / Total supplies of a Taxpayer over time.
xxxv. Where higher incidence of supplies without issuance of e-way Bills have been noticed.
xxxvi. The Taxpayer who does not file periodical return but issues e-way bill regularly.
xxxvii. The Taxpayer who was not audited in the pre-GST era for the last 4 – 5 years.
xxxviii. The Taxpayer whose turnover increased substantially after enactment of GST.
xxxix. The Taxpayer who is not filing GSTR – 3B but in their electronic cash ledger, amount of TDS is reflected.
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