Audit under GST! Change vide Finance Bill, 2021

Clause 101 of Finance Bill, 2021. In section 35 of the Central Goods and Services Tax Act, sub-section (5) shall be omitted.

Clause 102 of Finance Bill, 2021. For section 44 of the Central Goods and Services Tax Act, the following section shall be substituted, namely:––

“44. Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed:

Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section:

Provided further that nothing contained in this section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”.

Section 35(5) of CGST Act, 2017 stipulates that every registered person whose turnover during a FY exceeds the prescribed limit shall get his accounts audited by a CA or a CWA and shall submit a copy of the audited annual accounts, the reconciliation statement under section 44(2) and such other documents in such form and manner as may be prescribed. However, it shall not apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the CAG or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.

The aforesaid section 35(5) is being proposed to be omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional.

GST Audit for FY 2019-20

Turnover ranging between INR 2 -5 crore: GSTR 9C is Optional vide Notification No. 79/2020-Central Tax dated 15.10.2020 by amending Notification No. 16/2020-Central Tax dated 23.03.2020

Turnover above INR 5 crore: Mandatory vide Notification No. 79/2020-Central Tax dated 15.10.2020 by amending Notification No. 16/2020-Central Tax dated 23.03.2020

Since there is time in issuance of notification for the applicability of the said provisions of law, it appears that Government may not think to scrap GSTR 9C for FY 2019-20 as the forms have been made available at the GST Common Portal and many taxpayers have already filed the same, therefore, chances are high that the same may get implemented from FY 2020-21 onwards.

The aforesaid provision is proposed to be omitted vide Clause 101 of the Finance Bill, 2021, which means requirement of getting the accounts audited by a CA or CWA in GSTR 9C gets omitted. Since the said omission directly impacts section 44(2), hence, corresponding amendment is proposed vide Clause 102 also and is accordingly dealt together for ease-of-understanding. However, before delving into the substituted provisions of section 44, it is important to peruse the current provision of law:

Provisions of section 44 of CGST Act, 2017

(1) Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year:

Provided that the Commissioner may, on the recommendations of the Council and for reasons to be recorded in writing, by notification, extend the time limit for furnishing the annual return for such class of registered persons as may be specified therein:

Provided further that any extension of time limit notified by the Commissioner of State tax or the Commissioner of Union territory tax shall be deemed to be notified by theCommissioner.

(2) Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed.

Explanation.- For the purposes of this section, it is hereby declared that the annual return for the period from the 1st July, 2017 to the 31st March, 2018 shall be furnished on or before the 31st January, 2020 and the annual return for the period from the 1st April, 2018 to the 31st March, 2019 shall be furnished on or before the 31st March, 2020.

Substitution of section 44 vide Clause 102 of Finance Bill, 2021

“44. Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed:

Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section:

Provided further that nothing contained in this section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”.

Since it is one of the key amendments of the Finance Bill, 2021 from the perspective of GST, prima facie it may appear that there is no requirement conducting GST audit and furnishing reconciliation statement, however, let us have look through the important points:

· The amendment has been done to remove the requirement of getting audited through specified professionals.

· The audit can now be done on self-basis/CA/CWA/CS/Lawyers/Internal employees, etc. and is at the option of the taxpayers whether to conduct audit and furnish self-certified reconciliation statement or not.

· It is important to note that earlier audit was made applicable only above INR 2 crores, however, the proposed amendment delinks with section 35(5) and it made optional for every registered person i.e. audit irrespective turnover.

· The rules in this regard may be notified once the aforesaid amendment gets notified.

· It must be noted that the audit shall still be conducted by the Revenue authorities.

· Since the entire section 44 has been substituted, it may be noted that the due date of annual return which is currently specified in the Act itself is now proposed to be specified by way of Rules.

· Audit, if opted, then reconciliation statement has to be furnished along-with annual return only.

· The power to extend the due date has also been given under Rules only.

· The power has been reserved in the Act itself where the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section.