GST Procedure for Audit, Assessment, Ruling & Recovery

The Goods and Services Tax was introduced in July 2017 and it replaced all other forms of indirect taxes prevalent in India. The new tax regime was introduced with an aim to bring uniformity in the taxation system and to make tax collection more efficient. Moreover, the underlying motive of GST is to reduce corrupt practices in business. To fulfil this objective, there are many norms and rules specified under the GST law. Businesses are required to assess their GST liability and file proper GST returns on the due date. To ensure that the businesses adhere to GST rules, GST procedures have been specified under the GST Act. These procedures help businesses assess their GST liability and comply with the GST norms stated by the Government. GST procedures are those which let businesses do an assessment of their business and estimate the amount of GST payable. Let’s understand how GST Procedures work –

GST Procedures

GST Procedures consist of four actionable which include the following –

  1. Audits
  2. Assessments
  3. Demand and Recovery
  4. Advance Ruling

Let’s understand these procedures in detail –


Audits

As per Section 2 (13) of the GST Act, ‘audit’ means checking the records and documents of the business for their authenticity. Moreover, through ‘audit’, the correctness of the turnover declared by the business, GST paid and refunds availed can be checked. It can also be checked whether the GST rules have been followed by the business or not.


Why is audit required

Under GST, the assessee is expected to assess his returns himself and calculate his tax liability. There would be no intervention of any tax official in this regards. This makes GST a tax system which is based on trust. However, self-assessment is prone to mistakes and frauds and so audits are required to check and verify the tax liability assessed by the assessee and to see if the tax rules have been followed.


What are the types of GST Audits?

GST Audits can be of the following types –

  • Compulsory audit done by a CA or a CMA – Registered businesses whose annual turnovers exceed INR 2 crore are required to get their accounts audited by Chartered Accountants or Cost Accountants. A copy of the audited accounts and a reconciliation statement should be certified and furnished in Form GSTR -9C.
  • Departmental Audit – This is a normal type of audit wherein the Commissioner or an authorised officer can audit any registered business at any time in any prescribed manner.
  • Special Audit – Under special audits, the registered business can be asked to provide its records and books of accounts. Such records would then be checked and audited by a cost accountant or chartered accountant at any time as per requirement.

Assessment

The GST liability can be ascertained only when the books of accounts are assessed by the business. Assessment, therefore, means the calculation of the tax liability of the business.


Types of assessment

Under GST, there are five types of assessments which can be done. These types include the following –

  • Self-assessment
  • Provisional-assessment
  • Scrutiny assessment
  • Summary assessment
  • Best judge assessment

Let’s understand each type of assessment in details –

  1. Self-assessment – Self- assessment is when the tax liability is calculated and determined by the registered business itself. As per the GST Act, every registered assessee is required to calculate its own tax liability and furnish GST returns at the end of the tax period. This self-calculation of tax is called self- assessment.
  2. Provisional-assessment – As per the provisions of Section 60 read with Rule 98 of the CGST Rules, 2017, provisional assessment is applicable in certain situations. Let’s understand the concept of these assessments –
    • When is a provisional assessment required? A provisional assessment is required when the assessee is unable to calculate the value of goods, services, both goods and services or the tax rate which is applicable on the goods and services produced.
    • What is the process of provisional assessment?
    • In case of a provisional assessment, the assessee might submit an application for paying provisional tax. The reasons for paying a provisional tax would have to be stated and the relevant documents would also have to be submitted along with the application. The application can be submitted online or through a facilitation centre which has been notified by the Commissioner.Who can order a provisional assessment?
      A proper office of the GST Act can order a provisional assessment.
    • What is the time limit for provisional assessment?
      Once the application for provisional assessment is received, a proper officer would allow payment of tax on a provisional basis at a rate or value specified by him within 90 days of receiving the application for provisional assessment.
    • What is the security amount required for the assessment?
      The assessee should make a bond in a prescribed format with a surety or security of up to 25% of the amount of the bond. This bond would make the assessee liable to pay any difference in tax, if applicable, if the amount of provisional tax is lower than the amount of tax calculated on a final basis. The security would be released if the assess files an application after the final assessment order has been issued.
    • What is the time limit for final assessment?
    • Once the bond is made, the proper officer would pass a final assessment order stating the final amount of tax which should be paid. This final assessment order would be passed within 6 months of intimation of the order which was issued as per the provisions of Section 60(1) of the Act. However, the period of 6 months can be increased by another 6 months by the Joint Commissioner or Additional Commissioner. Moreover, the Commissioner himself can extend the period further by up to 4 years. Thus, a provisional assessment can continue for up to 5 years.For final assessment, the proper officer would issue a notice wherein the assessee would have to provide the records and books of accounts to the officer. Based on the assessee’s submitted records, the final assessment would be done and the final tax liability would be calculated.
    • What is the interest payable?
      If the final tax amount is more than the provisional assessment amount, the assessee would have to pay an interest on the excess amount under the provisions of Section 60 (4). The interest rate would be 18% per annum and the interest would be payable from the first day after the payment due date till the day the tax has actually been paid.

    Alternatively, if the provisional assessment amount is more than the final assessment amount, the assessee would be eligible to receive a refund under Section 60(3). Moreover, an interest would also be paid on the amount of refund under Section 56. Interest would be calculated from 60 days after the receipt of the application till the date the refund has been paid.

  3. Scrutiny assessment – If the proper officer finds any discrepancies in the returns of the assessee, scrutiny of the returns would be done under Section 61 (1). The proper officer would scrutinize the returns to check their correctness and if any discrepancies are found, the same would be communicated to the assessee. The assessee would then have to provide the reasons for the discrepancies found. The assessee can accept the discrepancies and pay the tax and other penalties relating to such discrepancies. Alternatively, the assessee can refuse to accept the discrepancies. In such cases, the reasons for not accepting the discrepancy would have to be mentioned within 30 days. If the proper officer finds the reasons provided by the assessee to not accept the discrepancies satisfactory, no further action would be taken. However, if the officer is not satisfied with the reasons, the officer might conduct an audit under Section 65 himself or ask a CA or a CMA to do an audit under Section 66. The officer can also choose to inspect or search as per Section 67 or start the formalities to determine the tax due under Sections 73 and 74.
  4. Summary assessment – Summary assessment is done under the provisions of Section 64 read with Rule 100 of the CGST Rules, 2017. This type of assessment is done when the assessing officer believes that a delay in mentioning the tax liability would hamper the revenue. To protect the revenue from being harmed, the order of summary assessment can be given after taking permission from the Additional or Joint Commissioner.
  5. Best judgement assessment – As per Section 62 read with Rule 100 of the CGST Rules 2017, best judgement assessment is done in two instances which are as follows –
    • In case of non-filing of returns - If the assessee does not furnish his returns under Section 39 or Section 45, a notice as per the provisions of Section 46 would be issued by the proper officer. This notice would dictate the assessee to furnish his returns within 15 days. If the assessee fails to furnish his returns within this period, the proper officer would calculate the tax liability of the assessee himself. This calculation would be done based on the best judgement of the proper officer after taking into consideration the records of the business which the officer can access. The officer would, then, issue an Assessment Order within 5 years from the date mentioned under Section 44. If the assessee files a valid return within 30 days of the Assessment Order, the order would be deemed to be withdrawn. However, the assessee would have to pay the interest on default as per Section 50(1) or a late fee as per Section 47.
    • If the assessee is unregistered – If a taxable assessee is not registered or if the assessee’s registration has been cancelled as per the provisions of Section 29(2), the proper officer would determine the tax liability of such assessees as per his best judgement. The officer would send a notice as per Rule 100 (2) before the assessment stating the reason of best judgement assessment.

Demand and Recovery

The option of demand and recovery would be applicable in the following cases –

  • If the tax paid is incorrect
  • If no tax has been paid
  • If the tax refund claimed is incorrect
  • If the Input Tax Credit claimed is incorrect

In these cases, the proper officer would issue a notice to the assessee to state the reasons for the above. Moreover, the officer would also issue a demand for the assessee to pay the tax and penalty for fraud. Demand would be raised by the officer for the above cases and also when tax is collected but not deposited with the Government or when the assessee paid CGST or SGST when IGST was supposed to be paid. If the demand is not paid by the assessee, recovery proceedings are started by the GST authority.


Advance Ruling

Advance Ruling means getting clarifications from the GST Authority on various tax related matters before starting any activity. This reduces the cost of litigations. Advance Ruling is a written decision which is given by the tax authority to an applicant when queries regarding the supply of goods and services are made by the applicant.

So, if you are a taxable assessee liable to pay GST on your goods and/or services, understand the GST procedures and their rules so that you can calculate and file your GST returns without mistakes.


Frequently Asked Questions

Q- Would a bond under SGST or IGST be considered valid for CGST in case of provisional assessments?

Yes, a bond which has been provided to a proper officer under SGST or IGST would be considered valid for CGST also.


Q- What would be the interest payable on refund tax in case of provisional assessment?

The rate of interest payable on tax refund would be determined by the GST authority from time to time.


CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.