Service Tax Audit! Audit Me! Audit Me Not!

Service Tax Audit! Audit Me! Audit Me Not!

Service Tax is dead but still the undying ghost of Service Tax Audit approaching the pillars and posts of the assessee, department and the professionals. The department is trying its best to salvage their ground and right of an audit till June 2017 setting aside the numerous judgements against their moves. The department still making bombardment of roving inquiries ignoring objections of the assessee over the frequency of audits and currency of their audit powers. The CGST officials have step in by issuing thousands of letters for the audit. It is known that , the audit of accounts of service tax providers can be done by Central audit parties as per norms prescribed by the department A comprehensive ‘Service Tax Audit Manual 2011’ has been prescribed to provide guidelines to department officers conducting audit –Directorate Service Tax Circular no. 135/4/2011 dated 19-4-2011.

Selective Audit will be done by jurisdictional central excise officer or by an audit party deputed by C&AG vide Circular No. 97/8/2007-ST dated 23-8-2007. Selection of assessee and auditing will be as per guidelines in Service tax Audit Manual.

The Audit selection guidelines, therefore, would apply to the non-mandatory taxpayers, forming part of the discretionary workload. These taxpayers should be selected on the basis of assessment of the risk potential to revenue. This process, which is an essential feature of audit selection, is known as Risk Assessment. It involves the ranking of taxpayers according to a quantitative indicator of risk known as a “risk parameter.” It is also suggested that the taxpayers whose returns were selected for detailed scrutiny, may not be taken up for Audit that year, to avoid duplication of work. Similarly, the taxpayers who have been selected for Audit, may not be taken up for detailed scrutiny of their ST-3 Returns during that year.

TYPE OF SERVICE TAX AUDIT:

1. EA –2000 AUDIT (DONE BY DEPARTMENT/ C&AG)

Director General of Audit, New Delhi has prepared Service Tax Audit Manual, 2011.  As per the guidelines, frequency norms of audit for service tax assessees tax payers whose annual service tax payment (including cash and CENVAT) was Rs.3 crore or more in the preceding financial year may be subjected to mandatory audit each year.  It is preferable that Audit of all such Units is done by using Computer Assisted Audit Program (CAAP) techniques.  The frequency of audit for other taxpayers would be as per following norms:-

I. Taxpayers with Service Tax payment above Rs.3 crores (Cash + CENVAT) (MANDATORY UNITS) – to be audited every year.

II. Taxpayers with Service Tax payment between Rs.1 crore and Rs.3 crores (Cash + CENVAT) – to be audited once every two years

III.            Taxpayers with Service Tax payment between Rs.25 lakhs and Rs.1 crore (Cash + CENVAT) – to be audited once every five years.

IV. Taxpayers with Service Tax payment upto Rs.25 lakhs (Cash + CENVAT) – 2% of taxpayers to be audited every year.

V. No audit if turnover less than Rs 60 lakhs per annum –

The Finance minister in his budget 2011 speech has announced that there will be no audit of assessee whose turnover is less than Rs 60 lakhs per annum. Num Para 191 of his speech delivered on 28-2-2011 reads as follows

‘‘the number of assessee in service tax has grown manifold I find that a large number of them comprise individual or sole proprietors with shall turnover Any Audit at their premises tends to dislocate their activities for the duration of the audit I therefore propose to free all individual and sole proprietor taxpayers with a turnover upto 60 lakhs from the formalities of Audit this will give relief to a large number of taxpayers I also intend to give all assesses with turnover uptoRs 60 lakhs benefit points in interest on delayed payment’’

The Audit selection guidelines, therefore, would apply to the non-mandatory taxpayers, forming part of the discretionary workload.  These taxpayers should be selected on the basis of assessment of the risk potential to revenue.  This process, which is an essential feature of audit selection, is known as Risk Assessment.  It involves the ranking of taxpayers according to a quantitative indicator of risk known as a “risk parameter”.  It is also suggested that the taxpayers whose returns were selected for detailed scrutiny, may not be taken up for Audit that year, to avoid duplication of work.  Similarly, the taxpayers who have been selected for Audit, may not be taken up for detailed scrutiny of their ST-3 Returns during that year.

2. Section 72A –Audit (Done by Chartered/Cost Accountant w.e.f. 28-05-2012)

Section 72A of Finance Act, 1994 (as inserted w.e.f 28-5-2012) makes provision for special audit by practicing Chartered/Cost Accountant [earlier, section 14AA of Central Excise Act was made applicable to service tax, this section provided only for special audit of Cenvat credit availed].

Special audit can be ordered by Commissioner of Central Excise. Such audit can be ordered by Commissioner of Central Excise has reason to believe that the any person liable to pay service tax –

-Has failed by to declare or determine the value of a taxable service correctly: or

-Has availed and utilized credit of duty or tax paid –

(a) which is not within the normal limits having regard to the nature of taxable servicer provided the extant of capital goods used or the type of inputs of input services used, or any other relevant factors as he may been appropriate: or

(b) by means of fraud. Collusion or any wilful misstatement or suppression of facts: or

-Has operations spread out in multiple location and it is not possible or practicable to obtain a true to and compete picture of his accounts from the registered premises falling under the jurisdiction of the Commissioner [section 72A(i) of Finance Act. 1994].

In such cases, the Commissioner may direct such person to get his accounts audited by a Chartered accountant or Cost accountant nominated by him, to the extent and for the period as may be specified by the Commissioner [section 72A(2)(i) of Finance Act, 1994 inserted w.e.f. 28-5-2012]

BACKGROUND OF THE SERVICE TAX AUDIT CONTROVERSY:

1. The Hon’ble High Court of Delhi in the case of Travelite (India) Vs. Union of India & Ors. [W.P. (C) 3774/2013, C.M. No. 7065/2013] (“the Travelite case”) held that Rule 5A(2) of the Service Tax Rules ultra vires the provisions of the Finance Act, and “No Service Tax Audit can be conducted by the Department and only Special Audit within the Statute as mentioned under Section 72A of the Finance Act can be done either by a Chartered Accountant or Cost Accountant only in specified certain circumstances”. It was further held that Service Tax Audit as envisaged in Rule 5A(2) of the Service Tax Rules does not have appropriate statutory backing of the Finance Act.

2. Hon’ble Allahabad High Court in the case of ACL Education Centre Pvt. Ltd. & Ors. Vs. Union of India [2014-TIOL-120-HC-ALL-ST] has held that the Audit under Service tax is to be conducted by Chartered Accountants/ Cost Accountants only and not by officers of the Department. Further, the Hon’ble Calcutta High Court in the case of SKP Securities Ltd. Vs. DD (RA-IDT) & Ors. [2013-TIOL-38-HC-KOL-ST] has also held that no Audit of private assessee can be undertaken by CAG under Rule 5A(2) of the Service Tax Rules.

3. Hon’ble Delhi High Court in the case of Mega Cabs Pvt. Ltd. Vs. Union of India And Ors [2016-TIOL-1061-HC-DEL-ST] extensive deliberated  on relevant provisions of the Finance Act and Rules made thereunder otn he following issue:

The Hon’ble Delhi High Court took an:

4. Hon’ble Gujarat High Court in the case of OWS Warehouse Services LLP Vs. Union of India (Gujarat High Court) granted stay on conducting audit of records of taxpayers under 5A of Service Tax Rules, 1994, by Officers of C&AG who were sending communications through CGST officers. Counsel for the petitioner submitted that thereafter, Rule 5A of the Service Tax Rules, 1994 was amended. The amended Rule also came to be challenged before the Delhi High Court in case of Mega Cabs Pvt. Ltd.-v. Union of India. The Delhi High Court again struck down the Rule in judgment reported in 2016 (43) S.T.R. 67 (Del.). Counsel candidly stated that the Supreme Court has stayed the judgment of the Delhi High Court in case of Mega Cabs Pvt. Ltd. by an order dated 26.09.2016.

Hon’ble High Court held that Sub-section (2) of Section 174 and other clauses would, prima facie, show that there was no saving of Rule 5A in such manner that fresh proceedings for audit could be initiated in exercise of powers under the said Rule. We, therefore, have serious doubts whether, with the aid of Rule 5A of the Service Tax Rules, 1994, the CAG can carry out compulsory Service Tax audit of private agencies like the petitioner.

5. Hon’ble Calcutta High Court M/s. Infinity BNKe Infocity Pvt. Ltd. Vs Union of India & Ors. (Calcutta High Court) granted stay on conducting audit of records of taxpayers under 5A of Service Tax Rules, 1994, by Officers of C&AG who were sending communications through CGST officers. Appeal Number : W.P. No.29554 (W) of 2017 Date of Judgement/Order : 30/08/2018

The petitioner seeks a declaration that sub-rule (2) of Rule 5A of the Service Tax Rules, 1994 as substituted by notification no. 23/24/ST dated December 5, 2014 is arbitrary and in conflict with provisions of Section 72A of the Finance Act, 1994. The petitioner also seeks a declaration that, the provisions of clause (k) of subsection (2) of Section 94 of the Finance Act, 1994 is unguided and gives uncontrolled power of delegation. The third prayer is with regard to a notice dated February 16, 2015.

Learned advocate for the petitioner submits that, the issue of vires of similar provisions of the Finance Act, 1994 initially came up for consideration before the Delhi High Court in 2014 (35) S.T.R. 653 (Travelite (India) Vs. Union of India). Such provisions were held to be ultra vires. He submits that, an appeal is pending against such judgment and order of the Delhi High Court before the Hon’ble Supreme Court of India. Subsequently, the provisions as impugned in the present writ petition were introduced. The same was struck down by the Delhi High Court in 2016 (43) STR 67 (Mega Cabs Pvt. Ltd. Vs. Union of India). He submits that, since the provisions have been struck down, the notice impugned herein issued on such basis needs to be quashed also.

DEPARTMENT DEFENSIVE MOVE THROUGH CIRCULARS

“(k) Imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified.”

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Procedure & Eligibility for Reimbursement of GST Under Seva Bhoj Yojna

Procedure & Eligibility for Reimbursement of GST Under Seva Bhoj Yojna

Procedure & Eligibility for Reimbursement of GST under Seva Bhoj Yojna (SBY) of Ministry of Culture

# What is Seva Bhoj Yojna (SBY)

The Ministry of Culture has introduced a Central Sector financial assistance scheme called the„ SEVA BHOJ YOJNA‟ for the reimbursement of central tax (CGST) and the Central Government’s share of (IGST) paid on the purchase of certain raw food items such as ghee, edible oil, sugar/ burra/ jaggery, rice, atta/ maida/rava/flour and pulses used for distributing free food to general public/devotee by eligible charitable/religious institutions like Gurudwaras, temples, Dharmik Ashrams, Mosques, Dargahs, Churches, Math, Monasteries, etc.

Eligible charitable/religious institutions

1. The institutions/organizations should have been in existence for preceding three years before applying for assistance.

2. The institutions/organizations not in receipt of any Financial Assistance from the Central/State Government for the purpose of distributing free food:

3. The institutions shall serve free food to at least 5000 people in a calendar month.

4. The Institution/Organization blacklisted under the provisions of Foreign Contribution Regulation Act (FCRA) or under the provisions of any Act/Rules of the Central/State Government shall not be eligible for Financial Assistance under the Scheme

# Effective Date Of Seva Bhoj Yojna

Scheme has been made operational with effect from the 1st of August, 2018.

# Who Will Process The Application For Reimbursement Under Seva Bhoj Yojna

The applications for reimbursement shall be processed by nodal central tax officer of each State or Union territory (CGST Officer) having name and address is mentioned under ANNEXURE-A of Circular No. 36/10/2018-GST, dated 13th March, 2018 [F. No. 349/48/2017-GST]. The Directorate General of Goods and Services Tax (DGGST), 5thFloor, MTNL (Telephone Exchange) Building, 8, Bhikaji Kama Place, New Delhi-110066 shall be the central nodal agency for reporting and monitoring the reimbursement of the said taxes by the nodal officers under the Scheme.

# Procedure For Obtaining Seva Bhoj Yojana [Unique Identity Number (SBY-UIN)

1. The institutions (Gurudwaras, temples, Dharmik Ashrams ) must first register with the Darpan Portal of NITI Aayog to obtain a Unique ID from the portal and

2. Apply on the CSMS Portal on the Ministry of Culture‟s website indiaculture.nic.in in the prescribed format, and upload the requisite documents. [FOR UNIQUE ENROLMENT NUMBER)

3. Thereafter, Submit an application in FORMSBY-01 state wise to the jurisdictional nodal officer of the State/Union Territory in which the free food is distributed for obtaining a Seva Bhoj Yojana – Unique Identity Number ( “SBY-UIN”),

4. Separate SBY-UIN for each State or Union territory will be applied and issued.

5. Upon receipt of the application in FORM SBY-01 and the information of allocation of a Unique Enrolment Number by the Ministry of Culture, a unique ten digit SBYUIN, in the format of XX/YYYYY/ZZZ (where XX stands for the two digit State Code, YYYYY stands for the five digit Unique Enrolment Number allotted by the Ministry of Culture and ZZZ stands for the three digit running number assigned by the jurisdictional nodal officer) shall be communicated to the applicant in FORM SBY02 within seven days from the receipt of the complete application in FORM SBY-01 by the nodal officer.

CHECKLIST OF DOCUMENTS TO BE UPLOADED AT CSMS PORTAL ON THE MINISTRY OF CULTURE‟S WEBSITE WWW.INDIACULTURE.NIC.IN [ONE TIME FOR ENROLLMENT ID)

1. Copy of the valid Registration Certificate [Charitable company or Trust certificate]

2. Copy of Memorandum of Association/Article of Association/Charter of Activities of the organisation.

3. Copies of Audited Accounts for the last three years.

4. Copies of Annual Report, if any, for last three years.

5. List of Office bearers/Governing Body of the institution.

6. Name of the authorized signatory who will sign all documents with contact details and E-mail ID.

7. Self-certificate indicating that the institution is distributing free food for at-least past three years on the day of application and providing free food to at least 5000 people in a month.

8. Certificate from District Magistrate indicating that the institution is involved in charitable/religious activities and is distributing free food to public/devotees etc. since last three years at least on daily/monthly basis.

9. PAN/ TAN Number of the institution/ organization.

10. List of locations where free food is being distributed by the institution.

11. Number of persons being served free food by the Institution in previous year -self declaration.

12. Bank Authorization Letter as per prescribed format.

# Documents And Information Along With Application For Reimbursement

1. Application for claiming reimbursement of the taxes in FORM SBY-03 on a quarterly basis in FORM SBY-03 (STATEWISE), before the expiry of six months from the last day of the quarter in which the purchases of the specified items have been made

2. Self-attested copies of the invoices issued by the suppliers for the purchases of the specified items mentioning the unique enrolment number allotted by the Ministry of Culture and SBY-UIN;

3. A Chartered Accountant’s Certificate certifying the following:

(i) Quantity, Price and Amount of central tax, State tax/Union territory tax or integrated tax paid on the purchase of the specified items during the quarter for which the claim is filed;

(ii) The claimant is involved in charitable/religious activities;

(iii) The reimbursement claimed in the current quarter/year is not more than the purchases in the previous corresponding quarter/year plus a maximum of 2.5%/10% for the current quarter/year.

(iv) The claimant is using the specified items for only distributing free food to the public/devotees etc. during the claim period; and

(v) The claimant fully satisfies the conditions laid down in para 6 of the guidelines issued by the Ministry of Culture.

# Activity by the Nodal Officer

1. The nodal officer shall, within a period of fifteen days from the date of receipt of FORM SBY-03, issue an acknowledgement in FORM SBY-04.

2. Upon examination of the application, the nodal officer is satisfied that the claimant is eligible for the reimbursement of the said taxes, he shall issue an order in FORM SBY-05 [Within sixty days] sanctioning the amount of reimbursement.

3. He shall also issue a payment advice in FORM SBY-06 for the eligible amount.

GST on TCS – Recent Clarification and its Legality

GST on TCS – Recent Clarification and its Legality

1. Vide Sr. No. 5 of Circular No. 76/50/2018-GST dated 31.12.2018, Government has clarified as under with respect to the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961:

“1. Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”

2. It is clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.”

2. In our opinion the above clarification runs contrary to the provisions of the law due to the following reasons:

3. Sec. 15(2)(a) of the CGST Act, 2017 under which the TCS is sought to be added is reproduced below for ready reference:

“(2) The value of supply shall include —

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier”

4. A close perusal of the above provision will lead to an inescapable conclusion that only taxes, duties, fees and charges which are “levied” under any law shall be added to the transaction value. The word “levied” denotes the tax which has been imposed on the supplier who is making the supply. Hence it covers all kinds of taxes imposed on the supplier but charged separately on the invoice and thus has to be added to the transaction value. With this background, can TCS be regarded as tax “levied” on the supplier ? Relevant portion of Sec. 206C of the Income Tax Act, 1961 which contains provisions for TCS is reproduced below:

“(1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

(4) Any amount collected in accordance with the provisions of this section and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person for the amount so collected in a particular assessment year in accordance with the rules82 as may be prescribed by the Board from time to time.”

5. Above provisions clearly shows that TCS is merely collected from the buyer. Further TCS deposited is considered as the amount paid by the seller on behalf of the buyer. Sec. 206(6A) further provides that the TCS is not required to be deposited in certain circumstances (where buyer has already declared income and paid tax thereon).The levy of income tax is thus on the buyer only. Hence TCS cannot be construed as a tax which is “levied” under any law on the supplier.

6. Close perusal of Sec. 15(2)(a) will also show that such taxes are to be added if the same is charged separately by the supplier. Hence a clear intent emerges to only include such taxes which are levied on the supplier but charged separately on the invoice. If such taxes which are levied on the supplier and forms part of the basic price is already part of the value of supply. Hence TCS cannot be regarded as a tax which can be included in the basic price which is to be added only when charged separately.

7. Reliance is also place on the decision of Supreme Court in the case of Joint Commercial Tax Officer v. Spencer & Co. (Civil Appeal Nos. 2005 to 2016 of 1970). In this case the issue before the Apex Court was whether the sales tax “collected” by the assessees under Section 21-A of the Madras Prohibition Act, 1937can be treated as part of their total turnover ? Relevant portion of Sec. 21A is reproduced below for ready reference:

““Every person or institution which sells foreign liquor—

shall collect from the purchaser and pay over to the Government at such intervals and in such manner as may be prescribed, a sales tax calculated at the rate of eight annas in the rupee, or at such other rate as may be notified by the Government from time to time, on the price of the liquor so sold.”

Turnover was defined u/s 2(r) of the Madras General Sales Tax Act, 1959 as under:

““‘Turnover’ means the aggregate amount for which goods are bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration,….”

8. The Court held as under:

“It is clear from Section 21-A of the Madras Prohibition Act, 1937 that the sales tax which the section requires the seller of foreign liquor to collect from the purchaser is a tax on the purchaser and not on the seller. This is what makes the authorities on which counsel for the appellants relied inapplicable to the cases before us. Under Section 21-A the tax payable is on the price of the liquor and that tax is to be paid by the purchaser, the seller is required to collect the tax from the purchaser which he has to pay over to the Government. Section 21-A makes the seller a collector of tax for the Government and the amount collected by him as tax under this section cannot therefore be a part of his turnover. Under the  Madras General Sales Tax Act, 1959 the dealer has no statutory duty to collect the sales tax payable by him from his customer, and when the dealer passes on to the customer the amount of tax which the former is liable to pay, the said amount does not cease to be the price for the goods although “the price is expressed as X plus purchase tax”4. But the amounts collected by the assessees concerned in these appeals under a statutory obligation cannot be a part of their taxable turnover under the Madras General Sales Tax Act, 1959.

9. It is on account of above cited reasons that we are of the view that GST cannot be imposed on the TCS amount. One must also factor the fact that the calculation of the GST amount shall become tedious if the TCS amount is to be included in the value of supply. This is because TCS is payable on the “amount payable by the buyer” which shall include the GST.

Companies (Amendment) Ordinance, 2018- 10 Things to know

Companies (Amendment) Ordinance, 2018- 10 Things to know

The Companies (Amendment) Ordinance, 2018 was promulgated on November 2, 2018. It amends several provisions in the Companies Act, 2013 relating to penalties, among others.

Companies (Amendment) Ordinance, 2018

1. The issue of shares at a discount

The Act prohibits a company from issuing shares at a discount, except in certain cases.  On failure to comply, the company is liable to pay a fine between one lakh rupees and five lakh rupees every officer in default may be punished with imprisonment up to six months or fine between one lakh rupees and five lakh rupees.  The Ordinance changes this to remove imprisonment for officers as a punishment.  Further, the company and every officer in default will be liable to pay a penalty equal to the amount raised by the issue of shares at a discount or five lakh rupees, whichever is lower.  The company will also be liable to refund the money received with interest at 12% per annum from the date of issue of the shares.

2. Commencement of business

The Ordinance states that a company may not commence business, unless it (i) files a declaration within 180 days of incorporation, confirming that every subscriber to the Memorandum of the company has paid the value of shares agreed to be taken by him, and (ii) files a verification of its registered office address with the Registrar of Companies within 30 days of incorporation.  If a company fails to comply with these provisions and is found not to be carrying out any business, the name of the Company may be removed from the Register of Companies.

3. Registration of charges

The Act requires companies to register charges (such as mortgages) on their property within 30 days of creation of charge.  The Registrar may permit the registration within 300 days of creation.  If the registration is not completed within 300 days, the company is required to seek an extension of time from the central government.

The Ordinance changes this to permit registration of charges: (i) within 300 days if the charge is created before the Ordinance, or (ii) within 60 days if the charge is created after the Ordinance. If the charge under the first category is not registered within 300 days, it must be completed within six months from the date of the Ordinance.  If the charge under the second category is not registered within 60 days, the Registrar may grant another 60 days for registration.  If a person willfully furnishes false or incorrect information or suppresses material information which is required to be registered under this provision, he will be liable for fraud under the Act.

4. Change in approving authority

Under the Act, change in the period of the financial year for a company associated with a foreign company has to be approved by the National Company Law Tribunal.  Similarly, any alteration in the incorporation document of a public company which has the effect of converting it to a private company has to be approved by the Tribunal.  Under the Ordinance, these powers have been transferred to the central government.

5. Declaration of beneficial ownership

If a person holds the beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest. Under the Act, failure to declare this interest is punishable with a fine between one lakh rupees and ten lakh rupees, along with a continuing fine for every day of default.  The Ordinance provides that such person may either be fined, or imprisoned for up to one year or both.

6. Remuneration for independent directors

The Act restricts an independent director from entitlement to stock options.  It further states that he may receive sitting fees, commission, and reimbursement of expenses.  The Ordinance removes this provision.

7. Disqualification of directorship

Under the Act, a person cannot be a director in more than 20 companies.  The Ordinance provides that contravening this provision will be a ground for disqualification from directorship.

8. Adjudication of penalties

The Act allows the central government to appoint adjudicating officers to decide penalties under the Act.  The Ordinance states that these officers, in addition to imposing penalties, may direct the defaulting entity to rectify the default.

9. Compounding

Under the Act, a regional director can compound (settle) offenses with a penalty of up to five lakh rupees.  The Ordinance increases this ceiling to Rs 25 lakh.

10. Repeat defaulters

Under the Ordinance, if a company, or an officer, or other person commits a default again within three years of the previous case, the entity will be liable to twice the penalty as provided for such default.

Special Audit Under Goods & Services Tax (GST)

Special Audit Under Goods & Services Tax (GST)

Introduction to GST Audit

GST is a trust-based taxation regime wherein the assessee is required to self-assess his returns and determine tax liability without any intervention by the tax official. Therefore a tax regime that relies on self-assessment has to put in place a robust audit mechanism to measure and ensure compliance of the provisions of law by the taxable person.

Definition of Audit under GST

“Audit” is defined under section 2 (13) of the CGST Act, 2017. It includes as mentioned below for special audit:

It also requires verifying the certain things mentioned below:

Purpose of Special Audit under GST

Special Audit helps the GST officers to take the assistance of chartered/ cost accountant to determine tax liabilities in complex cases.As a result, professional expertise of a chartered/ cost ensures the government interest in the lawful and legal way for safety.h

Types of GST Audit

GST envisages three types of Audit

1. The first audit is by a chartered accountant or a cost accountant. Every registered person whose aggregate turnover during a financial year exceeds two crore rupees has to get his accounts audited by a chartered accountant or a cost accountant and furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C.

2. In the second type which is the normal audit, the Commissioner or any officer authorised by him, can undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

3. The third type of audit is called the Special Audit. In Special Audit the registered person can be directed to get his records including books of account examined and audited by a chartered accountant or a cost accountant during any stage of scrutiny, inquiry, investigation or any other proceedings;depending upon the complexity of the case.

Procedure of Special Audit under GST

1. During the scrutiny, inquiry, investigation or any other proceedings of a registered person, the Assistant Commissioner or any officer senior to him, having regard to the nature and complexity of the case and the interest of revenue, might be of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits.

2. In such cases, with the prior approval of the Commissioner, the Assistant Commissioner or any officer senior to him can directthe registered person in FORM GST ADT-03 to get his records including books of account examined and audited by a specified chartered accountant or a cost accountant. The chartered accountant or a cost accountantwill benominated by the Commissioner.

3. The chartered accountant or cost accountant so nominated has to submit a report of such audit within the period of ninety days, duly signed and certified by him to the Assistant Commissioner.

4. On an application made by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, the Assistant Commissioner can extend the said period by a further period of ninety days.

5. The provisions of special audit shall have effect even if the accounts of the registered person have been audited under any other provisions of the GST Act or any other law for the time being in force.

6. The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit and which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.

7. The expenses of the examination and audit of records, including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner.

8. On conclusion of the special audit, the registered person shall be informed of the findings of the special audit in FORM GST ADT-04.

9. Where the special audit results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the process of demand and recovery will be initiated against the registered person.

Conclusion

Special audit provides a lawful and legal way for the GST officers to take the assistance of a chartered accountant or cost accountant to determine tax liabilities in complex cases. The professional expertise of a chartered accountant or cost accountant will be of great significance in ensuring that theinterest of revenue is safeguarded at all times.