Qualifications of GST Audit : Remarks to be made by Auditor in GSTR9C

DISCLOSURES FOR GST AUDIT REPORT

Qualification Type and their Observation/Qualifications Reference as follows :

1. Para 2 : List of Documents not maintained

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, the taxpayer has maintained proper records of books and documents listed in Sec 35 read with Rule 56 to 58 of CGST Act, except Stock of goods wherein memorandum stock statement is prepared.Partially maintained documents of supplies attracting payment of tax on reverse charge mechanism along with relevant documents such as invoices, credit notes, debit notes, refund vouchers, bill of supply etc.Partially some E-way Bills and/or Delivery Challans were not prepared in some cases.According to information and explanation given by the management and in our opinion the same are not material. Cash Flow Statement is not required to be prepared by the entity as per applicable laws.

2. Para 5 : Observation/qualification in Form 9C (Basis of GST Audit)

Maintenance of books of accounts, GST related records and preparation of financial statements are the responsibilities of the entity’s management. Our responsibility is to express an opinion on their GST related records based on our audit. We have conducted our audit in accordance with the standard auditing principles generally accepted in India.These standards require that we plan and perform the audit to obtain reasonable assurance about whether the GST related records and financial statements are free from material misstatement(s).The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion on Reconciliation Statements in Form 9C.

3. Para 5 : Observation/qualification in Form 9C (Deemed Supply (Table 5D))

The term “deemed supply” is not defined under GST Law. Section 7(1)(c) of the CGST Act provides that the activities specified in Schedule I is to be treated as a supply, when it is made without consideration.It has list out certain transactions / activities which is deemed as a supply in absence of consideration. The systems and processes adopted by the entity with a view to identifying such transactions have been assessed.We have obtained management representation letter regarding the same.

4. Para 5 : Observation/qualification in Form 9C (Turnover of period April 2017 to June 2017 (Table 5G))

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, out of the total turnover for F.Y 2017-18, turnover for the period April, 2017 to June, 2017 is deducted.We have relied on the reconciliation statement provided by the management of the returns filed under Sales Tax/ Service Tax/ Excise as the case may be. We have test checked the above disclosure of turnover and are subject to any pending assessments/verification by the concerned Tax Authorities.There is no material difference in the turnover and the return filed for that period.

5. Para 5 : Observation/qualification in Form 9C (Unbilled Revenue at year end of financial year (Table 5H))

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, reliance has been placed on the audited financial statements and reconciliation provided by the management for determining the unbilled revenue and no separate exercise is conducted to validate the same.

6. Para 5 : Observation/qualification in Form 9C (Adjustments in turnover u/s 15 and rule thereunder (Table 5M))

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, there is no adjustment warranted as per Sec 15 and rule thereunder on taxable value of outward supply reported in GSTR-9.The management is of the opinion that there is no material impact on GST liability.

7. Para 5 : Observation/qualification in Form 9C (Value of Exempted, Nil Rated, Non-GST supplies, No-Supply turnover (Table 7B))

Value of exempted, nil rated, non-GST and no supply turnover has been declared in Table 7B of GSTR 9C. The turnover reported is after adjustments of credit notes, debit notes and amendments. The total amount of Exempted, Nil Rated, Non-GST supplies and No-Supply turnover depends upon the management representation letter as received from register person.

8. If RCM is NOT paid even by a single amount

As per the information and explanation given to us, outward supplies on which tax is to be paid by the recipient on reverse charge basis cannot be identified and disclosed by management and those charged by governance. Moreover the management is of the opinion that majority of the inward supplies will be covered under the overall capping of Rs. 5,000 per day upto 12^th Oct 2017. Further, the taxpayer has not complied with tax invoice rule 46(p)and the taxpayer has also not complied with ITC reversal u/s 17 of CGST Act, wherever required.

9. Rule 54(3) For GTA supplier (GN, CFC) – Para 5 : Observation/qualification in Form 9C Reporting of RCM to be paid by the recipient (in Table 7D)

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, outward supplies on which tax is to be paid by the recipient on reverse charge basis are disclosed herewith.Further, the taxpayer has not/partially complied with tax invoice rule 46(p), rule 54(3) and the taxpayer has also complied with ITC reversal u/s 17 of CGST Act, wherever required.

10. Para 5 : Observation/qualification in Form 9C (Rate-wise tax liability on outward supplies (Table 9))

GST rate wise details of taxable value and GST as applicable thereon, for outward supply are disclosed in Table 9 of GSTR 9C. The auditor has relied on information as provided by management in absence of availability of tax rate-wise ledgers in the books of accounts maintained by the taxpayer.

11. Para 5 : Observation/qualification in Form 9C (Reporting of payment of interest (Table 9L))

The details of total tax payable for the period July, 2017 to March, 2018 as declared in GSTR 9 i.e. under the Annual Return is disclosed. The calculation of interest cannot be done by management and those charged with governance in view of complexities and non-clarity with regard to liability of interest as per Sec 50 of the CGST Act 2017, whether to be computed on gross basis or on net basis to be decided by the appropriate judicial authority. We have relied on the same and interest on gross basis is not quantified by the management. As per the opinion of management interest should be paid according to net liability is prudent interpretation of Sec 50 of CGST Act based on amendment proposed in Sec 50 in Union Budget,2019.

12. Para 5 : Observation/qualification in Form 9C (Reporting of penalty (Table 9N))

As per the information available and based on the management representation, no penalty notices are received from the Tax Authorities.Hence, our disclosure of penalty is based on above facts mentioned by the management.

13. Para 5 : Observation/qualification in Form 9C (Trans credit (Table 12B))

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, we have verified the claims made in trans 1 and trans 2, as the case may be, from the books of accounts vis-a-vis the conditions laid down under law for the claim of the same.Also the same has been verified online from the system to ascertain that the claim made in the books have been registered on the site for its availment. However, the credit availability is subject to the finality of notice received from GST Departments on the basis of original/revised returns filed by the taxpayer.

14. Para 5 : Observation/qualification in Form 9C (ITC reversal and 180 days)

ITC availed and reversal, if any, is being reported on the basis of available records and information provided by the management. We have test checked the ITC availed and payments made to taxpayer. Accordingly, the management is of the view that no ITC reversal arisesu/s 16(2) of CGST Act.As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, our audit report is subject to the above non-disclosure of correct and complete compliance of ITC provisions by the taxpayer.

15. Para 5 : Observation/qualification in Form 9C (Ineligible ITC and exempt turnover)

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, the exempt turnover of the taxpayer comprises of interest from bank, etc.The ITC availed is of taxable turnover, thus reversal of ITC on proportionate basis is not applicable as per rule 42 of the CGST Rules, 2017.

16. Para 5 : Observation/qualification in Form 9C (ITC as per GSTR-2A and GSTR-9C)

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, there is some amount which is not appearing in GSTR 2A which has been claimed as credit and vice versa, as the case may be, also based on confirmation of payment of such tax obtained by the management.Further, the management is of the opinion that no liability of ITC reversal/excess claim arises due to difference in information of ITC as per GSTR-2A and GSTR-9, as the case may be.

17. Para 5 : Observation/qualification in Form 9C (Reporting of RCM)

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer and on the basis of test-check of the Books of Accounts and Inward supplies related ledgers, we have reported the compliance of Reverse Charge u/s 9(4) of CGST Act and 5(4) of IGST Act, as the case may be, for the period 01/07/2017 to 13/10/2017.We have relied on management representation for unregistered status of the taxpayers.

18. Para 5 : Observation/qualification in Form 9C (Reporting of RCM)

During the year as per Books of Accounts and based on test-check for the year 2017-18, liability of RCM u/s 9(4)/ 9(3) is Rs. _______ and out of it Rs. ______ has been paid in the year 2018-19.The amount paid in 2018-19 is not shown in GSTR-9C based on the clarification Disclosure by the CBEC on 03/07/2019. Accordingly, ITC has been claimed on payment basis in the year of payment by the taxpayer.

19. Para 5 : Observation/qualification in Form 9C (Reporting of RCM)

As per the information and explanation given to us and on the basis of our examination of records, the taxpayer has not maintained complete record of inward supplies on which RCM is applicable u/s 9(3) / 9(4).Thus, we are unable to comment on the liability of the taxpayer under reverse charge for the year 2017-18.

20. Para 5 : Observation/qualification in Form 9C (Reporting of RCM)

As per the information and explanation given to us and on the basis of our examination of records, the taxpayer has not maintained the day-wise exemption limit calculation of Rs. 5000/- per day.Subject to above, on the basis of information provided and test-check basis, we have reported liability of inward supplies, If any, on which RCM is applicable u/s 9(3) / 9(4).

21. Para 5 : Observation/qualification in Form 9C (Expense head-wise ITC (Table 14))

As per the information and explanation given to us and on the basis of our examination of records of the taxpayer, we have received management representation letter for obtaining details of expense head-wise ITC availed and taxable value in Table 14 of GSTR 9C.We have test-checked with books of accounts and reported the figures on which ITC is availed. The classification of various expenses under various expense head are taken from the audited financial statements.

22. Para 5 : Observation/qualification in Form 9C (Valuation on Inventories)

For Accounting purchases other than capital goods, the taxpayer has followed Para 6-13 of AS-2 “Valuation on Inventories” where “Cost of Purchases” includes only those taxes, which are not subsequently recoverable by the enterprise form the taxing authorities.” Accordingly a separate ledger for ITC has been mentioned.

23. Para 5 : Observation/qualification in Form 9C (Accounting Treatment and disclosure of Capital Goods and ITC thereof)

The taxpayer has followed Para 17 of AS-10 (revised) “Property, Plant & Equipment”, which provides that :“The cost of an item of property, plant and equipment comprises:(a) its purchase price, including import duties and non–refundable purchase taxes, after deducting trade discounts and rebates.(b) …..(c) …..”

24. Para 5 : Observation/qualification in Form 9C (Misc. Inward Supplies (other than taxable) not included in taxable value of Inward Supplies)

The taxpayer has not included inward supplies for administrative use in the returns filed.However, details in respect of administrative Expenses involving inward supplies are not ascertainable as the taxpayer has not maintained records in respect of the same and the same have not been included in the taxable value of inward supplies. Consequently, the taxpayer has not claimed ITC of the tax paid on such inward supplies in the returns filed.

This Article has been shared by CA Ankit Somani. He is Chartered Accountant (Ranker, 1st attempt), Company Secretary (Silver medalist, Ranker), DISA. Currently Ankit is Chairman of Kishangarh branch of ICAI.

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