GST Audit – Planning & Strategy to steer clear of audit

Audit, Investigation and Scrutiny as such sends shivers down the spine irrespective of well preparedness on the part of the assesses. This one aspect remains the same be it erstwhile IDT system – Excise, Service Tax, VAT, Customs, etc. or GST.

GST is not the tested water; hence the apprehensions are more. The best action is to strategize not to be selected for audit. Reason: Time, Energy, Demands, Litigations, etc. Hence, as far as possible, one could plan things to steer clear of the undesirable audit process because selection of any assesses is based on certain pre-defined parameters. Though some are not in control of the assesses viz. Turn Over (TO), Volume of Refund, etc. but other things could be managed well to skip the hassles of audit.

Few actions to help avoid the scrutiny of the tax authorities, which are in control of every assesses:
a. Mismatch of GSTR-1 and EWB reports – We need to ensure that proper E Way bill is generated for each supply made and reported in the GST Network. Any drastic mismatch may put a doubtful eye in the mind of the Department. They may consider such mismatch as clandestine removal of goods without payment of GST. We may please note that the GST Network and EWB portals are synchronized and reports are exchanged between the two to track mismatches.

b. Mismatch in 3B and 2A reports – GSTR-3B is what is reported by a taxpayer and GSTR-2A is the auto-drafted report of supplies reported by the supplier of such a taxpayer. Ideally, there should be no mismatch. Hence, as far as possible, we need to avail the ITC based purely on GSTR-2A report and also GSTR-2B which is a static report. As long as the ITC availed as per 3B is less than 2A, there is no issue but once the ITC availed as per 3B is found to be more that what is reported by the supplier in 2A, the same could be subject to scrutiny by the authorities to check if any unauthorized ITC has been availed.

c. Erratic or non-filing of returns – Timely filing of GST return builds confidence and establishes compliance rating of the assesses. Erratic or non-filing puts a question mark on the credibility of the figures reported and leads to scrutiny.

d. Change in TO as compared to earlier years – Any drastic change in turnover between two consecutive years (especially fall in turnover) would lead to departmental scrutiny. Such change in TO cannot be without market upheavals, launch of new line / vertical of products, transfer/amalgamation/merger/etc of businesses. Without any plausible reason for such change would always result in investigations. Proper reporting of turnover should be ensured.

e. Mismatch in IRP and GSTN reports – For specified taxpayers required to generate E-Invoice, it is very important to ensure that there is no mismatch in the reports of IRP and GSTN. The unreported cancelled invoices (beyond the 24 hours) in GSTN may lead the authorities to allege evasion of GST.
Thorough internal audit mechanism and tax discipline would help above issues.