GST Audit: The government authority issued around 50,000 show-cause notices under the Goods and Services Tax (GST) law in 2022. They have slapped notices related to FY 2017-18 and FY 2018-19 on many companies and partnership firms spanning various sectors, such as jewellery and real estate.
The GST department conducted GST audits on filing data belonging to the above years, which also includes some belonging to returns of FY 2019-20 and 2020-21. GST annual returns for FY 2020-21 were filed in December 2021.
Most taxpayers who have received notices must respond explaining reasons for discrepancies within 15-30 days. Many have to collate additional details and submit requisite documents asked by the authorities.
Until September this year, about 20,000 notices have been issued, and recently, over 30,000 notices have been issued to many business entities. The notice drive is the first of its kind after implementing the GST law based on a comprehensive audit exercise.
These departmental audits of taxpayers are done in addition to the GST audit that certain businesses were obligated to do until FY 2018-19, where the annual turnover of GSTIN was equal to or more than Rs.2 crore. In later years, the GST Council removed the need for a GST audit.
While conducting audits, the departmental officers served show-cause notices after verification and scrutiny of many documents per various CGST Act provisions. The department covered about 100,000 GSTIN accounts in this exercise.
They slapped notices based on the discrepancies highlighted during the audits. The matter has been reported by a media publication based on an interview with a government official.
The discrepancies and underlying reasons varied from entity to entity.
The department served GST notices for different reasons. These include misdeclaration, unpaid or short-paid taxes, and wrongful tax credit claims. Further, other discrepancies included wrongly classifying the goods and services with the export items and mismatches in the sale and purchase of items.
GST audits by the department span around three months when the business size is large. The time taken goes up to six months for some entities having complexities. It takes only a few weeks to audit small businesses.
Such GST audit drives have been helpful for the government in detecting irregularities. In turn, businesses can get their compliance process fixed. The department follows specific steps for the selection of audit cases. Initially, they started by covering sectors prone to tax evasions, such as gems and jewellery and real estate, to mention a few.
They have also considered inputs of the commissionerate of tier-1 and tier- 2 cities, as cited by a media publication. A typical GST audit by the department involves officers visiting the registered place of business and reviewing documents such as income tax returns, audited financial statements, Registrar of Companies (ROC) filings, stock registers, production records, and customer/supplier records.
The CGST department will issue a final audit report with all the observations after reviewing the reasons and documents for the discrepancies. Observations may involve tax demand as well. The department closes the matter if the taxpayer accepts the observation and makes a payment towards the tax demand. However, if the taxpayer disagrees, the issue leads to litigation.
Similarly, state GST department officers have also started their GST audit drive from July 2022 as they face a revenue decline with the end of the compensation cess on 30th June 2022.
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