GST AUDIT U/S 35(5), READ WITH SECTION 42(2), READ WITH RULE 80(3):

GST AUDIT U/S 35(5), READ WITH SECTION 42(2), READ WITH RULE 80(3): Meaning of Audit in GST law : According to Section 2(13), Audit means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law 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 his compliance with the provisions of this Act or the rules made thereunder. Type of Audits in GST Law : In GST law there are 3 types of audit. First one is Aggregrate Turnover based audit of books and records, including examination of GST returns and data and certification of reconciliation statement by a CA or CMA according to Section 35(5), read with section 44(2), read with rule 80(3). Second one is audit by Tax Authories u/s 65, read with rule 101 and the third one is special audit according to Section 66, read with Rule 102, which is done by a CA or CMA nominated by prescribed designation holder departmental officers. I describe and discuss only audit u/s 35(5) regarding matters in that write-up. Applicability of audit and auditors Certification u/s 35(5), read with section 44(2), read with rule 80(3) : Section 35(5) says, 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. Sec 44(2) is saying regarding reconciliation statement. It says, every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed. Now as per Rule 80(3), every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner. Now the interpretation become start when watch the word turnover in act and aggregrate turnover in rule. We all know that word Turnover is not defined in GST Act, Turnover in State/Union Territory and aggregrate turnover are defined in the act. According to section 2(6), aggregrate turnover means aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of person having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. Now we have to take Aggregrate Turnover for determining audit applicability of an entity (PAN) I mean if any registered person have more than one registration (GSTIN), every GSTIN are treated as distinct persons according to section 25(4). And for determining audit applicability of that PAN (Entity), we have to consider summation figure of all GSTINs turnover (it means aggregrate turnover of the entity). If the figure (aggregrate turnover as per GST law) crosses 2 Crore then GST audit is applicable for the enitity (PAN) so all GSTIN are covered in audit preview. Now if we watch technically, we can say that every distinct person (GSTIN) has full compliance liability and treated as separate registered person though the person is same in entity level so every GSTIN (distinct person) of the entity (PAN) have to file GSTR 9C separately along with Financial Statements for each GSTIN duly certified by a CA or CMA. It is not the fact that, one auditor can certify all the GSTR 9C, separate auditors may appointed for separate GSTIN. Auditors roll in GST audit u/s 35(5) : Auditors are going to take a very important role in GST audit u/s 35(5) from auditees angel and also from governments angel. From my point of view, audit u/s 35(5) of CGST act is not only the GST books checking with relevant, record, returns and documents after considering the provisions of GST law with certifying reconciliation statements, GST audit u/s 35(5) is a stage of performance  for auditors where they have to work as a breeze between registered person and GST law by verifying the correctness of Turnover declared, Taxes paid, Refund claimed and Input tax credit availed. Auditors lawful recommendations and observations can save auditee for any kind of future litigations, fine, penalties etc. Auditors recommendations can aware them and motivate them for paying correct taxes according to GST law before starting any assessment process. We all know Chapter XIX of CGST act is very vast. Section 122 to section 138 are posted in Chapter XIX. Various offences and penal provisions are descried in that chapter. Then also arrest provision are there in GST law. Section 69 of CGST act talks about arrest. Other than the above, GST law have many more provisions where many kind of demand may imposed. So auditors lawful  recommendations and auditees acceptance by paying those kind of tax with applicable interest can save the auditee from future litigations, penalty etc. Not only that, while departmental audit u/s 65 or special audit u/s 66 (cases where already mandatory audit u/s 35(5) done) will impose for any reason, a good auditors lawful observation in reconciliation statement GSTR 9C in time of audit u/s 35(5), which was already in the hands of registered person can take a major role for establishing the right tax according to GST law in front of audit u/s 65 and u/s 66. From governments point of view, a good lawful observation by GST auditor can help the departmental officers for taking actions (for collecting lawful tax from the auditee) also. I want to say from my view point that 35(5) is a stage where practicing C.A. or C.M.A who conducting audit have to take a major role to establish the total GST law rightly in India. GST Auditor and GST Audit : When we go through section 35(5), read with section 44(2), along with notified forms, we can see two types of situations, First one is a case where no audit is required in any other statute but GST audit needed u/s 35(5) and duly certified reconciliation statement [Certified by CA, defined in 2(23) of CGST act / CMA (Cost Accountant)  defined in section 2(35) of CGST act] also need to file as per section 44(2) by the registered person (auditee). Second one is the case where Audit is required in other statute like Income Tax Act, Companies Act etc along with GST Act u/s 35(5). When Audit in other statute was done then, same auditor can certify the reconciliation statement GSTR 9C and alternatively an auditor, other than the auditor who conducted the audit of financials, can certify the reconciliation statement GSTR 9C after considering the GST matters and records, returns and other required data.  Now we can say when the second option is applicable, there is no requirement of audit of financial statements again in time of GST audit, only requirement would be the examination and checking up the books and records in the view point of GST law (Books and records prescribed u/s 35(1), read with Rule 56) keeping the meaning of audit u/s 2(13) in his brain and certify the correctness of reconciliation data of GSTR 9C. The word Certify indicates Absolute level of assurance provided on that subject. In GSTR 9C, auditor have to certify by using True and Correct term though various observations are subject matter.  We all know GST act do not provide guideline in audit procedure so sampling based audit also acceptable where a lots of audit/checking matters are involved within a limited time period so from that point of view various standards of auditing can give some focus on this regards. When an auditor doing both GAAP purpose books audit / statutory audit / tax audit in Income Tax  as well as GST audit, then in time of certifying GSTR 9C (Reconciliation statement), he/she has to fill first option of Part-B in certification sector of GSTR 9C. When GAAP purpose books audit / statutory audit/ tax audit in Income Tax and GST audit done by different auditor then GST purpose auditor have to choose second option of Part-B in certification sector of GSTR 9C. In both cases auditor have to certify true and correctness of reconciliation statement, after considering the explanation given to them by the auditee subject to observations and qualifications from view point of GST law by the them (auditor). So auditors valuable observation and qualification will help the auditee in decisions making for future also. Which elements are treated as Accounts and Other Records in GST law and how to maintain those Accounts and Records in GST regime : As per section 35(1), every registered person shall keep and maintain (For more than one declared business place, declared in registration certificate, have to keep and maintained separately business place wise) at his business place mentioned in the Registration Certificate, a  true and correct account of (a) production or manufacture of goods; (b) inward and outward supply of goods or services or both; (c) stock of goods; (d) input tax credit availed; (e) output tax payable and paid; and (f) such other particulars as may be prescribed: Rule 56(1) provide, every registered person shall keep and maintain, in addition to the particulars mentioned in sub-section (1) of section 35, a true and correct account of the goods or services imported or exported or of supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers and refund vouchers. Rule 56(3) says, every registered person shall keep and maintain a separate account of advances received, paid and adjustments made thereto. Rule 56(4), provide every registered person, other than a person paying tax under section 10, shall keep and maintain an account, containing the details of tax payable (including tax payable in accordance with the provisions of sub-section (3) and sub-section (4) of section 9), tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period. Rule 56(5) says, every registered person have to maintain details of recipients and suppliers and the complete address of the premises where goods are stored by him, including goods stored during transit along with the particulars of the stock stored therein. Other sub rules of rule 56 are also considerable for keeping and maintaining of records As per Section 35(2), every owner or operator of warehouse or godown or any other place used for storage of goods and every transporter, irrespective of whether he is a registered person or not, shall maintain records of the consigner, consignee and other relevant details of the goods in such manner as may be prescribed. Rule 58 produce us the details system of maintaining books and records by owner or operator of warehouse or godown. Need sufficient Knowledge of Computerized software used by auditee : At present era of Tax and Accounts, computerized system is a very essential factor, various ERP based software are there for help us. When a entity has lots of different types of transactions with different branches then we have to choose software according to need of reports of the business from various points of view like accounting point of view, budgetary controls point of view, taxations point of view, managements point of view etc. When a software generate GST required results along with financials results after entering regular data, auditor must have to know regarding the process (I mean Accounting process) of preparing automatically processed data, returns etc after entailing primary data into that software. Auditors have to know the process and system of implementations of GST law  through that computerized software otherwise it is going to be a very tough task. Also auditor have to know the audit conduct features and system of that software for auditing. At present era, audit systems are implemented through software after considering the hard copy of bills and vouchers and documents. So auditing futures of that software by which auditee maintain books is very important for auditors. Books of Accounts, Records and Financial Statements for Accounting purpose : Generally books and records are maintained and financial statements are prepared as per Generally Acceptable Accounting Principals of India (GAAP) and Accounting Standards (AS) by using various computerized accounting software or own developed accounting and tax software  and for final accounts preparation for Companies (Some cases it depends on the law on which the entity getting themselves registered) we have to follow Schedule III of Company Act 2013, and final accounts preparation for other than companies, general concept of accounting  take a major roll. My view regarding maintenance of Books and Records under GAAP system covering data and records of GST law : When a GST Registered Pan (Entity) has more than one distinct person (GSTIN) and every distinct person have one place of business, the entity may maintain general purpose books of accounts as a whole for the entity level, but he has to maintain GST purpose books and records separately for each GSTIN (as per company regulations and law, the company have to maintain books of accounts in its registered office but taking approval from ROC, they can maintain from another offices). Some entity maintain general purpose books for various branches by using branch accounting for every branches by using control ledgers in books. Also they can go for cost centre basis accounting of various units and main unit of the entity for mainly allocate expenses and others among the branches. Maintenance of separate books of financials (for the entity having more than one distinct person) separately for GSTIN wise (When every GSTIN have one business place) is very helpful for maintenance purpose and also at the same time a consulate single accounting results can generate for the entity level (PAN) in regular basis is highly recommended though present various software have the facility to consulate the every GSTIN level accounts into a combine entity level  (PAN) accounts. Commonly we watch common Ledgers and other records between GST law and GAAP purpose are maintained in one set of books of accounts (Following the principal of accounting entry) and the extra data and records, required for GST purpose are maintained in a separate sets of record sheets (Not by the way of accounting entry method but its depend on the need of results). In that point of view, accounting software have to take a major roll. At present various ERP systems developed themselves regarding GST matters also. Accounting software preparation companies are doing a good job, they develop themselves in a good way by using good skill.  Passing one entry can fulfill GAAP requirement and also GST law related requirement by using those software. Some time some GST transactions cannot fit for the GAAP transactions directly. Some time where transaction value of GAAP is not considerable for value of supply prescribed in section 15 of CGST act and various valuation rule like Rule 28 giving effect for calculating value of supply and after calculation of tax amount by applying valuation rules, the Transaction of GAAP transacted in accounting way with taking that tax amount (calculated by using Valuation rules) in books of account data. Sometime a transaction in GAAP for a financial year is a not a part of that GST matters of that month, it may hit the GST books of previous financial year by doing some adjustments in GAAP books. For example, GST Credit Notes of section 34 for sales return against any tax invoice of previous financial year can issue in current financial year  (within prescribed time). So maintenance of books by auditee in proper way through a proper softwere is taking a main part in time of audit process. More than 95% items of Trial balance should reflect in GSTR 3B, I mean 5% data of trial balance may not reflect in GSTR 3B (for schedule III matters and others purposes though some different opinions of some experts are there for added scheadule III items in GSTR 3B). Not only the above matter, we can see in some cases, where trial balance may not consider some GST data (as GAAP not accept those transactions as financial transactions) but GSTR 3B may consider them as GST data. Over all, I just give a example, suppose a sale transaction having sale value Rs. 100 and tax is 5% and it is a valuation rule effected transaction and assume value is detarmined for gst purpose is Rs. 150/- so Tax is Rs. 7.5/-. So Transaction Value is Rs.100/- + 7.5/- = Rs. 107.5/- So in financials, sale figure is Rs.100/-, and tax figure is Rs.- 7.5/- but in GSTR 3B, and supply register, supply is reflected as Rs. 150/- (Output Tax figure in GSTR 3B and Output Tax Register is Rs. 7.5/-). Also for audit applicability determination, we have to consider Rs. 150/- in place of Rs. 100/-.   So in time of GST audit, auditors have to see those matters by the view point of GST law. We already watch, in GSTR 9, No supply shall added with Non-GST supply table (No 5F) but in time of GSTR 3B filing, we cannot put scheadule III outward cases with Non-GST supply (my point of view is that, as non gst  supply is not defined in GST law,  we have to take those items supply as non gst  supply on which supply provisions covered in GST at present but tax cannot levied before notification by Govt. as per section 9(2) i.e. declared petroleum products. So GSTR 3B has that option so we put those items as Non GST Supply.  On the other hand scheadule III items are neither a supply of serves nor a supply of goods so it is No supply  and 3B has no option for No supply so we cannot put outward cases of Scheadule III items in GSTR 3B)  so in time of GSTR 9, we have to add those non declared Scheadule III data from our books of accounts. And in time of audit, auditors should understand the wideness GST and its implementation through financial accounts, GSTR 3B and GSTR 9. Some important points for GST Auditors :

• GST Audit of any Financial Year dependent on next / previous Financial years transactions also : As we all know some sections of gst talk about the dates of next financial year for acceptability GST provisions of any financial year. Section 34(2) is a example, I mean Credit note for GST purpose. If any person issue valid GST Credit note within the prescribed time (assume credit note issuance date is a date for next financial year), the outward supply for which the credit note is issued is reduced on the day on which the actual supply was taken place (though recipients credit reducing also is subject matter in some cases).  So auditors have to check the next financial years some GAAP data for establishing that kind of GST issues, related to the year for which audit is going on. Also this effect make difference between GST Data and GAAP purpose books data. And for establishing the GST provisions, we have to pass some financial entries adjustment entries in books. Section 15(3)(b), read with section 34 is the area where Sale made/Service rendered in the form of supply, transacted in a financial Year but pre-determined discount may transacted in next financial year also. So after establishment of the clause pre determine, the supply of the previous period and tax is reduced for that previous period and a financial transaction can established the effect of gst law. So from my point of view, auditors should watch these areas very closely.

• Preparation of Data for Reconciliation Statement and verification where the entity having more than one GSTIN :

1. Many big entities have many GSTIN and statutory auditors annual audited financial statements for the entity (PAN) level are not enough for a GSTIN level GST auditor to trace the transactions and GST matters for that particular GSTIN before watching the details of statutory audit in GSTIN wise segregation. So from my point of view Trail Balance of entity level have to divide as GSTIN level Trial Balance. So every GST auditor of every GSTIN can watch the total sheet where summation of every GSTIN level trials Ledger balance match with the figure of entity level trail balance. I think if the statutory auditor does not certify that type of sheet then minimum requirement should take certification financials from the management of the company of that kind of sheets which are matched with audited statements. Now the question is whether the simple trial balance is enough for matching GST books data with GAAP purpose books data or not. From my point of view simple net figure reflected trial Balance cannot fulfill the requirements of GST auditor. Ask for trial balances reflecting triple column wise, I mean, opening figure, financial years debit and credit Figure and Closing Figure. A credit side figure between the year of expenditure/Capital Assets may attract a outward supply provisions according to fulfilling the inclusive definition defined in Section 7 of CGST act in some cases. So if the audited not declaring those kind of (applicable cases only ) maters in returns, then auditor have to make a observation on that point. When the matter is regarding audit of FY 17-18, only the trials of FY 17-18 is not enough, You have to take trials for FY 18-19 also. Now the question is trial of 18-19 may not be audited as on present date, so definitely managements certified trial balance of FY 18-19 for those types of cases has to taken by GST auditor from auditee. I also prefer that when books of accounts are maintained for GAAP purpose in GSTIN wise separately, then stock transfer between one GSTIN to another are established as purchase and sales for the relevant two GSTIN by the auditee (In time of audit of books, GST auditors have to watch whether tax is charged after considering relevant valuation rule or not) so if that kind of purchase and sales are considered in books with general purchase and sales then auditors task become little tough but if that kind of (distinct persons transactions) sales and purchase are treated in separate sales and purchase ledger by auditee then it will become little easy for auditors. Those types of cases where auditors take separate ledger wise data for those kind of schedule I transactions, then in time of matching with Entity level Trial Balance, total purchase of all GSTIN of those type (Distinct persons case) matched with total sales of all GSTIN of those type (Distinct persons case). So when comparing trials with the totals of All GSTIN with entity level, the Both side entries of GSTIN levels trial are not included in entity (PAN) level trial. For example, purchase of entity level (PAN) do not include those purchase and Sales of entity level (PAN) do not include those sales. And as the total purchase of those type is equal to total sale of those type it is a case of just like contra for entity level. And auditors also take the another advantages, when auditee prepaid those type of details in GAAP records. I mean as those types schedule I transactions are not subject matter of consideration so rule 37 also not applicable, from a single window, auditor can see the inward supplies for which he has not find consideration transactions.

1. Now if the entity (PAN) maintains Branch accounting process for every GSTIN for maintain Books for GAAP purpose then need details of control ledger of each branch (For which type of debit, respective branch is credited and for which type of credit, respective branch is debited) maintain with another branch and finally prepaid the sheet where the entity level financial records each Ledger balance matched with total of each ledger balance for summation of all branches. But for GST data and records, every GSTIN shall maintain data separately for its each declared business place.

• Auditing have to start from Registration Certificate checking: From my point of view, audit should start from checking of registration certificate. As according to section 35(1), maintenance of  GST books and records needed for every GSTIN separately and when any GSTIN have more than one business place (as per registration certificate) books and records have to maintain separately for each place of business. So if the auditee do not maintain GST books and records for every business place separately then auditors have to give this observation in certification part of GSTR 9C.

• Some important maters auditors have to watch very closely : Supply is the main subject for established every matter related to turnover (Aggregate Turn over, Turn over in State/Union Territory). In this area I discus some matters which have to watch very closely by GST auditor.

Taxable Event in GST : Taxable event in GST is supply but the term supply is not clearly defined in the GST law. According to Section 7 of CGST act we can take some examples and activates related to supply. Section 7(1) says Supply includes.., so the word supply is used without defining it. So it is a inclusive definition given in gst law. Section 7(1)(a) says, all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. If we watch the above definition very closely, we can see by a person is used but to another person is not used. It means if a person transfer goods to himself then also it is possible to fall in the ambit of supply. Just like stock transfer from a branch to another branch of a entity.  Now in some cases where without consideration, supply can happen and it is described in Scheadule I of CGST act. Now if we go through the Scheadule I of Cgst act, we can see, four types of transactions are placed here. First one: Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. Goods transfer as free gift may attract that provision. Second one: Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business, Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee (employer and employee are related persons) treated as No Supply., Third one: Supply of Goods, by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. Forth one: Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business. Now in the case of import of services for a consideration is establish as supply even it is not in the course or furtherance of business. Events specified in Schedule III of CGST Act are neither a supply of service nor a supply of goods even the conditions of section 7 are fulfilled. For knowing which events are supply of service and which are supply of goods, we have to follow schedule II of CGST act.

1. Classification and establishing supply as supply of goods or supply of services in some cases : Classification of goods and services for charging GST is a area where GST auditor have to do a very close look. I mean whether auditees charging of tax percentage is correct or not, whether auditees declared HSN/ SAC is properly matched with the goods and services supplied originally or not. Whether those declared HSN/ SAC is matched with rate of those HSN/ SAC or not. So for this maters, Auditors have to study very closely the Rate notifications for goods, services etc. Sometime transfer of property of goods transfer to recipients but as per GST law, that supply is treated as supply of services and time of supply of services, location of supplier of services (Though location of supplier of goods is not defined in GST law) are applicable in that cases. For example, Work Contract defined u/s 2(119) is the situation where the above mater is established. Its a composite supply according to section 8(a), read with section 2(30) and always treating that it is a  supply of services according to Schedule II , point no. 6(a). Now the main matter is the meaning of Work Contract in GST era. In simple word in pre GST era, work contract is a kind of contractual work where goods and services are provided in a mixed system for a work order provided by the recipient. It is just like repairing of car, making of roads etc. But in GST era, the meaning of Work Contract is changed, section 2(119) says, a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. So we say that if there is no attachment of immovable property then that supply is not going to Work Contract provision. Repairing of car may be tracked in Composite supply (according to case study)  but not going to Work Contract as no immovable property is subject matter. From my point of view, auditors have to watch those kind of transactions very closely and watch whether the auditee show those kind of transactions according to the gst law regarding time of supply, classifications  of those supply etc. or not.

1. Watch those transactions of outward supply very closely where more than one items are provided in a combo pack system : We all know that Mixed supply is a subject of GST also. Section 2(74), read with section 8(b) give us the idea of mixed supply. Auditors have to watch in time of more than one taxable goods or services in a combo pack system where the items (goods or services) are made in conjunction with each other for a single price and where such supply does not constitute a composite supply (when the group is not naturally bundled) auditee charge the highest rate tax (highest rate applicable among the goods or services) for the combo group, or not. If not charge, then give the proper recommendation from auditor and payment of tax by auditee, can save the auditee from future litigation.

Value of supply is determined after adding some elements : According to section 15 of CGST act, value of supply is the transaction value of that supply. Most important part is value of supply includes all taxes and duties excluding CGST, SGST, UTGST, IGST and Compensation Cess but include Incidental expenses including commission, packaging charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services. Value of supply also includes  interest or late fee or penalty for delayed payment of any consideration for any supply. So in time of audit, auditor have to see, whether the all required eliments are added with respective value of supply (when value of supply depends on section 15) or not for computing the taxable amount. Suppliers liability discharge by recipient, added with value of supply : Some contractual work is executed with a contract but for some reason some items are provided by recipient and after deducting the amount, the payment matter is settled. For those kind of transactions, auditors have to find out from the contract agreements, whether the items provided by the recipient is the liability of supplier or not. If it is liability of supplier, but provided by recipient, auditor should consider the value of that supply according to law provision, and compared by the value of supply declared by the auditee for tax purpose. As per Section 15(2)(b), if the liability is for supplier but items provided by the recipients, then for value of supply for tax computation purpose, should include value of that items. Sale of Scrap is a supply : The term Scrap is not defined in GST act. So in general way if the goods are lost their economic value then the goods are treated as scrap. And we know HSN code for various types of scrap are there in GST law. And according to rate schedule the scrap items are attract various rates of GST also. so sale for a consideration of scrap items are covered as supply. Auditors have to watch those transactions.

1. Properly segregation of nature of supply as Interstate supply or interstate supply :

In General cases, to establish and check correct chargeability of levy by auditee in time of output supply in CGST act according to section 9 of CGST act and establish levy of respective SGST act and UTGST act, (CGST+SGST) and correct chargeability of levy by auditee in time of output supply in IGST act according to section 5 of IGST act (IGST), auditors have to know what is location of supplier and what is place of supply. Location of supplier of services are defined in IGST Act, section 2(14) but location of supplier of goods is not defined then for goods case if supplier having more than one registration then the place from where goods are removed (having GSTIN for that place) is the location of supplier. For place of supply determination has to consider section 10,11,12,13, and 14 of IGST act. It is very important from my point of view, according to section 12, sometime services are rendered in relation to immovable property and services provided like lodging accommodation by a hotel, inn, guest house etc cases, place of supply is the place where the immovable property is situated. The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed. Now after establish the Place of Supply and Location of supplier auditors have to watch following provisions for General cases (NON IMPORT and NON EXPORT CASES) for approve a supply as interstate or intrastate. In general cases according to section 7(1) of IGST act, where the location of the supplier and the place of supply for supply of goods (within india) are in two different States; two different Union territories; or a State and a Union territory, the supply of goods is treated as supply of goods in the course of inter-State trade or commerce and IGST levied. In general cases according to section 7(3) of IGST act, where the location of the supplier and the place of supply for services cases are in- two different States; two different Union territories; or a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce and IGST levied. According to section 8(1) of IGST act, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply subject to following three exceptions, (i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit; (ii) goods imported into the territory of India till they cross the customs frontiers of India; or(iii) supplies made to a tourist referred to in section 15 of IGST act (this three cases supply of goods not treated as intra-State supply). According to section 8(2) of IGST act, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply (subject to the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit) So CGST and SGST levid. So auditors have to watch that whether auditee determines the nature of supply properly and charge CGST+SGST/ IGST properly or not. According to section 10, when Bill to Ship to model for goods transfer and billing was implemented by the auditee, auditor have to do a very close look on those transactions also.

1. Discount in time of Supply and Post supply Discount cases : According to Section 15(3)(a) of CGST act, When discount is determine before or in time of supply then the discount is not a part of value of supply though in that case discount is allowed when it recorded in the invoices. So from my point of view it is a simple trade discount case which deducted directly from invoice level stage and value of supply is reduced in invoice level also. But Auditors have to watch the post supply discount cases claimed by supplier according to section 15(3)(a) of CGST act very closely. Provision says if such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices then the discount is not a part of value of supply though discount practically given to recipients after issuing invoices subject to input tax credit reduction by recipient. So supply of previous date and output tax reduced by supplier by issuing GST Credit note to the recipient according to terms and conditions of section 34(1) of CGST act. Now auditors have to watch whether that kind of transaction allowable for issuing GST Credit Note by establishing terms and conditions and agreement for that discount were executed in time of supply or before supply. If there is no that kind discount establishment in time of supply or before supply with a supporting agreement document, then supplier only raise a Financial Credit Notes to recipient for adjustment of party ledger amount and no gst reduction are permeable. Auditors have to watch these areas very closely.

1. Time of Supply provisions are very important part : Time of supply is point of taxation in GST, I mean on which date (Tax period) tax charging liability getting hit in the hands of supplier. section 12 of CGST act governed time of supply of goods and for, According to section 12(2) time of supply (forward charges cases) is the earliest of (a)  the date of issue of invoice by the supplier or the last date on which he is required, under section 31, to issue the invoice with respect to the supply; or (b) the date on which the supplier receives the payment with respect to the supply: Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount. and section 13, governed the time of supply of services. By using section 13(2), The time of supply of services (forward charges cases) shall be the earliest of the following dates, namely: (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or (b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or (c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply :

as per above provisions we clearly see that if advance consideration received for any future supply, Point of taxation is the time when received the advance consideration. We all know that by implementing more than one notifications in more than one time, government give criteria based relaxations from that part of point of taxation (tax on advance consideration received). so considering all those notifications, auditor also have to check the time of supply for all supplies or selected supplies. Advance consideration received is a case (applicable cases after considering notifications on that date) of mismatch between financial turnover and GST supply. For applicable cases, advance received is a supply in GST records and also have to pay the gst to the government by the supplier, but in financials it is only a liability generation transaction and after revenue reorganization, the figure will go to financiers turnover by reducing that advance. so auditors have to watch those areas where Time of supply according to GST law as per section 12 and 13 giving separate point of view than the AS 9, AS 7 (some cases), in financial records. Cases where time of supply is not governed by section 12 & section 13 : Tax rate on goods and services were changed in various times by the government. So that matter give a effect for point of taxation and charge the appropriate rate on that day of time of supply. When process of transfer of goods and services including invoicing and payment received (in applicable) are effected between two tax rates (according to new applicable rate cases), then time of supply is depend on provisions of section 14 of CGST act. In those cases section 12 and 13 are not considerable and tax rate also applicable as the same tax rate of the goods or services on that day of time of supply as according to section 14 of CGST act. Some cases where contradiction may arise between establish of credit reversal and declare a outward supply for maintaining the supply chain : Section 17(5)(h) of ineligible credit provisions is the area where the auditor has to give a lots of close look. The provision say, credit is not allowable, if goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. We all know the term Gift is not defined in GST law.. In general concept and other law and in some case laws, gift is established as transfer of rights or rendering of services without taking any consideration. So in some cases, business men provide some goods (Transfer the rights of the goods) after fulfilling some criteria by the recipients (Like getting One item and take another item in free of cost). So if free of cost goods is given after fulfilling any condition then we can argue that it is basically not a free. The free goods (free by term which we use in time of talking)  is given after fulfilling the prescribed criteria. So it is not a item which was given in free. So in some cases it is not a case of credit ineligibility matters. It may hit as mixed supply (when the two items are sold with a combine package style and the items are not naturally bundled consideration also received/receivable as common consideration for those items) and attract higher rate of tax (higher rate of tax applicable among the items of that combo) and credit blockage for that so called free items are not applicable. Auditors have to watch those kind of transactions very closely. Employer and Employee Transactions : Employer and employee are related person according to section 15. Firstly we have to see, when employee render service towards employer in the form of employment service (In general term we called it salary/wages received against employment service provided to employee) and according to point 1 of schedule III, it is neither a supply of goods nor a supply of services when the services provided by the employee in the course of or in relation to his employment. So two most important parameters of point 1 of schedule III are i) services should rendered by employee to employer and ii) It should made in the course of or in relation to his employment. Presently employers give various facilities/perquisites to their employees. When, goods or services or both are provided to employer by employee in the terms or relation of the employment contract, then we can clearly say that the value of goods or services or both are given to employee by employer as consideration of employment service so attract Schedule III. No GST applicable. For example, yearly gift, facility of drivers salary, free fooding etc. (should mentioned in employment contract). When the above facilities are not a part of employment contract, it may constitutes a case where employer render service or transfer property of goods towards employee. Now for constitute that transaction as supply, we have to see, whether that event attract in the course or furtherance of business or not. The above described event also is falling under the definition of business in GST law. . According to section 2(17), every activities, even ancillary transactions of trade, commerce of a person (employer) is covered under business. So we can say that the above situations are covered under the ambit of business. Now the next element for proving the event as supply is consideration. As per section 15 of CGST act, employer and employee are related persons. So according to Schedule 1,  consideration is not a factor for treating as an event as supply. So if there is no consideration then also attract supply and if there is consideration, then no question of think other of matten than supply, though for tax charging purpose, valuation rules are considerable. Now, in above situation for without consideration cases, provision say, gift upto Rs. 50,000/- p.a. per employee is a case of No Supply. So Gift exceeding (service or goods without consideration) Rs. 50,000/- per employee per year attract supply and if the supply is taxable supply, tax has to paid by employer after considering valuation rule for value of supply and if the gift item is goods, then in time of purchase, credit is blocked according to section 17(5)(h) of CGST act. Cash gift is not attract supply as cash is out of ambit of goods and services. We know that recovery of fooding expenses from the employees for canteen services will also attract GST according to AAR judgment. so auditors have to watch those transactions very closely for certify the transactions. Capital Assets and sale of old capital Assets : As per section 2(19) of GST act, Capital Goods means, goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. So Capital goods is a goods. and  according to section 2(52), goods means, every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.  If we compare between the concept of capital goods of section 2(19) of CGST act and AS 10 of GAAP (the process of accounting of some fixed assets in financials) we can find, financials may give permission to add some expenses with that assets (so the expenses become treated as capital expenses in place of revenue expenses) so we have to pass accounting entries in financial books as per AS 10. And in GST, the expenses may be treated as inward supply of services so not permutable for treating that inward supply amount as capital goods in GST. So in financials the value of that fixed assets is getting higher than the value of that fixed assets (capital goods) in GST records (though value of capital goods as per GST is not defined in GST law and not to be certified anywhere in GST reports). As per GST law, capital goods have life span of 60 months. So in time of purchase credit have to be (time limit for take credit upto tile limit of sub section 4 of section 16) claimed but if the used capital goods is sold after claiming the ITC but before completing 60 months, then credit allowbility is respected for the number of months for which the capital goods was a business assets of the supplier. And the remaining periods credit is not permutable  and for determination of output tax in time of sale of the used capital goods, we have to compare the amount of tax on transaction value and the tax calculated for unused life. Then the maximum amount between the two is to be taken as tax amount according to Section 18(6), read with rule 44(6). We have to declare those kind of transactions as supply Supply of some kind of services between distinct persons : Generally stock transfer between one branch (GSTIN) to another branch (GSTIN) of an entity (PAN) is normal transaction and when those transactions are taken place, no consideration is subject matter for establishing those transactions as supply. so even non present of considerations, that is going to be a supply according to schedule I of CGST act and for value of supply have to consider the valuation Rule 28, or 30 or 31. And Tax invoice must be issued according to section 31 by the supplier GSTIN and also credit is subject matter according to applicability of credit related provisions in the hands of recipients GSTIN. Auditors have to cross examine those transactions from e waybill (applicable case) portal, Tax invoices, relevant data and documents, stock register and returns. But the tough work for auditors is to find the transactions between distinct persons related to some kind of specific services. I mean when entire accounts team, HR team (doing the works according to employment contract with the entity) and others team or single employee operate the total work of the entity (PAN) from a office of a GSTIN of the entity. Then finding out the volume of their services towards another GSTIN is a very tough work and also it is very tough for a GSTIN level auditor to certify that volume. Though services by employee to the employer in the course of or in relation to his employment is no supply as per schedule III, that kind of services are treated as supply from one GSTIN to another as the supplier GSTIN and the recipient GSTIN are not employer and employee type. When the HR/Accounts teams, other employees are established as employee for that GSTIN where they do sitting, supply is applicable between two GSTIN of the entity after considering the provisions of section 7 and Schedule I of CGST act. A very important AAR decisions of Karnataka in the case of  M/S. Colombia Hospitals Pvt. Ltd  is give clear view for those kind of transactions. And for valuation of supply, for tax purpose have to apply valuation Rule as the supply is transacted between distinct persons.  Auditors have to examine those kind of transactions very closely. Have to do close look on those kind of  reimbursement received transactions where auditee claim those reimbursement as not a part of value of supply : Some time, in some applicable cases, registered person do some work/ paid some expenses on behalf of others and take reimbursement. In time of audit, auditors have to do a close look on that. I think auditors and tax personals are aware on those transactions as they  also take many reimbursement from clients for paying various taxes on behalf of them. And when they raise bills to their clients, the reimbursement claim amount put separately in bill and the amount is not a part of income establishment of them. From GST prospective, we can discuss that matter. Firstly  we have to take knowledge of Pure Agent. Pure agent can take the facility of Rule 33. When pure agent (supplier) doing invoicing for his own supply provide to the recipient, Firstly have to fulfill three conditions for act as a pure agent, first condition is need contractual agreement between the pure agent (supplier) and recipient of supply to incur expenditure or costs in the course of supply of goods or services or both. Second condition is neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply, third condition is he does not use the goods or services for his own interest such goods or services so procured and the forth condition is receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. Now have to follow three matters for excluded the reimbursement from the value of supply. First one, he supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorization by such recipient, second one, the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service and third one,  the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. So these areas of valuation rules are very important and auditors have to do a close look on those areas. Reverse Charge Liability : That is the area where auditors have to do a close look. This is the concept, taken from service tax. In service tax era, various percentile basis Reverse charges were applicable in some cases but in GST, 100% liability is given to the recipients. According to section 2(98) of CGST act, Reverse Charge means, the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.  So there are two types of Reverse Charges First one is for notified goods and services covered u/s 9(3) of CGST act and 5(3) of IGST act. In that kind of RCM, registered supplier cannot collect tax from recipient, It is a recipients liability to pay the tax and after payment, he can take the credit.  We have to follow respective notifications for the the goods or services.  So recipients of those goods and services have to generate liability of tax and have to pay by cash ledger. And after payment of tax, recipients can take that credit of tax payment. The most important matters is GTA services for these kind of RCM. We all know the term GTA is defined in Notification No.-12/2017-CTR, Clause No.(ze), I mean if Road transporter issue Consignment Note (Bilty) then becomes GTA. All transporters are not covered under GTA (GTA have some special provisions and after fulfilling some criteria, they can enjoy non taking of GSTIN facility also). So if the road transporter is not covered under GTA then the matter is under the coverage of exemption notification (Exempted supply according to 12/2017 CTR). As after getting Registered, GTA has two option as per some criteria basis, Charging GST from recipient and pay as furrowed charge basis or they can transfer the tax liability to recipient in RCM subject to differential calculations of ITC on the hands supplier (GTA). In the matter of recipients, after payment of liability, ITC allowable. Similar factor arise in the hands of recipients when GTA is non Registered, I mean pay Tax at RCM and after payment, ITC allowable (Now the matter of section 9(4) of CGST act or 5(4) of IGST act, we know, so many ambiguities were subject matter on that type of RCM. We all saw that in amendment act, the provision of 9(4) of CGST act and 5(4) of IGST act are changed and after changing, the provisions are applicable for some notified classes of persons in respect of some specified categories of goods or services or both received from an unregistered supplier. But as we are discussing about audit of FY 17-18, we have to know the previous provisions. Previously, before amendment (up to effected period according to notifications), that provisions are applicable when any taxable goods and services or both are receipts from a un registered person. I mean registered recipients have pay tax on Reverse charge basis. As per notification 8/2017- CRT and corresponding others notifications, those kind of transactions (aggregating all this kind of transactions) per day up-to Rs.5,000/- were going to exempted from tax but crossing Rs.5,000/-, its reflecting its effect from Re. 1.  From 13 th of October, 2017, we got relief from that provisions of section 9(4) of CGST act and 5(4) of IGST act as govt deferred those provisions. Now for considering time of supply under Reverse Charge, auditors have watch whether auditee follow section 12(3) for goods and section 13(3) for services or not. INPUT TAX CREDIT :  Input tax credit is a another very very important part of GST. From the view point of Accounting and also from the view point of auditing. For understanding Input Tax Credit, we have to understand Input Tax. According to Section 2(62) of CGST act, eans the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and it includes, IGST charged on imports of goods, Tax payable under Reverse Charge but it dose not include the tax paid under composition levy. According to section 2(63), Input Tax Credit means, the Credit of Input Tax. It means when the Input tax getting eligibility to take credit, then the amount transferred from Input Tax to Input Tax Credit. When Input Tax [define in section 2(62)] getting power to give its credit, then we may transfer the balance of input tax to Input Tax Credit [define in section 2(63)]. According to section 16(1), subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, every registered person can take credit on input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. Then the most vital part of credit chapter is related with section 16(2) which has to be fulfilled by the recipients for claiming the tax of input tax as input tax credit. Four conditions are given by gst law to the recipients for taking credit. First one is need Tax Invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed in the hands of Recipients. Second one is need receipts of goods and services by recipient. Basically if the goods receipts register is not maintained then, have to take certification regarding goods received form the management. Third one is Supplier should pay the tax to government of the respective invoice. This condition is really a challenging factors for auditors to certify those kind of clauses. We know according to section 49 of CGST act, tax payment means discharge of output liability by using of Electronic credit or GST Cash (utilization of credit sequence is subject mater for payment made by Credit). If late payment made then Interest u/s 50(1) have to pay and for payment of any output liability needed (in general way) filing of GSTR 3B (though voluntary payment also done by GST DRC 3) and it is applicable as monthly basis. So Recipient, can see whether the supplier file his GSTR 3B for that month (In time of supply is a advance applicable case, then recipient have to know in which months 3B, supplier paid the tax and after receiving invoice from supplier, and after confirming of tax payment by supplier, recipient may take credit) or not from gst portal but whether the tax on that particular invoice was paid or not by that GSTR 3B determination is impossible. So safe way for certify the credit for that clause is suppliers written confirmation. If confirmation from supplier regarding payment is not possible for any reason then at least certificate from management needed for auditor from the point of view of audit. Now the Forth one is Supplier should filed his return u/s 39. Now the question is at present GSTR 3B fulfill the criteria of section 39 or not. We know that according to the actual mechanism of monthly Return of section 39 govern by Rule 61 and the actual prescribed form is GSTR 3 where Part A is generated with the data of GSTR 1 and GSTR 2. Sub Rule 5 of Rule 61 says where time of GSTR 1 and GSTR 2 (Comply in section 37 and 38 respectively) get intention, and the circumstances so warrant, the Commissioner may, by notification, specify the manner and conditions subject to which the return shall be furnished in FORM GSTR-3B electronically through the common portal, either directly or through a Facilitation Centre notified by the Commissioner. And according to sub rule 6 of Rule 5, when GSTR 3B has been furnished after the due date of furnishing GSTR 2, Part A of GSTR is 3 generated according to GSTR 1 and 2, and based on other liabilities of preceding tax periods and PART B of the said return shall be electronically generated on the basis of the return in FORM GSTR-3B furnished in respect of the tax period and if discrimination found between GSTR 3B and GSTR 3, register person shall modify B and if extra liability appears, has to discharge the liability and if Credit of GSTR 3 exceeds the credit of GSTR 3B, then the credit will transfer to electronic credit ledger of the register person. Now Firstly the main point is GSTR-2 is not in Force. Also we cannot comply with section 39(9) for rectification though as per notification, we can do correction in 3B data by putting net figure (after calculating of balance amount appears for correction) in subsequent monthss GSTR 3Bs data. Also non acceptable of negative figure in GSTR 3B creates lots of trouble. So GSTR 3B do not prove invoice wise payment of output tax. I think govt. extend the time limit of section 16(4) for financial year 17-18 up to March 2019 mainly for that kinds of above reasons as sec 16(4) depends on comply with section 39. My view is as there are so many litigated points, auditors can watch that before claiming credit on any invoice, supplier of that invoice, filed his GSTR-3B  for that month (the month of invoice) or not. If it is found that the supplier did not filed GSTR 3B on of before the claiming credit, auditor may take a certification from management for the policy taken by the company regarding the point of view of Forth provision of section 16(2) and also give the observation in time of 9C certification. We also have to know that, according to section 17(1), if the goods or service on which input tax stands is partly used for business (please consider business according to gst law) and partly for other purpose then credit acceptable for goods or services which are used for business purpose. And according to section 17(2), where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. Now for calculate value of exempt supply for section 17(2), we have to include, shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.   For block credit, we have to watch the provision of section 17(5), I mean if the acceptable credit in 16(1) falls u/s 17(5) in credit taking point, then the Input tax is not considerable for  transfer in Input tax credit ledger and the figure of input tax goes to respective revenue expenses/ respective capital goods (as per required revenue expenses or required capital goods). Though according to 16(1), every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person, but the starting language of section 17(5) is very important, it says, Notwithstanding anything contained in sub-section (1) of section 16. It means when the respective input tax falling in ineligible clauses u/s 17(5), then the languages of section 16(1) is not considerable. I mean the credit is blocked. As provisions of section 17(5) are very popular for all tax professionals, so I am not discussing 17(5) clause wise. Apportion of credit is also a huge factor for finding the credit allow ability in some cases (taxable and exempted supply both are provided by auditee) We have to watch, whether the revenue expenses (in the form of inputs and input services) and capital goods for which the input tax is subject matter are used for organizing Tax applicable outward supply including zero rated supply or use for providing exempted supply or No supply (Schedule III). And when any revenue expenses or capital goods (Inputs, input services capital goods) used partly for effecting taxable supplies including zero-rated supplies, and partly for effecting exempt supplies, credit allowbility is acceptable for effecting taxable supplies including zero-rated supply only according to section 17(2) and we have to calculate the common credit which was used commonly for providing taxable (including zero rated) and exempted supply and after transfer the common credit to electronic credit ledger, we have to reversed the proportionate credit (for determination use the turnover based formula prescribed in rule) for exempted supply made (rule 42 is for inputs and input services and for the matter of capital goods the rule is 43) and in financial part, the reversed amount transfer to respected expenses or respected capital goods ledger. If the auditee is a banking company or a financial institution,  they can use the provision of section 17(2) or go for 50% of eligible credit as per provision of section 17(4), read with Rule 38. So auditors have to watch that areas of books of the auditee very closely because excess credit taken and use for paying liability can be a reason of revenue loss of government and  under calculation of  credit can make a cause of unnecessary tax burden of  auditee. Concept of GSTR 2A and Order Number 2/ 2018-Central Tax and my point of view, GSTR 2A is auto generated report on the basis of submission of GSTR 1 by supplier, GSTR 6 by ISD unit,. Submission of GSTR 1 is not depend on their comply and submission of GSTR 3B and payment of tax. Also GSTR-2A reports do not depend on practically receipts of goods and services by the recipients. So very simply we can say when we try to match our credit with GSTR 2A for any tax period (month), it may happen that GSTR 2A can show a invoices but that result (viewing in GSTR 2A) may not fulfill the condition of second, third and forth (all or any one or any two) provisions of section 16(2) for taking credit in that tax period (month). Input tax credit generated by IGST paid in time of import (according proper reflection in to Bill of Entry) and input tax credit generated after payment of RCM liability are not reflected in GSTR 2A. Only for matching concept can be established by GSTR 2A, though as per law section 42, 43 talks about matching, reversal of credit and reclaim of credit  and reclaim of reduction in output tax liability but as GSTR 2, not in force, so as per prescribed manner and proper way, that is not possible. Without GSTR 2, I mean without comply of section 38, we can not prove voluntarily our credit in GSTR 3B invoice wise. Now the audit is subject matter for the FY 17-18, for credit we have to consider order number 2/2018-CT, where Time limit of section 16(4) was increased up to due date of furnishing of GSTR 3B of March 19 and a clause also added, that is supplier also have to submit GSTR 1 according to section 37(1) within the due date of submission of GSTR 1 of March 19 and date of rectification of the GSTR 1 data of FY 17-18 according to section 37(3) also increase up to due date of submission of gstr 1 of March 19. After giving a close look on that order, we can say, GSTR 2A of recipient upto March 19 is important for credit allowability for FY 17-18s claim through GSTR 3B and also important for the invoices of FY 17-18 for which the ITC claimed (balance transfer to electronic credit ledger) by GSTR 3B in FY 18-19. In simple word, for FY 17-18s Credit, we have to consider the presence of invoices of FY 17-18 within 2A of March 19 along with four conditions of section 16(2). It is very contradictory mater I think, as GSTR 2 is not in force, so matching and actions systems are not properly in force according to section 42 and 43. Without any communication by GST dept with supplier and recipients, how can a claimable and proper credit of recipients depends on suppliers GSTR 1.. So auditors have to watch those factors for certifying the credits for FY 17-18. Credit eligibility for pre registration periods invoices : Suppose person falling in sec 22(1) or section 24 and make application for regd. according to section 25(1) within 30 days from when he become liable for regd. Now if on the day immediately preceding the date from which he becomes liable to pay tax, he have some inputs for which he pay GST in time of purchase of those inputs, he is allowable to take credit on those input tax according to section 18(1)(a) read with Rule 40. He has to file GST ITC 01 within a period of thirty days from the date of becoming eligible to avail the input tax credit as per law (thirty days may extended by notification power of Commissioner). We can take credit for Capital goods also. If registration is taken in voluntary basis then also allowed to take credit according to various provisions of section 18 read with Rule 40. Only have to follow the mater in Capital goods that the capital goods have 60 months life period so leave credit for used months. If  the claim of tax in every situation in this regard, discussed above, exceeding Rs. 2 lac (CGST+SGST/ UTGST+IGST) need a certification from practicing CA/ CMA. In time of audit u/s 35(5), auditor have to watch those certificate very closely (if claim not exceeding Rs. 2 Lac, then auditor also have to watch those claim with law point of view very very carefully). In those kind of transactions, Books entries in Financials are very important also. So I think in the case where the GST auditors and Financial Auditor are not same, GST auditors need some clarification from Financial Accounts, At least those areas of books entries have to certify by management as those parts are not separately highlighted by Financials auditors. An example: Before Registration, as the tax paid or payble in time of purchase are not recoverable from Govt, it goes to added with stock as per AS-2 because it is element of cost. So the financial effects are- the total amount appear as purchase, creditor created or cash reduced and stock also valued with the total amount. Now when getting registered, he got the power of taking credit of that tax (but that stock is laying with his hand is necessary). Applicability of AS-2 in his books of accounts is now changed. I mean Tax Paid in time of purchase now recoverable/setting with tax liability so as per AS-2, this tax is not permittable as a  part of cost of the goods. Books needed Proper adjustment journals in. I mean now purchase have to reduced by that tax figure and have to transfer it in Input Tax Credit ledger (current assets) also the Stock Value is reduced by that amount. So from my point of view auditor have to check those Book entries with data of GST ITC 01. Input Tax Credit depends on Income Tax maters of auditee also : GST auditors have to watch Audiitees Tax Audit Report u/s 44AB or Income Tax computation (Have to check auditees comply with section 32 of IT act) also for establishing the provision of section 16(3). If any amount of Input Tax added with the value of that capital goods and depreciation claim in income tax file after considering the amount as the value of that capital goods then in GST, No input tax credit of tax component (that input tax) shall allowed. Credit received from ISD : According to section 2(61), Input Service Distributor means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office. Now as GST auditor of recipient, have to watch the provisions also by which the ISD units credit distribution is governed. Section 20 talks about the guideline of credit distribution by ISD unit of the entity. Some cases Recipient have to reversed the credit according to rule 39 which was taken earlier from ISD unit Credit enjoyed by principal even goods sent to Job Worker : According to section 2(68), job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker shall be construed accordingly. Section 143 describe the entire process of Job Work. Some Manufacturer/ Principal do not do all work from first step to finish goods production. They send goods to some job worker for process of some work. And after processing, job worker send the goods to principal/ Manufacturer and for rendering his service, claim consideration from principal/ Manufacturer. We all know that Goods (Inputs/ Capital Goods,  are being transfer to the job worker by the principal but not permanently. After a time period, the inputs and Capital Goods are returned back to the principal/Manufacturer from the job worker. So to avail the credit on the goods which are not stored in place of principal/Manufacturer, he has to file ITC 04. Though according to sub section 3 and 4 of Section 143, if inputs and capital goods respectively are not received back within one year from the dispatch then deemed supply attract in the hands of principal on the date of dispatch. So for claiming credit, ITC 04 is the main factor. Auditors have to watch those very closely with respective e- waybills (applicable cases). Reversal of Credit in failure to provide the consideration to supplier : Rule 37, talks about that provision. Where consideration is not given to the supplier against any inward supply, by the recipients within 180 days from tax invoice date, then credit which was taken by recipient, has to be reversed with interest. As per provisions of Rule 37, it must be complied by recipient in his GSTR 2 and it will increase the output liability of recipient with creation of interest liability u/s 50(1) and after repayment, the tax amount (Not the Interest amount) can eligible for reclaim of credit and time limit of section 16(4) is not applicable on those reclaim of credit. Presently GSTR 2 is not in force so when mechanism is not ready then its not mandatory to comply but in GSTR 3Bs credit reversal portion, other option may used for that case for the interest of revenue of govt. According to credit Reversal sector, it decrease the balance of input tax credit /electronic credit . So as per law, it should increase the Tax liability but as per mechanism of GSTR 3B it is a case of reduction of Input tax credit balance. This reversal is not needed when goods or services or both are supplied between the related persons as no consideration is subject matter for establishing supply between related parties. Auditors have to watch those transaction very closely. Now if the recipient of previous case supply some goods or services or both to the supplier of previous case then books adjustment method for adjust receivable or payable figure between parties may imposed for accounting purpose, then the first question is whether the book adjustment method fulfill the term consideration of GST or not. According to section 2(31) of cgst act, it fulfill the condition of consideration. In support of that, the WB AAR judgment in the case of Senco Gold Ltd is very effective. Destroy of unnecessary goods on which ITC is availed may be a case of Credit Reversal : According to section 17(5)(h), goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples are treated as block credit cases. Now when Supplier destroy some goods (Like medicine expiry cases) on which ITC was availed previously by him, reverse the ITC. section 17(5), deals with ineligible credit, I mean generally before taking of credit, input tax on inward supply transfer to debit side on P/L account with respective expenses or added with respective capital goods and its effect reflects in B/S for cases of ineligible ITC matters but when the above matter is a case on which provision of 17(5) is imposed on the date of destroy and credit was already taken before the date of destroy, it is a case of credit reversal as per GAAP books but as per GST provision it is Block credit matter and sec 17(5)(h) applicable on that part. Auditors have to look the matter very carefully. Refund : According to section 54, generally refund is allowable from GST Electronic Cash Ledger, The balance of Electronic Credit ledger is not permittable for refund unless it falls sudden clause as per u/s 54(3). One reason is Zero Rated supplies (Export most of the cases) made without payment of tax and another reason is credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Refund system is governed by Rule 89, in some export oriented Refund of ITC cases, Credit for the purpose of capital goods are not permittable. GST auditor have to watch those refund whether the refund taken or claim by the auditee is lawfully or not. Reconciliation Statement in Form of GSTR 9C : I discuss in regarding 9C in very short way. In my my next write-up I will discuss clause by clause for GSTR 9C. From the view point of GSTR 9C, auditor have to certify the reconciliation statement. In Part A, First factor mater is turnover sector, Firstly have to start with turnover of Financials of that GSTIN then reconcile the Turnover with GST purpose annual turnover by various reasons declared in GSTR 9C, then after finding the originally GST purpose annual turnover, have to compare that with declared turnover in GSTR 9. Also have to reconcile the Taxable turnover by starting with Actual Gst purpose annual turnover (find earlier) and deducting Exempted, Nil rated, Zero Rated, Supply for which his recipient have to pay tax in RCM, etc. and find actual Taxable turnover. Now has to compare with GSTR 9 data. Then have to reconcile Tax payment maters by calculating actual tax payable rate wise and now have to compare with Tax paid in GSTR 9. Then have to give data for additional tax appear if the additional tax appear for unmatched data (un reconciled) in every sector. After that, Input tax credit have to reconcile by starting from Financial books data to finishing in actual GST books data and have to compare that figure with data of GSTR 9. expenses/Capital goods wise ITC data have to put also and compare with gstr 9.If Tax have to pay for any un-reconcile factor of ITC, have to put in table 16. Now the main factor is Auditors recommendation for additional tax for un-reconciled portions. Auditors have to put is recommendations for tax payments percentage wise. Now in the Part B sector, if the auditor also the auditor who did the Financial Audit, choose option-I, and pass observations and comments and if the auditor is other than a auditor who conduct the financial audit, choose option-II  and pass observations and comments. It is not a professional advice. It is just an write-up considering my personal view on GST audit u/s 35(5) and auditor. In time of conduct audit and other gst matter do every mater according to proper GST provisions. My write-up is not liable for any litigation. MRIDUL (Mrinal Kanti Das) B.Com (Hons) Sr. Accounts and Taxation Manager. S.K. Sinha Ray & Co. Advocate and Tax Consultants [email protected] Whatsap & Call: 7450854945