We will know the GST is based on Self-Assessment. When a registered tax payer files his returns u/s 39 of the CGST Act, 2017, it is presumed that the he has correctly discharged his tax liability by declaring the correct output tax liability and by availing the correct input tax credit.
The Self-Assessment Tax is defined u/s 59 which clearly says that: -
Every registered person shall assess the tax payable by him under this Act and furnish the return for each of the tax period as specified under section 39 of the Act.
There are provisions of “Scrutiny of Returns” u/s 61 under which the notice in ASMT -10 can be issued for detailed enquiry of the returns filed by the tax payers. It has very limited scope as the ASMT -10 can be issued for scrutiny of the returns. Its means the department can only assess the tax payer based on the returns filed by him.
There are also provisions of search and seizure u/s 67 of the Act under which the department can search the premises of the taxable person. The scope of section 67 is vast as the search can be done not only on the registered person but on the taxable person. The taxable person is defined in section 2(107) of the Act as the person who is registered or liable to be registered under section 22 or section 24.
Besides the above provisions of the Act, the Act also consists of the provisions of the Audit under GST. Section 65 deals with the Audit by the Tax Authorities while section 66 deals with the special audit.
The purpose of all these provisions described above is to determine the tax short paid, tax erroneously refunded or input tax credit wrongly availed by the tax payer.
All these proceedings must be initiating within the time limit framed under section 73 and 74 of the Act.
We will discuss below the various provisions regarding the audit like when, where and how can the audit be conducted by the tax authorities
Whatever actions is taken by the tax authorities, they must initiate proceedings under section 73 or section 74 of the Act to recover the tax. The tax authorities must follow the rules made under these sections to recover the tax from the taxable person.
Before we discussed the provisions of both the audits defined under this Act, we will go through the definition of the Audit which is given u/s 2(13) of the CGST Act, 2017 as
“Audit means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or rules made thereunder or any other law for the time being in force to verify the correctness of the turnover declared, taxes paid, refund claimed or input tax credit availed and to assess his compliance with the provisions of this Act or the rules made thereunder”
Now we will discuss the provisions of the Audit laid down in section 65 and section 66 read with rule 101 and rule 102 of the CGST rules 2017
Section 65 - Audit by Tax Authorities
Normal Audit as it is called is conducted by the tax authorities at the place of the business of the registered person or in their office. The procedure for conducting the audit under section 65 is followed as per the rule 101 of the CGST rules 2017.
Manner of conducting Audit
The Commissioner or any other officer authorised by him, by way of general or specific order, may undertake audit of the any registered person for such period at such frequency and in such manner as may be prescribed. Rule 101 (1) prescribed that the period of audit may be a financial year or part of the year or multiple financial year.
Place of Audit
The audit may be conducted at the business place of the registered person or in their office.
Prerequisite of the Audit
The registered person shall be informed by way of notice u/s 65 (2) in ADT -01 not less than 15 working days prior to the conduct of the audit in such manner as may be prescribed. It means the authorities must inform the tax payers at least 15 days in advance and must mention the details of the documents required for the audit. The tax payer is duty bound to follow the instructions laid down I the said notice within the stipulated time.
Time Limit
As we read above that there is a time limit to issue notice u/s 61, 73 and 74 but there is no time limit mentioned in section 65. The Act is silent on this issue.
There is a time limit to finish the audit u/s 65(3) of the Act, which is 3 months from the date of commencement of the audit. This time limit can be extended for a further period of not exceeding 6 months if the commissioner is of the view that the audit cannot be completed within the period of 3 months. The reason for extending the time period from 3 months to 6 months must be in writing.
The commencement of the audit shall mean the date on which the records and documents called for by the authorities under sub section 3 of section 65 in ADT 01 are made available by the registered person or the actual institution of the audit at the place of business whichever is later.
Furnishing of Documents and providing the facility to conduct the audit
Once the audit is commenced by the authorities, the Registered Tax Payer is duty bound to provide the officer the facility to verify the books of accounts or other documents as he may require to examine. The registered tax payer must also ensure to provide all the relevant information and assistance for timely completion of audit.
Findings during the Audit & Opportunity of being hear
During the audit, the authorised officer with the assistance of the other officers of his team verify the documents based on which the books of the account has been made and the returns have been furnished, tax has been paid, input tax credit has been availed. The authorised officer then records his finding.
He then informs the registered person withing the period of 30 days, about the discrepancies, if any noticed during the audit. The registered person shall file his reply.
The Honorable ANDHRA PRADESH HIGH COURT IN THE CASE LAW of M/S PBL TRANSPORT CORPORATION PVT. LTD. VS THE ADDITIONAL COMMISSIONER(ST) [2024 TAXONATION 121 (ANDHRA PRADESH)], THE STATE OF ANDHRA PRADESH held that the registered person should be given an opportunity and his reply must be considered before submission of final audit report. The audit report submitted without considering the reply filed by the registered person deserve to be quashed.
Observation of Audit and issuance of order
After considering the reply filed by the registered person, the authorised officer will make his observation and will issue the order of the audit in ADT-02.
Where the audit conducting under sub section 1 of section 65 results in detection of tax short paid or erroneously refunded or input tax credit wrongly availed or utilised, the proper officer may initiate the action under section 73 or section 74.
Accordingly, the notice under section 73 or 74 will be issued along with the DRC 01 to show cause why the tax short paid or tax erroneously refunded or input tax credit wrongly availed should not be recovered from the registered person along with the applicable interest and penalty.
Special Audit – Section 66
Now we will discuss about the special audit. The special audit is defined u/s 66 of the Act. The special audit is conducted when during the scrutiny of the returns, inquiry, investigation or any other proceedings, any officer not below the rank of the Assistant Commissioner, having regards to the nature and complexity of the case and the interest of the revenue, is of the opinion that the value is not correctly declared or the input tax credit is not correctly availed, he may with the prior approval of the Commissioner, direct such registered person by written communication to get his accounts audited by any chartered accountant or cost accountant nominated by the Commissioner.
The chartered accountant or the cost accountant so nominated shall furnish the report of the audit to the assistant commissioner within a period of 90 days. The time period of 90 days can be extended for a further period of 90 days if the assistant commissioner on the application filed by the registered person or the chartered accountant or cost accountant. The reason mentioned in the application must be clearly mentioned.
The provisions of sub section 1 of section 66 shall have effects notwithstanding that the accounts of the registered persons have been audited under any provisions of this Act or any other law for the time being in force.
The registered person shall be given an opportunity of being heard in respect of the material gathered or discrepancies found in the audit conducted as per the above provisions before passing any adverse order against him.
The expenses of the audit including the remuneration of the chartered accountant or cost accountant shall be determined and paid the Commissioner and shall be the final.
Where the special audit conducted above results in the detection of short payment of tax or erroneously refunded or input tax credit wrongly claimed or utilized the action will be taken under section 73 or 74 of the Act.
CAN THE AUDIT OF A FIRM/COMPANY BE CONDUCTED AFTER CANCELLATION OF THE REGISTRATION
The cancellation of the registration does not affect the liability to pay the tax. It is clearly mentioned in sub Section 3 of section 29 that the cancellation of registration under this section shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.t .
On the contrary sub section 1 of section 65 says that the Commissioner or any other officer authorised through a general or specific order may conduct audit of any registered person. The firm/company after the cancellation of its registration becomes an unregistered firm and the there is no provision of conducting the audit of an unregistered firm/company.
In a leading judgment in the matter of M/s Ashoka Fabricast Pvt. Ltd. [2024 TAXONATION 1146 (RAJASTHAN)] the Honorable High Court held that the right to audit u/s 65 accrues when the taxpayer was registered. After cancellation of the registration this right does not extinguish. The Honorable High court was of the view that the registration, for the years for which the audit was supposed to be conducted, was active.
However The Honorable Madras High Court in the case law of M/s Tvl. Raja Store vs Assistant Commissioner [2023 TAXONATION 1276 (MADRAS)] took the similar view that the audit can not be conducted of an unregistered firm. The tax authorities can only initiate proceedings of the determination of tax u/s 73 and section 74 of the Act.
The various courts have their divergent views on this issue. In my opinion the audit can be conducted for the periods for which the registration was active.
CAN THE AUDIT BE CONDUCTED U/S 65 WHEN THE PROCEEDINGS U/S 73 OR 74 ARE ALREADY INITITATED.
The proceedings of sections 73 and section 74 are different from section 65. These sections are for determination of tax short paid, erroneously refunded or input tax credit wrongly availed. Basically, these sections are initiated for recovery of tax from the registered person. Section 65 governs for the detailed audit of the books of accounts. The reason behind conducting the audit is to know the correctness of the books of accounts other relevant documents kept by the registered person also the recovery of the tax if any become due to the audit. Both the actions seem to be interconnected to protect the interest of the revenue. Hence the audit can be conducted even when the proceedings of section 73 of section 74 are already initiated against the registered tax payer.
The Allahabad High Court in the matter of Rising India vs Commissioner of commercial tax and 2 others [2023 TAXONATION 802 (ALLAHABAD)] took the similar view and held that nothing was pleaded by the petitioner which may lead the court to a conclusion that the audit conducted is either not permissible or is not warranted, either in lieu of the earlier proceedings suffered by the petitioner under section 74 of the Act or otherwise.
CAN THE AUDIT BE CONDUCTED AFTER THE TIME PERIOD FOR INITIATING THE PROCEEDINGS U’S 73 AND 74 COMES TO AN END.
Once the time limit to initiate proceedings under section 73 and 74 to determine the tax has elapsed, the purpose of the audit u/s 65 will be a waste of paper as the authorities in these conditions can not recover the tax from the defaulter. Hence in my opinion the audit should be conducted within the time limit of section 73 and 74.
Conclusion
To sum up the above discussion, I would say that the audit u/s 65 can be conducted at any stage till the time the registration of the person or co. was active and it must be conducted well within the time limit mentioned in section 73 and 74. If the audit is not conducted well within the time period mentioned in theses sections, this will be a wastage of time and will not be fruitful.
Disclaimer
The author assumes no liability or responsibility for any act done on behalf of this article. These views are shared only for the purpose of knowledge.
Narender Ahuja
Advocate in Practice.
Phone: - +91 9810764296, +91 11 47071444
Email: - ahujankassociate@gmail.com
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