Outward Supply

Related under
GST Audit – 9C

Ahmedabad Branch of CA Venugopal Gella

WIRC of ICAI Venu and Vinay
Chartered Accountants

CA Venugopal Gella
 Audit Background

CA Venugopal Gella
 What is Audit
▪ Section 2(13): “Audit” means :

• examination of
• records,
• returns and
• other documents maintained or
• furnished by the taxable person

• under this Act or rules made there under or under any other law for the time
being in force
• to verify, inter alia, 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 rules made there
under

CA Venugopal Gella VnV

 GSTR 9C
Reconciliation Statement + Audit Report

CA Venugopal Gella
 Form 9C

Parts

Part A :
Reconciliation Part B : Certification
Statement

Recommendation B1 : Financial B2 : Financial

Reconciliation with
on Additional Auditor and GST Auditor and GST
Returns
Liability Auditor is Same Auditor are Different

CA Venugopal Gella VnV

 Data Source
Audit Prepared Derived 1. Part A of 9C is NOT mere compilation of
Books / Returns
Report using From 2. Values to report not Actual but Expected as
per Law. (Done vs Ought to have done)
3. Its an Audit between 9 and Books
GSTR 3B

GSTR9 GSTR 1 +2 A

9C Adjustments

Audited Books of
Financials Accounts

CA Venugopal Gella VnV

 Reconciliation Statement – GSTR 9C Broad View 5 Parts 16 Tables

Parts

Part I Part II Part III Part IV Part V

Turnover Recon of Tax Input Tax Auditor’s

Basic details Recommendation
Recon paid credit Recon

Table 1 - 4 Table 5 - 8 Table 9 - 11 Table 12 - 16 Table x

CA Venugopal Gella VnV

 GST Audit Objective

CA Venugopal Gella
 Audit / Department Assessments
Audit Working Papers
Compliance with Law Proper Taxes Paid

Prior Period Adju

Liability = Turnover * Rate of HSN Classification

Tax = Liability - ITC
Tax

Credits to PL

TT = Aggregate Turnover –
Turnover = Taxable turnover Exempted Turnover Valuation

Time of Supply

ITC = Eligible ITC

Advances

CA Venugopal Gella VnV

 Critical Issue in the Audit

CA Venugopal Gella
 Issues arising on Account of
Genera issues

Accounting Deviation understanding

In Complete Records

Missing Data Controls in Audit

CA Venugopal Gella VnV
 General Issues
1. Consolidated Books of Accounts
2. Segregation of PAN based Financials to GSTIN based Financials
3. Unreconciled GSTR9 with Books
4. Stock maintained in Godowns Not registered as Place of Business
5. In Complete GST Configurations in Accounting Applications, resulting
in adequate reports from ERP

CA Venugopal Gella VnV

 Validation of Turnover

CA Venugopal Gella
 ‘Turnover’ Validation
• Treatment in earlier laws is no estoppel in GST
• Barter was not liable to VAT and immovable properties were not liable to ST;
GST travelled far beyond earlier laws
• Classification, valuation, time-place of supply to be reviewed afresh
and reported
• Classification now HSN-based, leasing of goods is a service and valuation is
based on comparison with OMV; GST gives ‘new’ treatment to ‘old’
transactions
• Inquire into GST ‘implementation’ exercise
• Study exercise done in 2017 for ‘new treatment’ identified

CA Venugopal Gella VnV

 ‘Turnover’ Validation
• Taxpayer is ‘author’ of Annual Return
• Responsibility for correcting first to taxpayer; complete all corrections in
Annual Return to show voluntary compliance
• Auditor is ‘author’ of Reconciliation Statement
• Auditor to only explain ‘if’ there are differences with audited financials due to
accounting treatment differences
• Non-disclosure of information is ‘suppression’
• When ‘two’ views possible, disclose view subscribed; free-supplies, gifts and
samples, any blocked credits taken, etc.
• Notes and disclosures very resourceful

CA Venugopal Gella VnV

 ‘Turnover’ Validation
• Report ‘all’ turnover, including exempt, non-GST and no-supply
transactions
• GST authorities may access or call for entire information; be sure of these
categories and disclose even if not taxed
• Turnover may be accounted as:
• Credits in expenditure accounts like incentives credited to purchases, notice
pay credited to salaries, etc.
• Advance in current liability accounts like reimbursements for pure agent
payments, direct credit of grants or subsidies

CA Venugopal Gella VnV

 ‘Turnover’ Validation
• Turnover includes supplies for consideration in ‘non-monetary’ form
• Books limited to ‘money measurement’, look for stocks given as barter-
exchange in promotional schemes
• No transaction entitled to be kept out of AR
• Securities and other capital flows or sales outside taxable territory liable to
valuation review or credit reversal; no transaction to be kept out of reporting

CA Venugopal Gella VnV

 ‘Turnover’ Validation
• Liability belongs to month when supplies made
• Delay in reporting sales attracts interest; tax to be paid within ‘tax period’
(month) or else pay interest on gross
• Omission to file invoice does not defer liability
• Delay in filing GSTR 1 does not save from interest liability; pay tax out of
current month credit and not future credits
• Liability to be settled with credit taken or cash
• Liability discovered to be paid by cash even if credit balance available;
instructions from Government very clear

CA Venugopal Gella VnV

 ‘Turnover’ Validation
• Credit ‘not yet’ taken cannot be utilized in AR
• Credit taken in 18-19 cannot be used to pay dues of 17-18; check month-wise
statement of credit ‘taken v. utilized’
• Every ‘month’ is tax period in GST
• Annualized GST payments not enough; should be correctly paid month-on-
month
• Liability ‘discovered’ to be paid in cash
• AR is ‘information return’ and not tax return
• No new credit taken now; clean up all reporting errors

CA Venugopal Gella VnV

 Exemptions Validation
• Exemptions claimed
• Notification Reference
• Conditions to Notifications
• Changes in the Rate of Tax
• Input Output Ratio matching

• Zero Rate Supply without payment of Tax

• Compliance with Export conditions
• Errors in Place of Supply
• Endorsement when made to SEZ units

CA Venugopal Gella VnV

 Accounting Issues
Industry Specific / Issues basis the Nature of Accounting

CA Venugopal Gella
 Transactions beyond P&L
1. Industry specific Accounting Treatment
1. Real Estate
2. Long Term Contract
3. Principal Agent
4. Job Work vs Supply
2. From Notes to Financial Statement
1. Related party Transactions
2. Contingent Liabilities
3. Internal Financial Control Observations
4. Observations in CARO
5. Expenditure / Income in Foreign Currency
6. CSR Activities

CA Venugopal Gella VnV

 Accounting Complexities
3. Debit Note and Credit Notes
1. Tax Effects on financial credit notes from Supplier
2. Sales Returns Accounted as Purchase
3. Purchase Returns Accounted as Sales
4. Bad debts and Discounts marked in Credit Notes
4. Netting of Transactions
1. Reimbursements credit to Expenses
2. Single Ledger for
1. GST Input / Output / Payment (or)
2. CGST/SGST/IGST
3. In Eligible ITC recorded to cost Directly
4. Advance from Customers vis-à-vis Billing

CA Venugopal Gella VnV

 Critical issues flowing from Accounting
5. In complete Accounting
1. Missing Bill wise Adjustment for Vendor Payments
2. Missing Track of
1. Unbilled Revenue to Sales
2. Provision for expenses to Bills Received
3. Goods Sent to Job work
4. Goods Sent on Consignment

6. Un Available Information
1. Barter Transactions
2. Sch I Supplies esp. Services
3. Inward Supplies from Composition Dealers

CA Venugopal Gella VnV

 Critical issues flowing from Accounting
7. Transactions with SEZ
1. Supplies made with Taxes wrongly reported
2. Taxes Collected and refunds claimed
8. Tax Audit Report Observations
1. Comments made for Stock register.
2. Personal expenses disclosed.
3. 14A disclosure.
4. 27(a) GST input tax, availed & utilised.
5. TP transaction plus Primary & Secondary adjustment.
6. Break-up of GST expenditure – Not applicable for 17-18 – Company ITR - if
Tax audit is not applicable.
7. Addition to FA – ITC credit vs. Depreciation.
8. Capital Vs Revenue Expenses.

CA Venugopal Gella VnV

 Critical issues flowing from Accounting
9. Miscellaneous
1. Valuation adjustment
2. Affirmations on NON- GST Receipts
3. Understanding 5O vs 5R Reporting in 9C
4. Books Data not matching with VAT and Service Tax Returns
5. Expenses Liable for RCM not tracked.
6. Sale of Assets – Depreciation Schedule
7. Transition Credits not recorded in Books

CA Venugopal Gella VnV

 Issues arising from Record
Keeping

CA Venugopal Gella
 Issues in Record Keeping
1. ITC Segregation poorly handled
1. Eligible vs In eligible
2. Input / Input Service / Capital Goods
3. Recorded / Availed / Deferred
2. Relevant Records Not Maintained at each Place of Business
3. Track of change in Tariff rates
4. Missing information in Stock Registers
1. HSN Details
2. Goods Lost , Stolen , destroyed etc
3. Free Samples given
4. Non Maintenance by Service providers

CA Venugopal Gella VnV

 Issues in Record Keeping
5. Invoicing
1. Unsigned Invoices
2. Absence of Self Tax Invoice
6. Receipt and Refund vouchers Not maintained
7. Missing Information in Table 13 of GSTR 1
8. Non Execution of LUT for Zero Rated Supplies

CA Venugopal Gella VnV

 Missing Data Controls in Audit
1. Monthly Book Closure Entries – Post Return Filing
2. Audit Trail in Edited entries
3. Pending Reconciliation with e Ledgers
4. Usage of Multiple Software and Not Integrated.

CA Venugopal Gella VnV

 General Notes– Annual Audit

CA Venugopal Gella
 Auditor to take care of
• Engagement letter with the Auditee
• Representation letter with the management
• Recent updates in the audit
• Proper staff with technical competence
• Continuous evaluation of knowledge
• Proper software
• Discussion on various issues and conclusions there-off

CA Venugopal Gella VnV

 Points for Qualification or MRL
• Part B :
• Comment on Maintenance of Books of Accounts
• Adherence to invoicing Rules viz., 46………….55
• Dis Agreement
• Quantification in 9C Part A
• Qualification in Part B
• Confirmation from MRL
• Branches not registered
• Huge mismatch in Table 8D of GSTR 9

CA Venugopal Gella VnV

 Thank You

For Clarifications, mail to

venu@vnv.ca

CA Venugopal Gella