Mohan Lavi

GST audit tangle

Mohan Lavi | Updated on August 14, 2018

Remove Clause 44 in the Tax Audit report

While the GST laws on rates of tax and filing of returns keep changing every alternate day, one important area that has not made its entry into the law book is GST audits. Section 44(5) of the CGST Act states that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.

The lawmakers are yet to finalise the Rules and forms for GST Audits. It may be a bit too late to formulate Rules for GST Audits now which would mean that for the financial year ended March 31, 2018, only reconciliations could be asked for.

GST audits under I-T laws?

Probably sensing the fact that a full-blown audit would not be possible, the GST authorities appear to have reached out to their friends in the Income-Tax Department for help. These friends have responded by adding in clauses on GST in the revised Tax Audit Report (Form 3CD) that specified entities have to submit. Apart from providing their GSTIN, Clause 44 of the revised form asks for a break-up of total expenditure of entities registered or not registered under the GST.

This information is to be provided in a tabular format which commences with asking for the total amount of expenditure incurred during the year. It goes on to ask for segregating the expenditure in respect of entities registered under GST into four categories — relating to goods or services exempt from GST, relating to entities falling under composition scheme, relating to other registered entities and total payment to registered entities. Just to ensure completeness, the tabular format ends by asking for expenditure relating to entities not registered under GST.

Though not specifically mentioned, the format seems to expect that the total expenditure incurred should match with the individual components that have been broken up. In effect, it amounts to getting a mini-GST Audit under Income-Tax laws.

Multiple issues arise with this additional requirement in the tax audit report. It is only a matter of time before this inclusion is challenged in the courts on the grounds whether the Income-Tax Rules can transgress into the territory of GST Audits. The Tax Audit report is a pretty serious document and auditors’ would only sign off if the numbers match — an impossible task in the first year of GST.

If the numbers don’t match, auditors are bound to give a disclaimer stating that the requirements of Clause 44 are as given by the management and they have cannot give their opinion on it. Such disclaimers would dilute the entire purpose of including Clause 44 in the tax audit report. The irony is that whether the numbers are reconciled or unreconciled, it doesn’t impact the taxable income of the taxpayer.

Instead of seeking help from the Income-Tax Department, CBIC should convert the tabular format in Clause 44 into a new form. It is obvious that the information sought is only to add to the huge amounts of data that GSTIN already has and which will be mined later. This is all the more reason why information should be sought under the GST laws and not allied Acts. The lawmakers should ensure that Clause 44 in the Tax Audit report is removed, a new form is made under GST laws for the same and rules regarding GST Audits are announced soon.

The writer is a chartered accountant

Published on August 14, 2018

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