GUIDANCE NOTE ON

GST AUDIT

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

(Statutory body under an Act of Parliament)
 First Edition: July, 2018

Published by
The President
The Institute of Cost Accountants of India
CMA Bhawan
12, Sudder Street, Kolkata - 700016

Delhi Office
CMA Bhawan
3, Institutional Area, Lodhi Road, New Delhi – 110003

Complementary Edition.

The Institute of Cost Accountants of India

(Statutory body under an Act of Parliament)

© All rights reserved

Disclaimer:
This Publication does not constitute professional advice. The information in this
publication has been obtained or derived from sources believed by the Institute of
Cost Accountants of India (ICAI) to be reliable. Any opinions or estimates contained
in this publication represent the judgment of ICAI at this time. Readers of his
publication are advised to seek their own professional advice before taking any
course of action or decision, for which they are entirely responsible, based on the
contents of this publication. ICAI neither accepts nor assumes any responsibility
or liability to any reader for this publication in respect of the information contained
within it or for any decisions reader may take or decide not to or fail to take.
 VICE PRESIDENT’S
MESSAGE
I am happy to note that the Taxation like municipal corporations. The
Committee of the Institute is bringing Government would not be able to impose
out its “Guidance Note on GST Audit” any tax unless it is passed as a law.
for the members of Institute and
With the globalisation of all economic
other stakeholders. This is really a
activities, the industries both in
commendable initiative by Taxation
manufacturing and service sector have
Committee. I am also delighted to know
recognised the potential of Cost &
that the Manual will be comprehensive
Management Accounting Professionals.
and will include the principles and
The specialised knowledge and skill of the
policies of audit along with the latest
professional Members of the Institute are
developments, announcements and
being given due recognition in different
amendments. This will serve the
areas of Indirect Taxation.
stakeholders with very good knowledge
and information particularly when the I congratulate CMA Niranjan Mishra,
stakeholders need the information on Chairman- Taxation Committee for
GST Audit on a frequent basis. The actual bringing out the “Guidance Note on
impact and effect of GST on various items GST Audit”. It is really a very good
has been huge but we know that the initiative which shall go long way. I
overall impact on Indian Economy has also congratulate other members of the
been very positive. Taxation Committee and Tax Research
Department of the Institute for their
India offers a well-structured tax
efforts to bring the Manual in the
system for its population. Taxes are
present form. My best wishes to Taxation
the largest source of income for the
Committee for its all future initiatives in
Government. This money is deployed
the taxation field.
for various purposes and projects for
the development of the nation. Taxes My best wishes to members and resource
are determined by the Central and State people for their professional inputs.
Governments along with local authorities

CMA H Padmanabhan
14th July 2018
 CHAIRMAN’S
MESSAGE
It is a matter of a privilege to place before I express my sincere thanks to CMA
you the “Guidance Note on GST Audit” Sanjay Gupta, Honorable President of
which has been prepared by some of the Institute of Cost Accountants of India
experts on the subject who are members and also thankful to my colleagues in the
of The Institute of Cost Accountants Council for reposing confidence in me
of India. This Guidance Note will be to serve the profession as Chairman of
of extreme use to the taxpayers and the Taxation Committee. I also express
practitioners while handling GST Audit. my sincere gratitude to all committee
members and colleagues including Team
The Institute of Cost Accountants of India
– TRD.
has prescribed various Cost Accounting
Standards, which help both to the The Taxation Committee of the Institute
Revenue Authorities and Tax Payers for expresses gratitude to all the well-wishers
arriving at fair assessment under direct- for their valuable contributions in the
indirect tax laws. The Taxation Committee process of making and development of
of the Institute is mandated to serve the this Guidance Note. The Institute and its
needs of the society and CMAs would be a esteemed members pledge to rise to the
major facilitator to spread Tax awareness need of the economy and the Nation at
amongst the mass besides transforming large. CMAs would be a major facilitator
them to be Tax compliant. to spread Tax awareness amongst the
mass besides transforming them to be
Coming to GST, I firmly believe that
Tax compliant.
Implementation of GST would lead India
into a new height of indirect taxation I would like to specially thank the experts
system and taxpayers have to be who have contributed to prepare and
extremely careful as far as compliance to publish this Guidance Note.
GST law is concerned.

CMA Niranjan Mishra

14th July 2018
PREFACE
T ax Research Department of The
Institute of Cost Accountants of
India has prepared this Guidance Note
audits are carried out in a uniform and
comprehensive manner, adhering to
the stipulated principles and policies
on GST Audit which will be of immense and prevailing laws of the land.
benefit to the members of the Institute,
We are confident that this guidance
accounting professionals and tax payers
note will support to achieve the true
at large. A panel of eminent experts in
objective of laws and provisions framed
the field have prepared this Guidance
under the Act and will be referred by
Note and tried their best to make it a
stakeholders for various assistance.
comprehensive one.
This booklet contains background
on introduction of GST in India, GST Further, we would like to acknowledge
Audit Guidelines, Significant Concepts the sincere efforts put by our Resource
and Definitions under GST, Input Tax persons, CMA Dr. Sanjay Bhargave,
credit, Reverse Charge Mechanism, CMA Mrityunjay Acharjee, CMAT K
Anti- Profiteering Rules, GST Audit Jagannathan, CMA Anil Sharma, CMA
Formats etc. The subject matter in the Amit Sarkar, CMA B M Gupta and CMA
book has been segregated in different S P Padhi. Without their sincere efforts,
chapters. this accomplishment could not have
been possible.
The purpose of this Guidance Note is
to outline the principles and policies of The suggestions and comments of the
audits conducted under the Goods and stakeholders are welcomed to improvise
Services Tax Laws. Guidelines provided the contents and formats.
herein are intended to ensure that the

Tax Research Department

The Institute of Cost Accountants of India
On this 14th Day of July 2018
Acknowledgements
Taxation Committee 2017-2018
Sanjay Gupta - President
CMA H Padmanabhan -Vice President
CMA Niranjan Mishra - Chairman

Members
CMA Manas Kumar Thakur, IPP
CMA Ashok Bhagwandas Nawal
CMA P Raju Iyer
CMA Amit Anand Apte
CMA Balwinder Singh
CMA V S Datey ( Co-opted)
CMA Dr. Sanjay R Bhargave ( Co-opted)
CMA Niranjan Swain ( Co-opted)
Shri Ajai Das Mehrotra ( Government Nominee)
Secretary
CMA Rajat Kumar Basu

Team-Tax Research Department

CMA Rajat Kumar Basu - Joint Director, Tax Research
CMA Priyanka Roy - Asst Director, Tax Research
CMA Rashmi Gupta - Deputy Director, Tax Research
CMA Amit Dey - I-CMA Cadre
Ms. Debjani Mukherjee - Tax Consultant
CMA Debasmita Jana -Tax Consultant
 Contents
Particulars Page No.
1 GST – Introduction 1-2
2 Audit Guidelines 3-9
3 Significant Concepts and Definitions under GST 10-18
4 Time of Supply, Place of Supply Classification and Valuation 19-37
of supplies
5 Accounts and records 38-47
6 Outward supplies 48-55
7 Input Tax credit 56-70
8 Reverse Charge Mechanism 71-79
9 Return Filing 80-84
10 Payment of Taxes 85-86
11 Export of Goods and Services 87-88
12 Import of Goods and Services 89
13 Job work 90-99
14 Input Service Distributor 100-107
15 Refund 108-112
16 Recommendatory Formats for GST Audit 113-119
 GST IN INDIA

The introduction of Goods and Services Tax on 1st July 2017 was a very significant
step in the field of indirect tax reforms in India. By amalgamating a large number
of Central and State taxes into a single tax, the aim was to mitigate cascading or
double taxation in a major way and pave the way for a common national market.
Salient Features of GST:
GST is applicable on “supply” of goods or services as against the concept of tax on
manufacture of goods or on sale of goods or on provision of services.
GST is also a destination-based consumption Taxation as opposed to the origin
based VAT system prior to the introduction of GST.
It is a dual GST with the Centre and the States simultaneously levying it on a
common base. The GST levied by the Centre is called Central GST (central tax-
CGST) and that levied by the States [including Union territories with legislature] is
called State GST (state tax- SGST). Union territories without legislature levy Union
territory GST (union territory tax- UTGST).
An Integrated GST (integrated tax- IGST) is levied on inter-State supply (including
stock transfers) of goods or services. This is be collected by the Centre so that the
credit chain is not disrupted.
Import of goods is treated as inter-State supplies and is subject to IGST in addition
to the applicable customs duties.
Import of services is treated as inter-State supplies and is subject to IGST.
CGST, SGST /UTGST & IGST is levied at rates which are mutually agreed upon by
the Centre and the States under the aegis of the GSTC.
GST applies to all goods and services except Alcohol for human consumption.
GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural gas)
would be applicable from a date to be recommended by the Goods and Services Tax
Council (GSTC).
A common threshold exemption applies to both CGST and SGST. Taxpayers with

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 GUIDANCE NOTE ON GST AUDIT

an annual turnover of `20 lakh (`10 lakh for special category States (except J&K)
as specified in article 279A of the Constitution) would be exempt from GST. A
composition scheme (i.e. to pay tax at a flat rate without credits) is available to
small taxpayers (including to manufacturers other than specified category of
manufacturers and service providers) having an annual turnover of up to `1 crore
(`75 lakh for special category States (except J&K and Uttarakhand) enumerated
in article 279A of the Constitution). As decided in the 23rd meeting of the GSTC,
this limit shall be raised to `1.5 crore after necessary amendments in the Act. The
threshold exemption and compounding scheme would be optional.
All Exports and supplies to SEZs and SEZ units would be zero-rated.
Credit of CGST paid on inputs shall be used only for paying CGST on the output
and the credit of SGST/UTGST paid on inputs shall be used only for paying SGST/
UTGST. In other words, the two streams of input tax credit (ITC) cannot be cross
utilized, except in specified circumstances of inter-State supplies for payment of
IGST. The credit is permitted to be utilized in the following manner:
a) ITC of CGST allowed for payment of CGST & IGST in that order;
b) ITC of SGST allowed for payment of SGST & IGST in that order;
c) ITC of UTGST allowed for payment of UTGST & IGST in that order;
d) ITC of IGST allowed for payment of IGST, CGST &SGST/UTGST in that
order.
ITC of CGST cannot be used for payment of SGST/UTGST and vice-versa.
Input Tax Credit (ITC) to be broad based by making it available in respect of taxes
paid on any supply of goods or services or both used or intended to be used in the
course or furtherance of business.
Audit of registered persons to be conducted in order to verify compliance with the
provisions of Act.
An anti-profiteering clause has been provided in order to ensure that business
passes on the benefit of reduced tax incidence on goods or services or both to the
consumers.
Four Laws namely CGST Act, UTGST Act, IGST Act and GST(Compensation to
States) Act have been passed by the Parliament and since been notified on 12th
April, 2017. All the other States (except J&K) and Union Territories with legislature
have passed their respective SGST Acts. The economic integration of India was
completed on 8th July 2017 when the State of J&K also passed the SGST Act and
the Central Government also subsequently extended the CGST Act to J&K.

2 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 AUDIT

According to Section 2(13) of the GST Act, 2017, ‘audit’ means detailed examination
of records, returns and other documents maintained or furnished by the taxable
person under this Act or Rules made thereunder 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 thereunder.
Accordingly, ‘audit’ implies –
(a) Detailed examination of records, returns and other documents -
(i) maintained/furnished by a taxable person,
(ii) under GST law/any other law or rules;
(b) Verification of correctness of -
(i) turnover declared;
(ii) taxes paid;
(iii) refund claimed;
(iv) input tax credit availed; and
(v) assessment of compliances with provisions of GST law and rules.
GST audit is not only reconciliation of tax liability & payment, it also signifies
compliance of the provisions of the GST act, law and provisions etc.
Relevant Provisions:
Section 35(5): Every registered person whose turnover during a financial year
exceeds the prescribed limit shall get his accounts audited by a chartered
accountant or a cost accountant and shall submit a copy of the audited annual
accounts, the reconciliation statement under sub-section (2) of section 44 and
such other documents in such form and manner as may be prescribed.
Section 44(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,
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 3
 GUIDANCE NOTE ON GST AUDIT

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.
Rule 80(3): Every registered person whose aggregate turnover during a financial
year exceeds two crore rupees shall get his accounts audited as specified under
sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts
and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically
through the common portal either directly or through a Facilitation Centre notified
by the Commissioner.
Audit by tax authorities:
Sec. 65 (1) The Commissioner or any officer authorized by him, by way of a general
or a specific order, may undertake audit of any registered person for such period, at
such frequency and in such manner as may be prescribed.
Special audit:
Sec.66 (1) If at any stage of scrutiny, inquiry, investigation or any other proceedings
before him, any officer not below the rank of Assistant Commissioner, having
regard to the nature and complexity of the case and the interest of revenue, is of
the opinion that the value has not been correctly declared or the credit availed is
not within the normal limits, he may, with the prior approval of the Commissioner,
direct such registered person by a communication in writing to
get his records including books of accounts examined and audited by a chartered
accountant or a cost accountant as may be nominated by the Commissioner.
Access to business premises:
Sec. 71
(1) Any officer under this Act, authorized by the proper officer not below the
rank of Joint Commissioner, shall have access to any place of business of
a registered person to inspect books of account, documents, computers,
computer programs, computer software whether reinstalled in a computer
or otherwise and such other things as he may require and which may
be available at such place, for the purposes of carrying out any audit,
scrutiny, verification and checks as may be necessary to safeguard the
interest of revenue.
(2) Every person in charge of place referred to in sub-section(1)shall, on
demand, make available to the officer authorized under sub-section(1)
or the audit party deputed by the proper officer or a cost accountant or
chartered accountant nominated under section 66—

4 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

i. such records as prepared or maintained by the registered person and

declared to the proper officer in such manner as may be prescribed;
ii. trial balance or its equivalent;
iii. statements of annual financial accounts, duly audited, wherever
required;
iv. cost audit report, if any, under section148 of the Companies Act,
2013;
v. the income-tax audit report, if any, under section 44AB of the
Income-taxAct,1961;and
vi. any other relevant record.
General Guidelines:
While conducting audit, the auditor is required to carry out his duties with utmost
sincerity, integrity and diligence. The auditor has immense responsibility in
detection of non-compliance, procedural irregularities and leakage of revenue due
to deliberate action or ignorance on the part of the Taxable Person. At the same
time, the auditor should keep in view, the prevalent trade practices, the economic
realities as also the industry and business environment in which the Taxable Person
operates. Therefore, the auditor should take a balanced and rational approach
while conducting the audit. Besides, the auditor is expected to play a key role in
promoting voluntary compliance by the Taxable Person. During the course of the
audit, if certain technical infractions, without any revenue implications, arising
due to bona fide oversight or ignorance of the Taxable Person, are noticed, the
Taxable Person should be guided for immediate correction. Such cases should also
be mentioned in working papers.
An auditor is responsible for conduct of audit and should endeavor to take a final
view on all issues raised by him during that audit. The working papers for each of
the step of audit should be filled in as soon as that step is completed. They should
be ‘speaking documents’ that clearly explain why a particular area was included
in the audit plan as well as the basis for arriving at every objection that goes into
the draft audit report after audit verification. The documentary evidence which has
been relied upon in arriving at certain conclusion should invariably be cited and
included.
Verification of records mandated by the statute is necessary to check the correctness
of assessment and payment of tax by the Taxable Person in the present era of self-
assessment.
In keeping with the principles of audit outlined above, audit has to be conducted
in a transparent and systematic manner with focus on business records of the
Taxable Person and according to the audit plan for each Taxable Person.
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 5
 GUIDANCE NOTE ON GST AUDIT

Stage wise action for audit

i. Preparation/updating of Taxable Person master file containing
comprehensive Taxable Person profile.
ii. Collection of all relevant documents, data reconciliation statement and
reply to questionnaire.
iii. Desk review on the basis of relevant documents and interview of the
Taxable Person.
iv. Formulation and approval of audit plan based on desk review.
v. Conducting audit verification on the basis of the approved audit plan.
vi. Suggestions on correction/improvements to Taxable Person for future
guidance.
vii. Preparation of draft audit report and its submission, along with working
papers for discussion.
viii. Issue of final audit report.
ix. Follow up action, for monitoring the compliance of various points.
The objective of review of internal controls is to assess whether the Taxable Person
has reliable systems and controls in place that would produce reliable accounting/
business records. Most medium to large companies have ERP systems in place,
which account for all transactions from entry of raw material to clearance of
final products. Auditors must have a look at these systems and more relevantly
determine whether software being used exclusively for the transactions related
to GST tax matters is integrated to the main ERP system or is running parallel
to the main ERP. This assessment would be used by the auditor to decide on the
extent of verification required and to focus on areas with unreliable or missing
controls. It should be noted that this review must be commensurate with the size
of operations. A small Taxable Person might have little in terms of internal controls
where as a large Taxable Person would have sophisticated internal controls in
place. If the internal controls are well designed and working properly, then it is
possible to rely on the books maintained by the Taxable Person. The scope and the
extent of the audit can be reduced in such a case. The reverse would be true if the
internal controls are not reliable. Audit should evaluate the soundness of internal
control of sub-systems/areas like supplies, purchase tax, accounting etc., and
grade them as good, acceptable and poor.
The objective of audit verification is to perform verification activities and document
them in order to obtain and record audit evidence. The verification techniques
must be appropriate for audit objectives identified in the audit plan. It is important
that in an audit, the objections that are raised are technically correct and stand up

6 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

against scrutiny or challenge. Law being open to interpretation, it may be difficult

to test the technical correctness of all objections. However, it should be correct to
the extent that any professional auditor, working with and having access to the
same research material would likely to come to the same conclusion. It also means
that the auditor must demonstrate, in writing, the research and reasoning used to
base his/her application of legislation, policies and jurisprudence.
The documents to be examined include Annual Financial Accounts containing
Director’s Report, Statutory Auditor’s Report, Balance Sheet, Profit & Loss Account
and Cost Audit Report. The auditor must go into details of the figures mentioned
in the Annual Financial Statements and for that he must examine Trial Balance,
Ledgers, Journal Vouchers, Invoices and Stock Ledgers. He may also examine
Cash Flow Statement, Groupings, Cost Audit Report and Tax Audit Report. He
should also check whether the Taxable Person is maintaining the statutory records
as required under various statutes especially under the CGST & IGST Act, 2017.
A physical tour provides confirmation of much of the information gathered. It
helps the auditor to familiarize himself with the manufacturing processes, identify
the intermediate goods, by-products and wastes/rejects and locate other activities
of the Taxable Person. During the tour to a particular section, the auditor should
physically verify the samples of each of the listed documents maintained in that
section. The plant tour should cover all areas, from receipt of raw material, through
manufacturing process, to the finished goods, storage and the shipping areas. The
auditor should ensure that he encompasses each and every aspect necessary for
him to complete the Audit Working Papers. The purpose of this tour is to gather
information from the Taxable Person about the various systems followed by him in
the areas of purchase, stores, sales, job work, tax reporting etc.
An evaluation of Internal controls helps in formulating a detailed programme of
verification of relevant internal controls of the taxable person. The level of
deficiencies in internal controls would determine the coverage and depth of audit
verification required for a particular sub-system in the business unit. In this
regard, an auditor would normally examine the following:
RR Characteristics of the company’s business and its activities.
RR System of maintenance of records and accounts.
RR Identifying the persons handling records for GST purposes.
RR Allocation of responsibilities at different levels.
RR System of internal checks.
RR System of movement of documents having relation to GST assessment.
RR Inter-departmental linkages of documents and information, and
RR System of taxable person’s own internal audit.

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 GUIDANCE NOTE ON GST AUDIT

An auditor needs to acquaint himself with the systems of control and documentation
in operation. This knowledge is obtained either by discussion with various
managers or by going through documents like procedure manuals, organization
charts, job descriptions, flow-charts and records maintained. In the case of first
audit, the auditor needs to maintain detailed written record of his observations of
the internal control system.
During these verifications, the following information should be correctly obtained
and recorded.
(i) Whether any input is exclusively consumed for fully exempted supplies.
(ii) Whether any inputs consumed for fully exempted as well as taxable
supplies.
(iii) Whether any Capital goods on which input credit is availed are exclusively
used for fully exempted supplies.
A financial audit may show that the financial records agree with the basic
documents. This does not necessarily mean that the GST return is correct. Various
factors may be the cause of an incorrect return e.g.: - taxable supplies may not
have been recorded; purchase invoices may have been forged; input tax may
have been paid and deducted but the deduction may not be allowable; discounts
may have been allowed to related companies that may reduce the taxable value
incorrectly; or goods may have been taken from stock for non-business reasons and
not recorded in the accounts resulting in an evasion of the tax. These examples are
not comprehensive but indicative why, only, the carrying out of a financial audit is
not sufficient for the verification of a GST return.
A stock take is the responsibility of the taxable person and the auditor’s action
should be restricted to the extent necessary to be satisfied that the stock records
are correct. If they are considered to be suspect then best judgment based upon
all available documentary evidence, (e.g. cost records), is to be used to assess the
true stocks.
Cost accounting is the process of recording, classifying, analyzing, summarizing,
and allocating costs associated with a process, and then developing various courses
of action to control the costs. Cost accounting examines the cost structure of
a business. It does so by collecting information about the costs incurred by a
organization’s activities, assigning selected costs to products and services and
other cost objects, and evaluating the efficiency of cost usage.
Cost  Audit  represents the verification of  cost accounts  and check on the
adherence to cost accounting plan. Cost Audit ascertains the accuracy of cost
accounting records to ensure that they are in conformity with Cost Accounting
principles, plans, procedures and objective.

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GUIDANCE NOTE ON GST AUDIT

Cost audit objective is to establish the accuracy of costing data and ensure efficient
functioning of the industry. The objective of maintaining cost records is to track
the resources consumed and only relevant costs are considered for pricing of the
product or services. Similarly GST audit should ensure that the input tax credit is
availed by the organization for taxable supplies only and the taxable value of the
product or service is accurately determined and tax liability discharged accordingly.
For GST audit, the auditor is required to understand the following:
The nature of the entity, (including its operations covering Business Processes,
major inputs, major outputs, wages etc.,) and the entity’s ownership and governance
structure.
Relevant industry, regulatory and other external factors including the applicable
cost and financial reporting framework.
Understanding of internal controls and Information Technology and control system
of the entity.
Updated knowledge of the GST Act, Rules, notifications and clarifications issued
by the GST authorities.
Reconciliation Requirement:
HSN code wise Taxable Turnover and Quantity
Taxable Turnover – Tax Rate wise – Monthly
Determination of Taxable Turnover, tax amount under IGST,CGST/SGST.
Tax liability under Reverse charge mechanism, Reconciliation of Turnover as per
books of accounts and monthly return submitted (GSTR3B/GSTR1) and identify
the additional tax liability if any.

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 Significant Concepts and
Definitions under GST
Taxable Event in GST
‘Taxable event’ is that on happening of which the charge is fixed. It is that event,
which on its occurrence creates or attracts the liability of tax. Such liability does
not accrue at any earlier or later point of time.
Tax becomes payable when liability to pay tax arises and liability to pay tax arises
by the happening of the taxable event.
Supply as per GST Law
Section 7
(1) For the purposes of this Act, the expression “supply” includes––
All forms of supply of goods or services or both such as sale, transfer,
barter, exchange, license, rental, lease or disposal made or agreed to be
made for a consideration by a person in the course or furtherance of
business;
i. Import of services for a consideration whether or not in the course
or furtherance of business;
ii. The activities specified in Schedule I, made or agreed to be made
without a consideration; and
iii. The activities to be treated as supply of goods or supply of services
as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
(a) Activities or transactions specified in Schedule III; or
(b) Such activities or transactions undertaken by the Central
Government, a State Government or any local authority in which
they are engaged as public authorities, as may be notified by the
Government on the recommendations of the Council, shall be
treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the Government

10 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

may, on the recommendations of the Council, specify, by notification, the

transactions that are to be treated as—
(a) A supply of goods and not as a supply of services; or
(b) A supply of services and not as a supply of goods.
Main part of definition in section 7(1)(a) of CGST Act makes it clear that all supplies
made for consideration in course of business are subject to GST.
The term ‘supply’ is from the point of view of person who is supplying and not
person who is receiving the supply. Thus, if supplier is not in the business of
supplying the goods or services, GST is not applicable (and consequently, the
recipient will not be liable to pay tax under reverse charge).
SCHEDULE - I
[See section - 7]
Activities to be Treated as Supply Even if Made Without Consideration
1. Permanent transfer or disposal of business assets where input tax credit
has been availed on such assets.
2. Supply of goods or services or both between related persons or between
distinct persons as specified in section 25, when made in the course or
furtherance of business:
3. Provided that gifts not exceeding fifty thousand rupees in value in a financial
year by an employer to an employee shall not be treated as supply of goods
or services or both.
4. Supply of goods—
a. By a principal to his agent where the agent under takes to supply
such goods on behalf of the principal; or
b. By an agent to his principal where the agent undertakes to receive
such goods on behalf of the principal.
5. Import of services by a taxable person from a related person or from any
of his other establishments outside India, in the course or furtherance of
business.
SCHEDULE - II
[See section - 7]
Activities to be Treated as Supply of Goods or Supply of Services
1. Transfer
(a) Any transfer of the title in goods is a supply of goods;
(b) Any transfer of right in goods or of undivided share in goods without
the transfer of title thereof, is a supply of services;

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 GUIDANCE NOTE ON GST AUDIT

(c) Any transfer of title in goods under an agreement which stipulates

that property in goods shall pass at a future date upon payment of
full consideration as agreed, is a supply of goods.
2. Land and Building
(a) Any lease, tenancy, easement, license to occupy land is a supply of
services;
(b) Any lease or letting out of the building including a commercial,
industrial or residential complex for business or commerce, either
wholly or partly, is a supply of services.
3. Treatment or process
Any treatment or process which is applied to another person’s goods is a
supply of services.
4. Transfer of business assets
(a) Where goods forming part of the assets of a business are transferred
or disposed of by or under the directions of the person carrying on
the business so as no longer to form part of those assets, whether
or not for a consideration, such transfer or disposal is a supply of
goods by the person;
(b) where, by or under the direction of a person carrying on a business,
goods held or used for the purposes of the business are put to any
private use or are used, or made available to any person for use, for
any purpose other than a purpose of the business, whether or not
for a consideration, the usage or making available of such goods is a
supply of services;
(c) where any person ceases to be a taxable person, any goods forming
part of the assets of any business carried on by him shall be deemed
to be supplied by him in the course or furtherance of his business
immediately before he ceases to be a taxable person, unless—
(i) the business is transferred as a going concern to another
person; or
(ii) the business is carried on by a personal representative who
is deemed to be a taxable person.
5. Supply of services
The following shall be treated as supply of services, namely:—
(a) Renting of immovable property;
(b) Construction of a complex, building, civil structure or a part
thereof, including a complex or building intended for sale to
a buyer, wholly or partly, except where the entire consideration

12 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

has been received after issuance of completion certificate, where

required, by the competent authority or after its first occupation,
whichever is earlier.
(c) Temporary transfer or permitting the use or enjoyment of any
intellectual property right;
(d) development, design, programming, customization, adaptation,
upgradation, enhancement, implementation of information
technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate an act
or a situation, or to do an act; and
(f) transfer of the right to use any goods for any purpose (whether or not
for a specified period) for cash, deferred payment or other valuable
consideration.
6. Composite supply
The following composite supplies shall be treated as a supply of services,
namely:—
(a) Works contract as defined in clause (119) of section 2; and
(b) supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human
consumption or any drink (other than alcoholic liquor for human
consumption), where such supply or service is for cash, deferred
payment or other valuable consideration.
7. Supply of Goods
The following shall be treated as supply of goods, namely:—
Supply of goods by any unincorporated association or body of persons
to a member there off or cash, deferred payment or other valuable
consideration.
SCHEDULE –III
[See section - 7]
Activities or Transactions Which Shall be Treated Neither as A Supply of Goods Nor
a Supply Oof Services
1. Services by an employee to the employer in the course of or in relation to
his employment.
2. Services by any court or Tribunal established under any law for the time
being in force.
3. (a) the functions performed by the Members of Parliament, Members
of State Legislature, Members of Panchayats, Members of Municipalities

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 13

 GUIDANCE NOTE ON GST AUDIT

and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance
of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member
or a Director in a body established by the Central Government or a State
Government or local authority and who is not deemed as an employee
before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including
transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale
of building.
6. Actionable claims, other than lottery, betting and gambling.
Explanation.—For the purposes of paragraph 2, the term “court” includes
District Court, High Court and Supreme Court.
Definitions.
“aggregate turnover” means the aggregate value of all taxable supplies (excluding
the value of inward supplies on which tax is payable by a person on reverse charge
basis), exempt supplies, exports of goods or services or both and inter-State supplies
of persons having the same Permanent Account Number, to be computed on all India
basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;
“agent” means a person, including a factor, broker, commission agent, arhatia,
delcredere agent, an auctioneer or any other mercantile agent, by whatever name
called, who carries on the business of supply or receipt of goods or services or both
on behalf of another.
“capital goods” means goods, the value of which is capitalized in the books of
account of the person claiming the input tax credit and which are used or intended
to be used in the course or furtherance of business;
“central tax” means the central goods and services tax levied under section 9;
“common portal” means the common goods and services tax electronic portal
referred to in section 146;
“composite supply” means a supply made by a taxable person to a recipient
consisting of two or more taxable supplies of goods or services or both, or any
combination thereof, which are naturally bundled and supplied in conjunction
with each other in the ordinary course of business, one of which is a principal
supply;
“business” includes––
1. Any trade, commerce, manufacture, profession, vocation, adventure,
14 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

wager or any other similar activity, whether or not it is for a pecuniary

benefit;
2. Any activity or transaction in connection with or incidental or ancillary to
sub-clause (a);
3. Any activity or transaction in the nature of sub-clause (a), whether or not
there is volume, frequency, continuity or regularity of such transaction;
4. Supply or acquisition of goods including capital goods and services in
connection with commencement or closure of business;
5. Provision by a club, association, society, or any such body (for a subscription
or any other consideration) of the facilities or benefits to its members;
6. admission, for a consideration, of persons to any premises;
7. services supplied by a person as the holder of an office which has been
accepted by him in the course or furtherance of his trade, profession or
vocation;
8. services provided by a race club by way of total is a tor or a license to book
maker in such club; and
9. any activity or transaction under taken by the Central Government, a
State Government or any local authority in which they are engaged as
public authorities;
“business vertical” means a distinguishable component of an enterprise that is
engaged in the supply of individual goods or services or a group of related goods or
services which is subject to risks and returns that are different from those of the
other business verticals.
“continuous supply of goods” means a supply of goods which is provided, or agreed
to be provided, continuously or on recurrent basis, under a contract, whether or
not by means of a wire, cable, pipeline or other conduit, and for which the supplier
invoices the recipient on a regular or periodic basis and includes supply of such
goods as the Government may, subject to such conditions, as it may, by notification,
specify;
“continuous supply of services” means a supply of services which is provided, or
agreed to be provided, continuously or on recurrent basis, under a contract, for
a period exceeding three months with periodic payment obligations and includes
supply of such services as the Government may, subject to such conditions, as it
may, by notification, specify; “document” includes written or printed record of any
sort and electronic record as defined in clause (t) of section 2 of the Information
Technology Act, 2000.
“electronic cash ledger” means the electronic cash ledger referred to in sub-
section (1) of section 49;

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 GUIDANCE NOTE ON GST AUDIT

“electronic commerce” means the supply of goods or services or both, including

digital products over digital or electronic network;
“electronic commerce operator” means any person who owns, operates or
manages digital or electronic facility or platform for electronic commerce;
“electronic credit ledger” means the electronic credit ledger referred to in sub-
section (2) of section 49;
“exempt supply” means supply of any goods or services or both which attracts nil
rate of tax or which may be wholly exempt from tax under section 11, or under
section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable
supply;
“goods” means every kind of movable property other than money and securities but
includes actionable claim, growing crops, grass and things attached to or forming
part of the land which are agreed to be severed before supply or under a contract
of supply;
“Input Service Distributor” means an office of the supplier of goods or services
or both which receives tax invoices issued under section 31 towards the receipt of
input services and issues a prescribed document for the purposes of distributing
the credit of central tax, State tax, integrated tax or Union territory tax paid on the
said services to a supplier of taxable goods or services or both having the same
Permanent Account Number as that of the said office;
(1) “input tax” in relation to a registered person, means the central tax, State
tax, integrated tax or Union territory tax charged on any supply of goods
or services or both made to him and includes—
(2) the integrated goods and services tax charged on import of goods;
(3) the tax payable under the provisions of sub-sections (3) and (4) of section
9;
(4) the tax payable under the provisions of sub-sections (3) and (4) of section
5 of the Integrated Goods and Services Tax Act;
(5) the tax payable under the provisions of sub-sections (3) and (4) of section
9 of the respective State Goods and Services Tax Act; or
(6) the tax payable under the provisions of sub-sections (3) and (4) of section
7 of the Union Territory Goods and Services Tax Act, but does not include
the tax paid under the composition levy;
“invoice” or “tax invoice” means the tax invoice referred to in section 31
“inward supply” in relation to a person, shall mean receipt of goods or services
or both whether by purchase, acquisition or any other means with or without
consideration;
“job work” means any treatment or process under taken by a person on goods
belonging to another registered person and the expression “job worker” shall be
16 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

construed accordingly
“manufacture” means processing of raw material or inputs in any manner that
results in emergence of a new product having a distinct name, character and use
and the term “manufacturer” shall be construed accordingly;
“market value” shall mean the full amount which a recipient of a supply is required
to pay in order to obtain the goods or services or both of like kind and quality at or
about the same time and at the same commercial level where the recipient and the
supplier are not related;
“mixed supply” means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for
a single price where such supply does not constitute a composite supply.
“non-taxable supply” means a supply of goods or services or both which is not
leviable to tax under CGST/SGST/UTGST Act or under the Integrated Goods and
Services Tax Act;
“output tax” in relation to a taxable person, means the tax chargeable under this
Act on taxable supply of goods or services or both made by him or by his agent but
excludes tax payable by him on reverse charge basis;
“outward supply” in relation to a taxable person, means supply of goods or services
or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal
or any other mode, made or agreed to be made by such person in the course or
furtherance of business
“principal supply” means the supply of goods or services which constitutes the
predominant element of a composite supply and to which any other supply forming
part of that composite supply is ancillary;
“return” means any return prescribed or otherwise required to be furnished by or
under this Act or the rules made there under;
“reverse charge” means the liability to pay tax by the recipient of supply of goods
or services or both instead of the supplier of such goods or services or both under
sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-
section (4) of section 5 of the Integrated Goods and Services Tax Act.
“services” means anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged;
“supplier” in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting as
such on behalf of such supplier in relation to the goods or services or both supplied;

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 GUIDANCE NOTE ON GST AUDIT

“tax period” means the period for which the return is required to be furnished;
“taxable person” means a person who is registered or liable to be registered under
section 22 or section 24
“taxable supply” means a supply of goods or services or both which is leviable to
tax under this Act;
“turnover in State” or “turnover in Union territory” means the aggregate value of
all taxable supplies (excluding the value of inward supplies on which tax is payable
by a person on reverse charge basis) and exempt supplies made within a State or
Union territory by a taxable person, exports of goods or services or both and inter-
State supplies of goods or services or both made from the State or Union territory
by the said taxable person but excludes central tax, State tax, Union territory tax,
integrated tax and cess;
“valid return” means a return furnished under sub-section (1) of section 39 on
which self-assessed tax has been paid in full;
“voucher” means an instrument where there is an obligation to accept it as
consideration or part consideration for a supply of goods or services or both and
where the goods or services or both to be supplied or the identities of their potential
suppliers are either indicated on the instrument itself or in related documentation,
including the terms and conditions of use of such instrument;
“works contract” means a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning of any immovable property
where in transfer of property in goods (whether as goods or in some other form) is
involved in the execution of such contract;

18 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 Time of Supply, Place of Supply
Classification and Valuation of
Supplies

Goods & Service Tax is leviable on supply of goods and services, time of supply
attains a great importance to decide rate of tax, value and due dates for payment
of tax. This aspect attains more significance when there is a change in the rate of
tax. In terms of Sections 12 and 13 of CGST Act, Time of supply means the point
in time when goods/ services are deemed to be supplied for determining liability of
GST on them. The law provides for separate provisions for time of Supply for gods
and time of supply for services.
Time of Supply of Goods
Section 12
“(1) The liability to pay tax on goods shall arise at the time of supply, as
determined in accordance with the provisions of this section.”
“(2)The time of supply of goods shall be the earlier of the following dates, namely:
(a) the date of issue of invoice by the supplier or the last date on which
he is required, under sub-section (1) of Section 31, to issue the
invoice with respect to the supply; or
(b) the date on which the supplier receives the payment with respect to
the supply :
Provided that where the supplier of taxable goods receives an amount up to one
thousand rupees in excess of the amount indicated in the tax invoice, the time of
supply to the extent of such excess amount shall, at the option of the said supplier,
be the date of issue of invoice in respect of such excess amount.”
Section 31(1) provides for the time-limit for issuance of invoice by the supplier of
taxable goods which is earlier of:
- Before removal of goods, where supply involves movement of goods.

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 GUIDANCE NOTE ON GST AUDIT

- Before delivery of goods to the recipient, in other cases.

Hence time of supply is earlier of:
- Date of invoice or last date to issue invoice, or
- Date of payment.
“(3) In case of supplies in respect of which tax is paid or liable to be paid
on reverse charge basis, the time of supply shall be the earliest of the
following dates, namely :-
(a) the date of the receipt of goods; or
(b) the date of payment as entered in the books of account of the
recipient or the date on which the payment is debited in his bank
account, whichever is earlier; or
(c) the date immediately following thirty days from the date of issue
of invoice or any other document, by whatever name called, in lieu
thereof by the supplier :
Provided that where it is not possible to determine the time of supply under clause
(a) or clause (b) or clause (c), the time of supply shall be the date of entry in the
books of account of the recipient of supply.”
(4) In case of supply of vouchers by a supplier, the time of supply shall be -
(a) the date of issue of voucher, if the supply is identifiable at that
point; or
(b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of supply under the
provisions of sub-section (2) or sub-section (3) or sub-section (4), the time
of supply shall -
(a) in a case where a periodical return has to be filed, be the date on
which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.”
“(6) The time of supply to the extent it relates to an addition in the value
of supply by way of interest, late fee or penalty for delayed payment of
any consideration shall be the date on which the supplier receives such
addition in value.”
Time of Supply of Services
Section 13
“(1) The liability to pay tax on services shall arise at the time of supply, as
determined in accordance with the provisions of this section.”
“(2) The time of supply of services shall be the earliest of the following dates,
namely :-

20 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

(a) the date of issue of invoice by the supplier, if the invoice is issued
within the period prescribed under sub-section(2) of Section 31 or
the date of receipt of payment, whichever is earlier; or
(b) the date of provision of service, if the invoice is not issued within the
period prescribed under sub-section (2) of Section 31 or the date of
receipt of payment, whichever is earlier; or
(c) the date on which the recipient shows the receipt of services in his
books of account, in a case where the provisions of clause (a) or
clause (b) do not apply :
Provided that where the supplier of taxable service receives an amount up to one
thousand rupees in excess of the amount indicated in the tax invoice, the time of
supply to the extent of such excess amount shall, at the option of the said supplier,
be the date of issue of invoice relating to such excess amount.”
Section 31(2) require the supplier of taxable service to issue the invoice within
prescribed time limit. Rule 47 of Central Goods and Services Tax Rules, 2017
(CGST Rules for short) prescribes 30 days from the date of supply of service for
it in normal cases. In case where supplier of services is an insurer or a banking
company or a financial institution (it includes Non-Banking Financial Companies),
45 days from date of supply of service has been prescribed. In case any insurer or
a banking company or a financial institution (it includes Non-Banking Financial
Companies), a telecom operator or any other notified class of supplier of service is
involved in making taxable supplies of services between distinct person as specified
in Section 25, he/it may issue the invoice before recording its supplies in its books
or before expiry of the quarter during which the supply was made.
“(3) In case of supplies in respect of which tax is paid or liable to be paid
on reverse charge basis, the time of supply shall be the earlier of the
following dates, namely :-
(a) the date of payment as entered in the books of account of the
recipient or the date on which the payment is debited in his bank
account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue of
invoice or any other document, by whatever name called, in lieu
thereof by the supplier :
Provided that where it is not possible to determine the time of supply under clause
(a) or clause (b), the time of supply shall be the date of entry in the books of
account of the recipient of supply:
Provided further that in case of supply by associated enterprises, where the supplier
of service is located outside India, the time of supply shall be the date of entry in

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 GUIDANCE NOTE ON GST AUDIT

the books of account of the recipient of supply or the date of payment, whichever
is earlier.”
“(4) In case of supply of vouchers by a supplier, the time of supply shall be -
(a) the date of issue of voucher, if the supply is identifiable at that
point; or
(b) the date of redemption of voucher, in all other cases.
“(5) Where it is not possible to determine the time of supply under the
provisions of sub-section (2) or sub-section (3) or sub-section (4), the time
of supply shall -
(a) in a case where a periodical return has to be filed, be the date on
which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.
“(6) The time of supply to the extent it relates to an addition in the value
of supply by way of interest, late fee or penalty for delayed payment of
any consideration shall be the date on which the supplier receives such
addition in value.”
Change in Rate of Tax in respect of supply of goods or services
Sec14. Where there is a change in rate of tax of supply of goods or services, time of
supply has to be determined in the following manner:
Supply is completed before the change in rate of tax
Invoice issued Payment received
Applicable
before date of before date of Time of supply
rate of tax
change in tax rate change in tax rate
No No Earliest of the date of Invoice or New rate of
payment Tax
Yes No Date of issue of invoice Old tax rate
No Yes Date of receipt of payment Old tax rate
Supply is completed after the change in rate of tax
Invoice issued before Payment received
Applicable
date of change in tax before date of Time of supply
rate of tax
rate change in tax rate
Yes Yes Earliest of the date of Old rate of Tax
Invoice or payment
Yes No Date of receipt of New rate of Tax
payment
No Yes Date of issue of invoice New rate of Tax

22 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

However, the special procedure for payment of tax by suppliers of goods (other than
composition dealers) notified by Government vide notification no. 66/2017-Central
Tax dated 15.11.2017 under section 148 of the CGST Act, 2017, will continue to
govern even in the above situation. In a nutshell, suppliers of goods other than
composition dealers will have to pay tax at the time of issue of invoice only.
Date of receipt of Payment in case of change in rate of tax
Normally the date of receipt of payment is the date of credit in the bank account
of the recipient of payment or the date on which the payment is entered into his
books of account, whichever is earlier. Further, the date of credit in the bank
account is relevant if such credit is after four working days from the date of change
in rate of tax.
The way of calculation of time of supply is adequately covered by the provisions of
Sections 12, 13 and 14, one has to keep in mind these provisions and calculate
time of supply which is the pivot to determine when the liability to discharge tax
will arise.
Place of supply (IGST)
Places of supply provisions have been framed for goods and services, keeping in
mind the destination/consumption principle. In other words, the place of supply
is based on the place of consumption of goods or services. As goods are tangible,
the determination of their place of supply, based on the consumption principle, is
not difficult. Generally, the place of delivery of goods becomes the place of supply.
However, the services being intangible in nature, it is not easy to determine the
exact place where services are acquired, enjoyed and consumed. In respect of
certain categories of services, the place of supply is determined with reference
to a proxy. Separate provisions for the supply of goods and services have been
made for the determination of their place of supply. Separate provisions for the
determination of the place of supply in respect of domestic supplies and cross
border supplies have been framed.
Place of supply of goods other than supply of goods imported into, or exported from India.
Sec. 10
(1) The place of supply of goods, other than supply of goods imported into, or
exported from India, shall be as under,––
(a) where the supply involves movement of goods, whether by the
supplier or the recipient or by any other person, the place of supply
of such goods shall be the location of the goods at the time at which
the movement of goods terminates for delivery to the recipient;

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 GUIDANCE NOTE ON GST AUDIT

(b) where the goods are delivered by the supplier to a recipient or any
other person on the direction of a third person, whether acting as
an agent or otherwise, before or during movement of goods, either
by way of transfer of documents of title to the goods or otherwise, it
shall be deemed that the said third person has received the goods
and the place of supply of such goods shall be the principal place of
business of such person;
(c) where the supply does not involve movement of goods, whether by
the supplier or the recipient, the place of supply shall be the location
of such goods at the time of the delivery to the recipient;
(d) where the goods are assembled or installed at site, the place of
supply shall be the place of such installation or assembly;
(e) where the goods are supplied on board a conveyance, including a
vessel, an aircraft, a train or a motor vehicle, the place of supply
shall be the location at which such goods are taken on board.
(2) Where the place of supply of goods cannot be determined, the place of
supply shall be determined in such manner as may be prescribed.
Place of sup.ply of goods imported into, or exported from India.
Sec 11 -The place of supply of goods ––
(a) imported into India shall be the location of the importer;
(b) exported from India shall be the location outside India.
Place of supply of services where location of supplier and recipient is in India.
Sec 12
(1) The provisions of this section shall apply to determine the place of supply
of services where the location of supplier of services and the location of
the recipient of services is in India.
(2) The place of supply of services, except the services specified in sub-
sections (3) to (14),––
(a) made to a registered person shall be the location of such person;
(b) made to any person other than a registered person shall be,––
(i) the location of the recipient where the address on record
exists; and
(ii) the location of the supplier of services in other cases.
(3) The place of supply of services,––
(a) directly in relation to an immovable property, including services

24 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

provided by architects, interior decorators, surveyors, engineers

and other related experts or estate agents, any service provided by
way of grant of rights to use immovable property or for carrying out
or co-ordination of construction work; or
(b) by way of lodging accommodation by a hotel, inn, guest house, home
stay, club or campsite, by whatever name called, and including a
house boat or any other vessel; or
(c) by way of accommodation in any immovable property for organizing
any marriage or reception or matters related thereto, official, social,
cultural, religious or business function including services provided
in relation to such function at such property; or
(d) any services ancillary to the services referred to in clauses (a), (b)
and (c),shall be the location at which the immovable property or
boat or vessel, as the case may be, is located or intended to be
located:
Provided that if the location of the immovable property or boat or
vessel is located or intended to be located outside India, the place of
supply shall be the location of the recipient.
Explanation.––Where the immovable property or boat or vessel is
located in more than one State or Union territory, the supply of
services shall be treated as made in each of the respective States or
Union territories, in proportion to the value for services separately
collected or determined in terms of the contract or agreement entered
into in this regard or, in the absence of such contract or agreement,
on such other basis as may be prescribed.
(4) The place of supply of restaurant and catering services, personal grooming,
fitness, beauty treatment, health service including cosmetic and plastic
surgery shall be the location where the services are actually performed.
(5) The place of supply of services in relation to training and performance
appraisal to,–
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location where
the services are actually performed.
(6) The place of supply of services provided by way of admission to a
cultural, artistic, sporting, scientific, educational, entertainment event or
amusement park or any other place and services ancillary thereto, shall
be the place where the event is actually held or where the park or such
other place is located.

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 GUIDANCE NOTE ON GST AUDIT

(7) The place of supply of services provided by way of,—

(a) organization of a cultural, artistic, sporting, scientific, educational
or entertainment event including supply of services in relation to a
conference, fair, exhibition, celebration or similar events; or
(b) services ancillary to organization of any of the events or services
referred to in clause (a), or assigning of sponsorship to such events,––
(i) to a registered person, shall be the location of such person;
(ii) to a person other than a registered person, shall be the
place where the event is actually held and if the event is
held outside India, the place of supply shall be the location
of the recipient.
Explanation.––Where the event is held in more than one State or Union territory
and a consolidated amount is charged for supply of services relating to such
event, the place of supply of such services shall be taken as being in each of
the respective States or Union territories in proportion to the value for services
separately collected or determined in terms of the contract or agreement entered
into in this regard or, in the absence of such contract or agreement, on such other
basis as may be prescribed.
(8) The place of supply of services by way of transportation of goods, including
by mail or courier to,––
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location at
which such goods are handed over for their transportation.
(9) The place of supply of passenger transportation service to,—
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the place where the
passenger embarks on the conveyance for a continuous journey:
Provided that where the right to passage is given for future use and
the point of embarkation is not known at the time of issue of right
to passage, the place of supply of such service shall be determined
in accordance with the provisions of sub-section (2).
Explanation.––For the purposes of this sub-section, the return
journey shall be treated as a separate journey, even if the right to
passage for onward and return journey is issued at the same time.
(10) The place of supply of services on board a conveyance, including a vessel,
an aircraft, a train or a motor vehicle, shall be the location of the first
scheduled point of departure of that conveyance for the journey.

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(11) The place of supply of telecommunication services including data transfer,

broadcasting, cable and direct to home television services to any person
shall,—
(a) in case of services by way of fixed telecommunication line, leased
circuits, internet leased circuit, cable or dish antenna, be the
location where the telecommunication line, leased circuit or cable
connection or dish antenna is installed for receipt of services;
(b) in case of mobile connection for telecommunication and internet
services provided on post-paid basis, be the location of billing
address of the recipient of services on the record of the supplier of
services;
(c) in cases where mobile connection for telecommunication, internet
service and direct to home television services are provided on pre-
payment basis through a voucher or any other means,––
(i) through a selling agent or a re-seller or a distributor of
subscriber identity module card or re-charge voucher, be
the address of the selling agent or re-seller or distributor
as per the record of the supplier at the time of supply; or
(ii) by any person to the final subscriber, be the location where
such pre-payment is received or such vouchers are sold;
(d) in other cases, be the address of the recipient as per the records of the
supplier of services and where such address is not available, the place of
supply shall be location of the supplier of services:
Provided that where the address of the recipient as per the records of the
supplier of services is not available, the place of supply shall be location
of the supplier of services:
Provided further that if such pre-paid service is availed or the recharge
is made through internet banking or other electronic mode of payment,
the location of the recipient of services on the record of the supplier of
services shall be the place of supply of such services.
Explanation.––Where the leased circuit is installed in more than one State
or Union territory and a consolidated amount is charged for supply of
services relating to such circuit, the place of supply of such services shall
be taken as being in each of the respective States or Union territories in
proportion to the value for services separately collected or determined in
terms of the contract or agreement entered into in this regard or, in the
absence of such contract or agreement, on such other basis as may be
prescribed.

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 GUIDANCE NOTE ON GST AUDIT

(12) The place of supply of banking and other financial services, including
stock broking services to any person shall be the location of the recipient
of services on the records of the supplier of services:
Provided that if the location of recipient of services is not on the records
of the supplier, the place of supply shall be the location of the supplier of
services.
(13) The place of supply of insurance services shall,––
(a) to a registered person, be the location of such person;
(b) to a person other than a registered person, be the location of the
recipient of services on the records of the supplier of services.
(14) The place of supply of advertisement services to the Central Government,
a State Government, a statutory body or a local authority meant for the
States or Union territories identified in the contract or agreement shall
be taken as being in each of such States or Union territories and the
value of such supplies specific to each State or Union territory shall be
in proportion to the amount attributable to services provided by way of
dissemination in the respective States or Union territories as may be
determined in terms of the contract or agreement entered into in this
regard or, in the absence of such contract or agreement, on such other
basis as may be prescribed.
Place of supply of services where location of supplier or location of recipient is
outside India
Sec 13
(1) The provisions of this section shall apply to determine the place of supply
of services where the location of the supplier of services or the location of
the recipient of services is outside India.
(2) The place of supply of services except the services specified in sub-sections
(3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available
in the ordinary course of business, the place of supply shall be the location
of the supplier of services.
(3) The place of supply of the following services shall be the location where
the services are actually performed, namely:—
(a) services supplied in respect of goods which are required to be made
physically available by the recipient of services to the supplier of
services, or to a person acting on behalf of the supplier of services
in order to provide the services:

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Provided that when such services are provided from a remote location
by way of electronic means, the place of supply shall be the location
where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply
in the case of services supplied in respect of goods which are
temporarily imported into India for repairs and are exported after
repairs without being put to any other use in India, than that which
is required for such repairs;
(b) services supplied to an individual, represented either as the recipient
of services or a person acting on behalf of the recipient, which
require the physical presence of the recipient or the person acting
on his behalf, with the supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to an immovable
property, including services supplied in this regard by experts and estate
agents, supply of accommodation by a hotel, inn, guest house, club or
campsite, by whatever name called, grant of rights to use immovable
property, services for carrying out or co-ordination of construction work,
including that of architects or interior decorators, shall be the place where
the immovable property is located or intended to be located.
(5) The place of supply of services supplied by way of admission to, or
organization of a cultural, artistic, sporting, scientific, educational or
entertainment event, or a celebration, conference, fair, exhibition or
similar events, and of services ancillary to such admission or organization,
shall be the place where the event is actually held.
(6) Where any services referred to in sub-section (3) or sub-section (4) or
sub-section (5) is supplied at more than one location, including a location
in the taxable territory, its place of supply shall be the location in the
taxable territory.
(7) Where the services referred to in sub-section (3) or sub-section (4) or
sub-section (5) are supplied in more than one State or Union territory,
the place of supply of such services shall be taken as being in each of
the respective States or Union territories and the value of such supplies
specific to each State or Union territory shall be in proportion to the value
for services separately collected or determined in terms of the contract or
agreement entered into in this regard or, in the absence of such contract
or agreement, on such other basis as may be prescribed.
(8) The place of supply of the following services shall be the location of the
supplier of services, namely:––
(a) services supplied by a banking company, or a financial institution,
or a non-banking financial company, to account holders;

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 GUIDANCE NOTE ON GST AUDIT

(b) intermediary services;

services consisting of hiring of means of transport, including
(c) yachts but excluding aircrafts and vessels, up to a period of one
month.
(i) Explanation.––For the purposes of this sub-section, the
expression,––
(ii) “account” means an account bearing interest to the
depositor, and includes a non-resident external account
and a non-resident ordinary account;
(iii) “banking company” shall have the same meaning as
assigned to it under clause (a) of section 45A of the Reserve
Bank of India Act, 1934;
(iv) ‘‘financial institution” shall have the same meaning as
assigned to it in clause (c) of section 45-I of the Reserve
Bank of India Act, 1934;
(d) “non-banking financial company” means,––
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has
as its principal business the receiving of deposits, under
any scheme or arrangement or in any other manner, or
lending in any manner; or
(iii) such other non-banking institution or class of such
institutions, as the Reserve Bank of India may, with the
previous approval of the Central Government and by
notification in the Official Gazette, specify.
(9) The place of supply of services of transportation of goods, other than by
way of mail or courier, shall be the place of destination of such goods.
(10) The place of supply in respect of passenger transportation services shall
be the place where the passenger embarks on the conveyance for a
continuous journey.
(11) The place of supply of services provided on board a conveyance during the
course of a passenger transport operation, including services intended
to be wholly or substantially consumed while on board, shall be the first
scheduled point of departure of that conveyance for the journey.
(12) The place of supply of online information and database access or retrieval
services shall be the location of the recipient of services.

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GUIDANCE NOTE ON GST AUDIT

Explanation.––For the purposes of this sub-section, person receiving such

services shall be deemed to be located in the taxable territory, if any two
of the following non-contradictory conditions are satisfied, namely:––
(a) the location of address presented by the recipient of services through
internet is in the taxable territory;
(b) the credit card or debit card or store value card or charge card or
smart card or any other card by which the recipient of services
settles payment has been issued in the taxable territory;
(c) the billing address of the recipient of services is in the taxable
territory;
(d) the internet protocol address of the device used by the recipient of
services is in the taxable territory;
(e) the bank of the recipient of services in which the account used for
payment is maintained is in the taxable territory;
(f) the country code of the subscriber identity module card used by the
recipient of services is of taxable territory;
(g) the location of the fixed land line through which the service is
received by the recipient is in the taxable territory.
(13) In order to prevent double taxation or non-taxation of the supply of a
service, or for the uniform application of rules, the Government shall have
the power to notify any description of services or circumstances in which
the place of supply shall be the place of effective use and enjoyment of a
service.
Classification, HSN for Goods or Services
Classification means ascertaining the headings/sub-headings under which the
said goods/Service is covered/categorized. Most scientific way of classifying goods
is on the basis of Hormonised System of Nomenclature (HSN). Classification is
important to determine Rate of GST to be payable on the supply of a goods or a
service. In GST Customs Tariff Act is adopted to classify the goods and to fix the
GST Rate
Rules for Interpretation of HSN
Rules for interpretation of HSN are given in the HSN itself. These are termed as
‘General Interpretative Rules’ (GIR)
GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if
classification is not possible on the basis of tariff entry and relevant chapter notes
and section notes.
Following are the steps of classification of a product as per GIR.

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 GUIDANCE NOTE ON GST AUDIT

1. The titles of sections and chapters are provided for ease of reference
only; for legal purposes, refer the heading and sub-heading. Read
corresponding Section Notes and Chapter Notes (Rule 1 of GIR). If there
is no ambiguity or confusion, the classification is final. You do not have
to look to classification rules or trade practice or dictionary meaning.
If classification is not possible, then only go to GIR. The rules are to be
applied sequentially.
2. If meaning of word is not clear, refer to trade practice. IF trade understanding
of a product cannot be established, find technical or dictionary meaning
of the term used in the tariff. You may also refer to BIS or other standards,
but trade parlance is most important.
3. If goods are incomplete or un-finished, but classification of finished
product is known, find if the un-finished item has essential characteristics
of finished goods. If so, classify in same heading – Rule 2(a).
4. If ambiguity persists, find out which heading is specific and which heading
is more general. Prefer specific heading – Rule3(a).
5. If problem is not resolved by Rule 3(a), find which material or component
is giving ‘essential character’ to the goods in question – Rule 3(b).
6. If both are equally specific, find which comes last in the Tariff and take
it – Rule 3(c).
7. If you are unable to find any entry which matches the goods in question,
find goods which are most akin – Rule 4.
8. In case of mixtures or sets to the procedure is more or less same except
that each ingredient of the mixture or set has to be seen in above sequence.
As per Rule 2(b), any reference to a material or substance includes a
reference to mixture or combinations of that material or substance with
other material or substance.
9. Packing material is classified along with goods except when the packing is
for repetitive se – Rule 5.
Standard unit of quantity
Third column of tariff is ‘Unit’ which is unit of measure. The unit of measure
is indicated by abbreviations. Some abbreviations are as follows – cc – Cubic
Centimeter, cm – Centimeter(s), g – gram(s), g/cm3 – Gram per cubic centimeter,
l – liter, m – meter, mt – Metric Tonne, t – Tonne, Tu – Thousand in number, u –
Number, Vol. – Volume, W – Watt.
In many cases, there units are impractical in trade.
Application of Gir in Tariff
GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if
classification is not possible on the basis of tariff entry and relevant chapter notes

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GUIDANCE NOTE ON GST AUDIT

and section notes.

Rules to be applied sequentially - The Rules are to be applied sequentially. Rule
1 gives precedence to Section notes/ Chapter Notes while classifying a product
– Chapter 4 Para 2.6 of CBE&C’s Customs Manual, 2011.Classification is to be
first tested in light of Rule 1. Only when it is not possible to resolve the issuer by
applying this rule, recourse is taken to Rules 2,3 and 4 in seriatim [Though rules
nowhere stated that these should be applied sequentially, the general arrangement
and wording does clearly indicate that intention].
Titles are for reference - Titles of sections or chapters cannot be used for
classification The titles of sections and chapters are provided for use of reference
only, and have no legal importance for purposes of classification. (Rule 1)
Rule 1 – The titles of Sections and Chapters are provided for ease of reference
only; for legal purposes, classification shall be determined according to the terms
of the headings and any relative Section or Chapter Notes and, provided such
headings orNotes do not otherwise require, according to the provisions hereinafter
contained.
Section Note and Chapter Notes have overriding effect – Classification is to
be determined only on the basis of description of the heading, read with relevant
section or Chapter Notes. Since these notes are part of the Act itself, these have
full statutory (legal) backing.
If the description read with section or chapter notes is not enough to correctly
classify the goods, following further rules have been provided:
Classification of Incomplete or Un-assembled Goods
Any reference to complete goods also includes incomplete or un-finished goods, if
such incomplete or un-finished goods have the essential characteristic of finished
goods. [first part of Rule 2 (a)]. The heading will also include finished goods removed
un-assembled or disassembled i.e., in SKD or CKD packs. [second part of Rule 2
(a)].
Classification of Mixture or Combinations.
Any reference in heading to material or substance will also include the reference
to mixture or combination of that material or substance with other materials or
substance e.g. ‘Article of Gold’ will include an Article which is made partly of Gold.
Reference to goods of a given material or substance shall also include reference to
goods consisting wholly or partly of such material or substance [Rule 2 (b)].
Classification in Case of Conflict Between Various Headings
While applying the aforesaid rules, some conflict may arise e.g., (a) a mixture or
combination containing more than one material may be classifiable under more
than one headings by applying rule 2(b). IF it contains two items A and B, one
classification may be on the basis of ‘A’ and other on the basis of ‘B’ (b). There may
be two descriptions which may both seems possible.
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 GUIDANCE NOTE ON GST AUDIT

In such case, rule 3 states as follows –

Rule 3 - When by application of sub-rule (b) of rule 2 or for any other reason goods
are, prima facie, classifiable under two or more headings, classification shall be
effected as given in rule 3 (a), 3(b) or 3(c).
Classification as per Essential Character
If mixture and composite goods consisting of different materials or different
components cannot be classified based on above rule i.e. rule 3(a), it should be
classified as if they consisted of the material or component which gives it their
essential character [Rule 3(b].
For example, if a set consists of drawing instruments (90.17), pencil (96.09)
and pencil sharpener (82.14), put up in a leather case (4201.90); the set will be
classifiable under 90.17 i.e. drawing instrument.
If both are specific – Latter the better
If two or more headings seem equally possible and the dispute cannot be resolved
by any of the aforesaid rules, if both the headings appear equally specific, the
heading which occurs last in numerical order is to be preferred (i.e. latter the
better). [rule 3( c)].
Other Provisions Relating to Classification
Other provisions are as follows:
Akin Goods – Last Rule of classification – if the classification is not possible by
any of the aforesaid rules 1, 2 and 3, then it should be classified under the heading
appropriate to goods to which they are most akin. [rule 4 of GIR].
Classification of packing containers and packing materials
Rule 5 for interpretation of schedule to Customs Tariff Act and CETA specifically
provides for classification of packing material and packing cases.
Rule 5.
In addition to the foregoing provisions, the following rules shall apply in respect of
the goods referred to therein:
(a) Camera cases, musical instrument cases, gun cases, drawing instrument
cases, necklace cases and similar containers, specially shaped or fitted to
contain a specific article or set of articles, suitable for long-term use and
presented with the articles for which they are intended shall be classified
with such articles when of a kind normally sold therewith. This rule
does not however, apply to containers which give the whole its essential
character.
(b) Subject to the provisions of (a) above packing materials and packing
containers presented with the goods therein shall be classified with
the goods if they are of a kind normally used for packing such goods.
However, this provision does not apply when such packing materials or
34 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

packing containers are clearly suitable for repetitive use.

As per this rule, cases for camera, musical instruments, drawing instruments,
necklaces etc. specially shaped for that article, suitable for long term use will be
classified along with that article, if such article is normally sold along with such
cases. Further, packing materials and containers are also to be classified with the
goods except when the packing is for repetitive use.
This provision is obviously made to ensure that the packing and the goods are
charged at same rate of duty.
Goods can be compared at the same level only
Sub-Headings can be compared only at the same level [Rule 6].
This means that if one heading contains 5-6 sub-headings, these sub-headings can
be compared with each other. However, sub-headings under one heading cannot
be compared with sub-heading under a different heading. Thus, first heading
has to be decided and then one of the sub-headings within that heading has to be
selected.
Classification of Parts
Classification of parts is subject to notes in sections and chapters. Questions
of classification of parts is relevant for parts of machinery, electrical equipment
vehicles, instruments arms, furniture and toys (chapters 82 to 96).
Broadly parts suitable solely for a particular machine generally fall in the same
heading number in which main item falls. However, there are many exceptions-
RR Parts of general use are not to be classified as part of any particular
machine. ‘Parts of General Use’ are to be classified in their respective
specified heads and not to be classified under the heading of the machine
where they are used.
RR Parts are to be classified as parts if separate heading is available for
parts, as per section note 2 to section XVI and section note 2 to section
XIII. (e.g. there is separate heading for parts of engine).
RR Various articles as specified in notes to sections XVI and XVII are not
be classified as parts of any particular machine. [e.g. articles of leather,
belts, tools and appliances, instruments, clocks, watches etc.]
RR The direction that parts are to be classified along with that machine
appears only in section XVI. However, in Camlin Ltd. V. CCE 2000(121)
ELT 178 (CEGAT), it was held that application of this note should be
made to goods falling under other sections also. Where parts are not of
general use, these are to be classified under the heading of main article.
(even when the Article falls under any section, other than section XVI).
Parts of General Use
Parts of general use are defined as (a) tube and pipe fittings, stranded wire, ropes,
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 GUIDANCE NOTE ON GST AUDIT

cables chains nails screws, bolts, springs (other than clock springs) of base metal
i.e. Iron and Steel, Copper, Aluminium, Tin, Nickel, Lead, Zinc etc. or of plastic (b)
Padlocks, locks; mountings and fittings suitable and fittings suitable for furniture,
doors, windows etc; clasps, buckles, eyelets; sing-plates, name plates; frames of
pictures; mirrors; of Iron and Steel, copper, Aluminium, Tin, Nickel, Lead, Zinc etc.
or of plastic.
These parts are to be classified in their respective headings and not as part of the
machine or equipment e.g. a bolt used in a vehicle will be classified as ‘bot’ and
not as ‘motor vehicle part’. Plastic piping and fitting will be classified under plastic
articles (3917) only, even if used as machine components.
Classification of Services
Scheme of classification of services has been notified by Government as annexure
to notification no 11/2017-CT (Rate) dated 28-06-2017.
Since customs tariff has 1 to 98 chapters, chapter no.99 has been given for services.
The service classification is 6 digit code.
The services have been classified in five broad sections as follows:
Section 5 – Construction service
Section 6 – Distributive Trade Services, Accommodation, Food Service
Section 7 – Financial and related services
Section 8 – business and production services
Section 9 – community, social and personal services
This section number forms third digit e.g. construction services commence with ‘995’
The sections are divided into headings which is a four digit code. These are divided
in groups which becomes a fifth digit code. Its further division is made in ‘Tariff
Item’ which is a six digit code.
Often there is overlapping and some activities can fall in more than one tariff items.
Service code is not SAC – the term often used in returns under GSTN is ‘SAC’
i.e. Service Accounting Code. This term was used in service tax law. This is
really hang over of the past, as there is no concept of ‘accounting code’ in GST. It
seems in the application for registration under GST, they are still using old service
tax accounting codes, though the classification of services under GST is entirely
different.
Principles of classification
Classification is to be done on basis of entries in Tariff. However, there are some
general principles of classification.
Words used in tariff are to be understood in the sense these are understood in the
trade. This is ‘trade parlance theory’. The trade parlance is more important than

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GUIDANCE NOTE ON GST AUDIT

dictionary or technical meaning, unless the word is specifically defined in the tariff
itself.
HSN is very important guide in classifying a product and it should be normally
followed.
End use is generally not relevant for classification except when the tariff description
so requires and classification is relating to function of the product.
Trade parlance Theory
Since the primary objective of the excise act is to raise revenue, resort should not
be had, for purpose of classification to the scientific and technical meaning of the
terms and expressions used therein, but to their popular meaning, that is to say,
the meaning attached to that by those using the product.
The burden of proof that a product is classifiable under a particular tariff head is
on the revenue and must be discharged by proving that it is so understood by the
consumers of product in common parlance – CCE v. Vicco Laboratories 2005 (179)
ELT 17 (SC 3 member bench).
Criteria for classifications are given in the Tariff. However, basic principle of
classification, devised more than a century ago by justice pollok in Grenfell v. IRC
(1876) 1 Ex D 242 continues. As per this principle, a word in statue should be
construed in its popular sense and not in the strict or technical sense, ‘Popular
sense’ means that which people conversant with the subject matter with which the
statue is dealing would attribute to it.
Dictionary meaning/technical literature
Apex court in Indo International Industries v. CST UP-AIR 1981 SC 1079 = (1981) 3
SCR 294 = 1981 (2) SCC 528 = 47 STC 359 = 8 ELT 325 (SC) – held “in interpreting
items in statutes like Excise Tax Act, or sales tax act, where diverse products,
articles and substances are classified, resort should be had, not to the scientific
and technical meaning of terms and expressions used, but to their popular meaning
i.e. the meaning attached to them by those dealing with them. If any term or
expression has been defined in the enactment then it must be understood in the
sense in which it is defined, otherwise common parlance or commercial parlance
has to be obtained”.
In absence of any definition of any word or expression in statute, it would be
permissible to refer to the dictionary meaning of that expression. – Star Paper Mills
Ltd. V. CCE – 1989 (43) ELT 178 (SC).

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 Accounts and Records under GST

Relevant Provisions under CGST Act

Sec 35.
(1) Every registered person shall keep and maintain, at his principal place
of business, as mentioned in the certificate of registration, a true and
correct account of—
(a) Production or manufacture of goods
(b) Inward and outward supply of goods or services or both
(c) Stock of goods
(d) Input tax credit availed
(e) Output tax payable and paid and
(f) Such other particulars as may be prescribed
Provided that where more than one place of business is specified in
the certificate of registration, the accounts relating to each place of
business shall be kept at such places of business:
Provided further that the registered person may keep and maintain
such accounts and other particulars in electronic form in such
manner as may be prescribed.
(2) Every owner or operator of warehouse or godown or any other place used
for storage of goods and every transporter, irrespective of whether he
is a registered person or not, shall maintain records of the consigner,
consignee and other relevant details of the goods in such manner as may
be prescribed.
(3) The Commissioner may notify a class of taxable persons to maintain
additional accounts or documents for such purpose as may be specified
therein.
(4) Where the Commissioner considers that any class of taxable person is

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GUIDANCE NOTE ON GST AUDIT

not in a position to keep and maintain accounts in accordance with the

provisions of this section, he may, for reasons to be recorded in writing,
permit such class of taxable persons to maintain accounts in such manner
as may be prescribed.
(5) Every registered person whose turnover during a financial year exceeds
the prescribed limit shall get his accounts audited by a chartered
accountant or a cost accountant and shall submit a copy of the audited
annual accounts, the reconciliation statement under sub-section (2) of
section 44 and such other documents in such form and manner as may
be prescribed.
(6) Subject to the provisions of clause (h) of sub-section (5) of section 17,
where the registered person fails to account for the goods or services
or both in accordance with the provisions of sub-section (1), the proper
officer shall determine the amount of tax payable on the goods or services
or both that are not accounted for, as if such goods or services or both had
been supplied by such person and the provisions of section 73 or section
74, as the case may be, shall, mutatis mutandis, apply for determination
of such tax.
Every registered person required to keep and maintain books of account
or other records in accordance with the provisions of sub-section (1) of
section 35 shall retain them until the expiry of seventy-two months from
the due date of furnishing of annual return for the year pertaining to such
accounts and records:
Provided that a registered person, who is a party to an appeal or revision
or any other proceedings before any Appellate Authority or Revisional
Authority or Appellate Tribunal or court, whether filed by him or by the
Commissioner, or is under investigation for an offence under Chapter
XIX, shall retain the books of account and other records pertaining to the
subject matter of such appeal or revision or proceedings or investigation
for a period of one year after final disposal of such appeal or revision or
proceedings or investigation, or for the period specified above, whichever
is later.
Provisions under GST Rules
Maintenance of accounts by registered persons.-
(1) Every registered person shall keep and maintain, in addition to the
particulars mentioned in sub-section (1) of section 35, a true and correct
account of the goods or services imported or exported or of supplies
attracting payment of tax on reverse charge along with the relevant
documents, including invoices, bills of supply, delivery challans, credit

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 39

 GUIDANCE NOTE ON GST AUDIT

notes, debit notes, receipt vouchers, payment vouchers and refund

vouchers.
(2) Every registered person, other than a person paying tax under section
10, shall maintain the accounts of stock in respect of goods received
and supplied by him, and such accounts shall contain particulars of the
opening balance, receipt, supply, goods lost, stolen, destroyed, written
off or disposed of by way of gift or free sample and the balance of stock
including raw materials, finished goods, scrap and wastage thereof.
(3) Every registered person shall keep and maintain a separate account of
advances received, paid and adjustments made thereto.
(4) Every registered person, other than a person paying tax under section 10,
shall keep and maintain an account, containing the details of tax payable
(including tax payable in accordance with the provisions of sub-section (3)
and sub-section (4) of section 9), tax collected and paid, input tax, input
tax credit claimed, together with a register of tax invoice, credit notes,
debit notes, delivery challan issued or received during any tax period.
(5) Every registered person shall keep the particulars of -
(a) names and complete addresses of suppliers from whom he has
received the goods or services chargeable to tax under the Act;
(b) names and complete addresses of the persons to whom he has
supplied goods or services, where required under the provisions of
this Chapter;
(c ) the complete address of the premises where goods are stored by him,
including goods stored during transit along with the particulars of
the stock stored therein.
(6) If any taxable goods are found to be stored at any place(s) other than those
declared under sub-rule (5) without the cover of any valid documents, the
proper officer shall determine the amount of tax payable on such goods
as if such goods have been supplied by the registered person.
(7) Every registered person shall keep the books of account at the principal
place of business and books of account relating to additional place of
business mentioned in his certificate of registration and such books of
account shall include any electronic form of data stored on any electronic
device.
(8) Any entry in registers, accounts and documents shall not be erased,
effaced or overwritten, and all incorrect entries, otherwise than those
of clerical nature, shall be scored out under attestation and thereafter
the correct entry shall be recorded and where the registers and other

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GUIDANCE NOTE ON GST AUDIT

documents are maintained electronically, a log of every entry edited or

deleted shall be maintained.
(9) Each volume of books of account maintained manually by the registered
person shall be serially numbered.
(10) Unless proved otherwise, if any documents, registers, or any books of
account belonging to a registered person are found at any premises other
than those mentioned in the certificate of registration, they shall be
presumed to be maintained by the said registered person.
(11) Every agent referred to in clause (5) of section 2 shall maintain accounts
depicting the,-
a. particulars of authorization received by him from each principal
to receive or supply goods or services on behalf of such principal
separately;
b. particulars including description, value and quantity (wherever
applicable) of goods or services received on behalf of every principal;
c. particulars including description, value and quantity (wherever
applicable) of goods or services supplied on behalf of every principal;
d. details of accounts furnished to every principal; and
e. tax paid on receipts or on supply of goods or services effected on
behalf of every principal.
(12) Every registered person manufacturing goods shall maintain monthly
production accounts showing quantitative details of raw materials or
services used in the manufacture and quantitative details of the goods so
manufactured including the waste and by products thereof.
(13) Every registered person supplying services shall maintain the accounts
showing quantitative details of goods used in the provision of services,
details of input services utilized and the services supplied.
(14) Every registered person executing works contract shall keep separate
accounts for works contract showing –
a. the names and addresses of the persons on whose behalf the works
contract is executed;
b. description, value and quantity (wherever applicable) of goods or
services received for the execution of works contract;
c. description, value and quantity (wherever applicable) of goods or
services utilized in the execution of works contract;
d. the details of payment received in respect of each works contract;
and
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 41
 GUIDANCE NOTE ON GST AUDIT

e. the names and addresses of suppliers from whom he received goods

or services.
(15) The records under the provisions of this Chapter may be maintained in
electronic form and the record so maintained shall be authenticated by
means of a digital signature.
(16) Accounts maintained by the registered person together with all the
invoices, bills of supply, credit and debit notes, and delivery challans
relating to stocks, deliveries, inward supply and outward supply shall
be preserved for the period as provided in section 36 and shall, where
such accounts and documents are maintained manually, be kept at every
related place of business mentioned in the certificate of registration and
shall be accessible at every related place of business where such accounts
and documents are maintained digitally.
(17) Any person having custody over the goods in the capacity of a carrier or a
clearing and forwarding agent for delivery or dispatch thereof to a recipient
on behalf of any registered person shall maintain true and correct records
in respect of such goods handled by him on behalf of such registered
person and shall produce the details thereof as and when required by the
proper officer.
(18) Every registered person shall, on demand, produce the books of accounts
which he is required to maintain under any law for the time being in
force.
Generation and maintenance of electronic records.-
(1) Proper electronic back-up of records shall be maintained and preserved
in such manner that, in the event of destruction of such records due to
accidents or natural causes, the information can be restored within a
reasonable period of time.
(2) The registered person maintaining electronic records shall produce, on
demand, the relevant records or documents, duly authenticated by him,
in hard copy or in any electronically readable format.
(3) Where the accounts and records are stored electronically by any registered
person, he shall, on demand, provide the details of such files, passwords
of such files and explanation for codes used, where necessary, for access
and any other information which is required for such access along with a
sample copy in print form of the information stored in such files.

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GUIDANCE NOTE ON GST AUDIT

Records to be maintained by owner or operator of godown or warehouse and

transporters.
1. Every person required to maintain records and accounts in accordance
with the provisions of sub-section (2) of section 35, if not already
registered under the Act, shall submit the details regarding his business
electronically on the common portal in FORM GST ENR-01, either directly
or through a Facilitation Centre notified by the Commissioner and, upon
validation of the details furnished, a unique enrolment number shall be
generated and communicated to the said person.
2. The person enrolled under sub-rule (1) as aforesaid in any other State
or Union territory shall be deemed to be enrolled in the State or Union
territory.
3. Every person who is enrolled under sub-rule (1) shall, where required,
amend the details furnished in FORM GST ENR-01 electronically on the
common portal either directly or through a Facilitation Centre notified by
the Commissioner.
4. Subject to the provisions of rule 56,-
(a) any person engaged in the business of transporting goods shall
maintain records of goods transported, delivered and goods stored in
transit by him along with the Goods and Services Tax Identification
Number of the registered consigner and consignee for each of his
branches.
(b) every owner or operator of a warehouse or godown shall maintain
books of accounts with respect to the period for which particular
goods remain in the warehouse, including the particulars relating
to dispatch, movement, receipt and disposal of such goods.
5. The owner or the operator of the godown shall store the goods in such
manner that they can be identified item-wise and owner-wise and shall
facilitate any physical verification or inspection by the proper officer on
demand.
Tax Invoice and other such instruments in GST
Goods
The time for issuing invoice is depend on the supply of goods or service. A registered
person supplying taxable goods shall, before or at the time of removal of goods
(where supply involves movement of goods) or delivery or making available thereof
to the recipient, issue a tax invoice showing the description, quantity and value of
goods, the tax charged thereon and such other particulars has been prescribed in
the Invoice Rules.
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 43
 GUIDANCE NOTE ON GST AUDIT

Services
A registered person supplying taxable services shall, before or after the provision of
service but within a prescribed period, issue a tax invoice, showing the description,
value, tax charged thereon and such other particulars as has been prescribed in
the Invoice Rules.
Thus it can be seen that in case of goods, an invoice has to be issued before or at
the time of supply. In case of services, however, invoice has to be issued before or
after provision of services. If the invoice is issued after provision of service, it has
to be done within the specified period of 30 days from the date of supply of service,
as per invoice rules
Instruments under GST
Tax Invoice for goods and Service Prepared by regular tax payer under Rule 46
Bill of Supply in case of exempted supply under Rule 49
Receipt voucher in case of advance receipt under Rule 50
Refund voucher in case of refund under Rule 51
Payment voucher in case of payment of invoice under Rule 52
Debit and Credit Note in case of rate difference or discount if any under Rule 53
Input service distributor invoice for ISD Distribution under Rule 54
Delivery Challan in case of Job work/ Sale on approval basis under Rule 55
Points to be noted.
All the records required to be maintained can be preserved in electronic form.
If the records are not kept as per requirement then provisions of penalty and
offences may become applicable.
This Section mandates the upkeep and maintenance of records, at the place(s) of
business, in electronic or other forms.
Furnishing of an audited statement of accounts and reconciliation statement is
also contemplated for persons having turnovers exceeding the prescribed limit.
There is no relaxation provided to persons who have voluntarily obtained
registration.
Clarifications issued by CBIC
Circular No. 23/23/2017 dated 21.12.2017 and 42/21/2018 dated 08.06.2018
regarding maintenance of books of accounts for additional place of business by a
principal or auctioneer for the purpose of auction of tea, coffee, rubber etc.;

44 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

Circular No. 38/12/2018 dated 26.03.2018 clarifying on issues related to job work
Check list
List of records under GST
RR Sale invoices
RR Purchase invoices
RR Stock Ledger
RR Stock statement
RR Inward and outward register
RR Copies of E-way Bill
RR Copies of Delivery Challan for Job work sent and received back
RR Copies of receipt, refund and payment vouchers
RR Debit and credit note
RR Expenses voucher whether GST is payable under Reverse Charge
RR Quantitative information of opening balance, receipt, supply, goods lost,
stolen, destroyed, written off or disposed of by way of gift or free sample
and the balance of stock including raw materials, finished goods, scrap
and wastage thereof
RR Name and address of all vendors and customers
RR Material issue record, production record and scrap records in case of
Manufacturing Organizations.
Accounts and records to be maintained by Works Contractors:
RR The names and addresses of the persons on whose behalf the works
contract is executed
RR Description, value and quantity (wherever applicable) of goods or
services received for the execution of works contract
RR Description, value and quantity (wherever applicable) of goods or
services utilized in the execution of works contract
RR The details of payment received in respect of each works contract and
RR The names and addresses of suppliers from whom he has received goods
or services
Accounts and records to be maintained by Agents:
RR Particulars of authorization received by him from each principal to
receive or supply goods or services on behalf of such principal separately
RR Particulars including description, value and quantity (wherever applicable)
of goods or services received & Supplied on behalf of every principal

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 GUIDANCE NOTE ON GST AUDIT

RR Details of accounts furnished to every principal and

RR Tax paid on receipts or on supply of goods or services effected on behalf
of every principal.
Godown and warehouse owner or operators, and transporters
RR Transporter - records for all branches of goods transported, delivered,
and stored in transit
RR Warehouse and Godown owner or operator – records of those goods
remain in the warehouse, including details relating to dispatch,
movement, receipt, and disposal of such goods
RR The owner or operator must store the goods so that they can be identified
item wise and owner wise and shall facilitate any physical verification
or inspection.
RR Board resolutions for giving authority to employees/ consultants/
director as the case may to sign the various documents
Multiple location in same state
RR Check whether additional place of business is added in registration
RR Check which place is registered as principle place of business
RR Check documentary evidence for principle place of business and
additional place of business
RR Check whether all documents and records of all places are kept at
principle place of business
RR Cross verify the records with additional place of business
Multiple location in different states
RR Check whether registration in all states is taken or not, if required
RR Check documents for principle place of business of each state specific
registration
RR Check whether all documents of respective states are kept at respective
place or not
Multiple site in same or different states
RR Check whether state specific registration is mandatory or not
RR Check whether all documents of all sites in operation are kept at
principle place of business
Physical copies of the documents
RR Check whether all copies of invoices on which ITC is claimed is available
or not

46 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

RR Check whether all copies of sales invoices are available or not

RR Check whether Advance voucher, payment voucher, refund voucher are
prepared or not
Time period preserving the records
RR Records are required to be maintained for 72 months from the due date
of filing Annual Return
RR Check whether necessary mechanism is available to preserve the records
Electronic data maintenance
RR Check what is the provision for backup of data
RR Check whether required data can be made available in hard or electronic
readable form
Impact in case of merger and acquisition
RR Check whether all records of merged entity should be kept for required
period or not
RR Cancelation of invoice
RR Check whether original copy of invoice is available for verification or not
RR Check whether the invoice is reported in GSTR 1 or not
RR Check whether necessary disclosure in GSTR 1 is done or not
Debit note and credit note
RR Check whether all debit note and credit notes are available or not
RR Check whether corresponding note from customer / vendor is received
or not
RR Check the Original Invoice reference whether mentioned in all debit/
credit notes.
Advance received
RR Check whether separate account is maintained for advance received,
adjusted and balance
RR Check the documentary evidence for receipt and adjustment of advance
Goods used for providing output services
RR Check the documentary evidences for use of goods for provision of
taxable output services

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 47

 Outward Supplies
Supply as defined in section 7, sub-section 1, “all forms of supply of goods or
services or both such as sale, transfer, barter, exchange, license, rental, lease or
disposal made or agreed to be made for a consideration by a person in the course
or furtherance of business;”
As per provisions of Schedule I, some transactions are required to be considered
supply under GST even though there is no consideration being received on such
transactions like transfer of goods to agents, or stock transfer etc.,
In the erstwhile tax regime, we did not have requirement to provide a reconciliation
statement for the tax returns filed and the financial statements, the intent of
the government is to ensure that there is difference in reporting in the financial
statements, direct tax returns and the indirect tax returns and at the same time
ensure that there is no revenue leakage. This has put more responsibility on the
taxpayers as well as the tax professionals.
In GST when we use the term “outward supply” it changes based on the context
of movement of goods or provision of service or receipt of payment before supply
or after supply etc. or based on the related party or unrelated party or supply of
goods or services based on the provisions of the Second Schedule of the CGST Act.
All these cases are explained pictorially for ease of understanding. Basis on it, the
requirements for audit verification and reporting will change.
Whenever there is any transaction related to the sale, a tax invoice is required to
be issued as per the provisions of Section 12, 13, & 14 and in conjunction with the
provisions of section 31 and Rule 46 of the CGST Rules.

48 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

Check list for verification of the outward supplies documents in GST

All the elements of Rule 46 have to be verified for each and every document.
Number of HSN Codes digits have been mentioned on the tax invoices as per
Notification No 12/2017 – Central Tax Dated 28th June 2017.
Verify for any cancellation of tax invoices, as per the current provisions of GST,
there is no provision for cancellation of tax invoices except as per the provisions of
Section 67, Sub-section 12. If there are any cancellation of tax invoices other than
the above said provisions the same has to be classified in the audit findings and
also reported in the audit report.
The tax invoice numbers must be verified if they are unique for each financial
year and in case of projects located in different geographies the same should be
numbered project wise. If the same is not observed, the same should be reported
in the Audit Report as well as in the audit findings for the reasons of missing
numbers across the document series. These numbering series should be verified
with the data filed in the GSTR – 1, Table 13, if there any difference the same
should be reported accordingly.
The most important thing here is on the signatures on the tax invoices, it has to be
signed by the authorized signatories only and not by the authorized representative.
The scope of an authorized representative is defined in section 116, sub-section 2
of the CGST Act.
The item classification has to be vetted as per the item properties in relation to
the Customs Tariff Act. Any change in the item properties can be classified into
a different item and which could result in short recovery of the tax and which
attracts penal provisions as per section 73 and section 74. The rate of interest and
penalty are applicable as per the provisions of Section 51 and Notification No 13 –
Central Tax dated 28th June 2017.
Verify if there is any reverse charge applicable on the outward supplies? If yes,
RR Verify if there are marked separately on the invoice?
RR Are they accounted in a separate ledger?
RR Is there a separate serial number for such tax invoices or who they are
being identified and tracked?
Verify if there are any outward supplies on which taxes are levied over and above
MRP? If yes report them in the audit report and also in the audit workings and
findings.
Confirm that for each and every outward supply there is a corresponding document
with respect to GST? If there are any such missing transactions, report the same
in the audit report and record it in the audit observations and findings documents.

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 GUIDANCE NOTE ON GST AUDIT

Verify if the invoices are signed by the authorized signatories or not?

Verify if all the provisions of Sub-Rule 1 & 2 of Rule 48 are met, if not record it in
the audit observations and findings documents.
Verify if the tax invoices are issued within the stipulated time as per the provisions
of Rule 47 of the CGST Rules, especially for the service providers.
Verify if the valuation on the invoices is done correctly as per the provisions of Rule
25 to Rule 37.
Verify if there are any related parties as per explanation is given in provisions of
section 15 of the CGST Act. If yes, verify if valuation in such cases has arrived
correctly as the provisions of the Central Excise Act are changed where it says cost
plus 10% but in case of GST it is a residuary provision.
Verify if a debit or credit notes are issued, if yes confirm they are issued as per the
provisions of Section 34 of the CGST Act as it is applicable only in case outward
supplies for which the tax invoice issued by the taxpayers and not for the purchase
returns.
In case of zero rated supplies, verify if the exports are happening on the payment
of duties or without payment of duties.
Verify if the bond is executed in case of without payment of duties and ITC is not
claimed as per the process.
Verify if there are any invoices which are issued before the execution of the bond
and exported without payment of duties, report the same in the audit report and
record it in the audit observations and findings documents.
Verify if any input tax credit is taken on the inward supplies related to exports
without payment of duties, if found report the same in the audit report and record
it in the audit observations and findings documents.
Verify if there any refund claims on the exports without payment of duties for
exports if any are pending, report the same in the audit report and record it in the
audit observations and findings documents.
Verify and if possible ascertain the reasons for the refund being held pending or if
there is any mismatch between the data entered in the GSTR - 1 and the icegate
portal, report the same in the audit report and record it in the audit observations
and findings documents.
Verify on all the invoices if place supply is mentioned correctly as per the provisions
of section 10,12, 12, 13 & 14 as per the IGST Act 2017. If there is any difference
report the same in the audit report. Also compute the amount of actual tax liability
along with the applicable interest and penalties if any. Report the same in the
audit report and record it in the audit observations and findings documents.

50 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

Verify if there any deemed exports during the period of the audit, if yes verify if the
tax is levied at 0.10% and reported in the GST Returns correctly.
Verify if there are any Bill To and Ship To transactions, in these transactions, the
place of supply will the location of the principal supplier who has passed on the
lead and not of the party to whom the goods are being shipped.
Verify if there are any export of services, if yes, validate for each and every category
of transaction or each and every transaction satisfies all the conditions specified in
the provisions of Section 2, sub-section 6. If any of the conditions is not met, the
same should be qualified and reported in the audit report.
Verify if any taxes are paid on a provisional basis as the taxpayer is not able
to assess the taxable value or correct classification or tax rate etc.,, If any such
transactions are there, the same should be reported in the Audit report and also
verify the procedures to be followed as per the provisions are followed correctly and
such observations if any should be part of the audit report.
Verify if the tax liability stated in the GST returns is correct and it is in line with
the financial statements. To verify the tax liability as per financial statements and
GST Returns some of the items have to be reduced from the outward supplies as
all transactions on which GST is levied and collected will not be part of the turn
over as per the financial statement.
The tax liability as per GST has to be reconciled with the GST liability as per
the GSTIN’s turnover and the actual liability on the turnover. For this a simple
reconciliation statement can be prepared and the following format can be used
with minimal changes based on the uniqueness of the organization’s business
model and requirements.
Particulars Taxable Amount Tax Amount
Total GST paid as per the financial statement XXXXX XXXXX
Less
GST Liability related to other GSTIN’s XXXX XXXX
GST liability for the state XXXX XXXX
Less: GST Liability on the following
transactions
Advance Receipts - supplies not yet made XXXX XXXX
Reverse Charge - Section 9 (3) XXXX XXXX
Reverse Charge - Section 9 (4) XXXX XXXX
Inter Branch Transfers XXXX XXXX
Job Work - goods not returned within
stipulated time - Section 143 XXXX XXXX

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 GUIDANCE NOTE ON GST AUDIT

GST on Samples XXXX XXXX

GST collected on the late fee, delayed payments XXXX XXXX
Sales Returns - Credit Notes Issued XXXX XXXX
Credit Notes issued for other reasons to
customers XXXX XXXX
Sale of assets XXXX XXXX
Purchase Returns XXXX XXXX
Transfer to Agents - where sales are not
confirmed by agent - Schedule 1 XXXX XXXX
GST liability on the reversal of ITC if supplier
not paid within 180 days XXXX XXXX
GST paid on asset transferred to their GSTIN’s XXXX XXXX
GST collected on employee Benefits - Schedule
1 XXXX XXXX
GST on assets on which input tax credit is
claimed and given as free - Schedule 1 XXXX XXXX
GST collected on Reimbursements from
employees XXXX XXXX
Total GST Liability to be reduced XXXX XXXX
Difference 0 0
Classification of different types of outward supplies

Prepare a reconciliation statement on the actual GST liability for the state reported
and between the various categories of outward supplies as shown. This will help
the audit work to be completed at ease as and when the formats are notified. This
will ensure that data is available in all aspects of the GST Audit.
52 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

Particulars Taxable Amount Tax Amount

Total GST paid as per the financial
statement   XXXXX   XXXXX
Less        
GST Liability related to other GSTIN’s XXXX XXXX
GST liability for the state   XXXX   XXXX
Less        
GST Liability of outward supply of goods   XXXX   XXXX
GST Liability of outward supply of goods   XXXX   XXXX
Difference   0   0
Likewise prepare the reconciliation or statements for each and every category of
outward supplies.
Transaction Reporting for related parties and non-related parties in GST Audit
Valuation is an important aspect of the GST Audit. Valuation determines what
value the taxes are being paid. In case of if the buyer and seller are not related,
then the transaction value is to be considered for the valuation purpose basis on
provisions of Section 15 of the CGST Act.
Similarly, in case of related parties, then the valuation is to be the determined
basis of provisions of Rule 28, 30 & 31.
As per provisions of Rule 28, in case of related parties, the
transaction has to be valued on the basis of the open market
value but the major difference under GST is the definition of the
related party itself. As per GST provisions, one major difference
is, a transaction is said to be related party transaction if “any
person directly or indirectly owns, controls or holds twenty-five
per cent. or more of the outstanding voting stock or shares of
both of them;” and as per the provisions of the Companies Act it
is defined as “a public company in which a director or manager
is a director or holds along with his relatives, more than 2% of
its paid-up share capital;”. The difference is in the controlling stake percentage,
the classification is different so reporting as per CGST Act will be different and
valuation should be done accordingly.
In related party transactions the valuation has to be done in the following manner
/ sequence
i. the open market value,
ii. if not available for any goods or services, then the price of similar good or
services with similar quality and quantity
iii. if not then cost plus 10%
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 53
 GUIDANCE NOTE ON GST AUDIT

iv. if not available then residual method, it shall be determined using

reasonable means consistent with the principles and the general provisions
of section 15 and the provisions of this Chapter
In case of transactions between the distinct parties, valuation can be done at the
90% of the open market value if the said goods being transferred for further supply
and ITC is being availed.
There is a difference between the related party and distinct person in GST, as a
result there is a difference in the valuation process also, the verification in such
cases had to be done carefully and qualified accordingly.
All transactions related to related party transactions have to be verified basis on
the above said provisions and if they are not as per the provisions, the same
reported in the audit report and record it in the audit observations and findings
documents.
Transactions with consideration/without consideration
Under GST, there are some transactions where they are still treated as supply even
though there is no receipt of consideration on such transactions. Transactions
which are required to be qualified as supply are given specifically in the Schedule
I of the CGST Act.

All transactions where there is no consideration received should be identified

accordingly in the GST Audit report and if there are any transactions which do not
qualify, the same should be reported in the GST Audit report.
There is also a debate on the transactions related to amount levied / collected
from employees like mess / food bills collected from them and paid to the vendor
or collection of token amount on the re issue of ID card etc., all such transactions
have to be identified and verified GST is collected on the same and reported in the
GST returns accordingly, if not the same should be reported in the audit report
54 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

and a provision for the non-payment of taxes along with interest has to be provided
in the financial statements. Refer to the ruling provided by the Kerala AAR on the
reimbursement of food expense of employees, where it has clearly said that GST is
applicable on such transactions. Refer to AAR’s ruling from various states on similar
cases and this will give an idea of how the department is working on the same.
If any transactions are found during the verification on which GST is not levied
and are falling under the provision of supply and without consideration, the same
should be reported in the Audit report.
Reconciliation Statements
Many reconciliation statements have to be provided and verified with the financial
statements as they help in identifying if all the transactions are recorded by the
taxpayer correctly and taxes are levied on them accordingly.
Difference in tax liability – consideration is received
Particulars Tax Base CGST SGST IGST
Total GST paid as per the financial
statement XXXXX XXXXX XXXXX XXXXX
GST liability as per GST Audit Report XXXXX XXXXX XXXXX XXXXX
Difference XXXXX XXXXX XXXXX XXXXX
In the above reconciliation statement there are differences, list all transactions
which have caused the differences. It has to be prepared for each tax amount
If the taxpayer is dealing with multiple tax rates within the same tax, then the
statements have to be prepared at the tax rate level as it provides a complete and
clear picture on the differences.
Difference in tax liability – where consideration is not received
Particulars Tax Base CGST SGST IGST
Total GST paid as per the financial
statement XXXXX XXXXX XXXXX XXXXX
GST liability as per GST Audit Report XXXXX XXXXX XXXXX XXXXX
Difference XXXXX XXXXX XXXXX XXXXX
This statement is to be prepared based on Schedule 1 of the CGST Act and all such
transactions on which GST is not levied should be part of the statement.
A simple outward supplies statement can be prepared which will give all the
information and it should be at the transaction level, line level, HSN level with B2B
and B2C Classification. The statement has to be prepared with the help of the IT
team of the taxpayer as we do not have access to the taxpayer’s database and they
may be using different ERP’s or accounting software’s.
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 55
 Input Tax Credit

A. Important Definitions-
“Input Tax Credit”
As per Sec. 2(63) of CGST Act, 2017, “input tax credit” means the credit of “input
tax”;
“Input Tax”
As per Sec. 2(62) of CGST Act, 2017, “input tax” in relation to a registered person,
means the central tax, State tax, integrated tax or Union territory tax charged on
any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section
5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section
9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section
7 of the Union Territory Goods and Services Tax Act, but does not include
the tax paid under the composition levy;
“Input”
As per Sec. (59) of CGST Act, 2017 “input” means any goods other than capital
goods used or intended to be used by a supplier in the course or furtherance of
business;
“Input Service”
As per Sec.2 (60) of CGST Act, 2017 “input service” means any service used or
intended to be used by a supplier in the course or furtherance of business;

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GUIDANCE NOTE ON GST AUDIT

“Capital Goods”
As per Sec. 2(19) of CGST Act, 2017 “capital goods” means goods, the value of which
is capitalized in the books of account of the person claiming the input tax credit and
which are used or intended to be used in the course or furtherance of business;
B. Who can avail the ITC.
As per Sec. 16(1) of CGST Act, 2017, every registered person subject to certain
conditions and restriction is entitled to take credit of input tax charged on any
supply of goods or services or both to him which are used or intended to be used
in the course or furtherance of his business and the said amount shall be credited
to the electronic credit ledger of such person.
C. Conditions and Restrictions for taking ITC
As per Sec. 16(2), no registered person shall be entitled to the credit of any input
tax in respect of any supply of goods or services or both to him unless,––
a. he is in possession of a tax invoice or debit note issued by a supplier
registered under this Act, or such other taxpaying documents as may be
prescribed;
b. he has received the goods or services or both.
c. Explanation.—For the purposes of this clause, it shall be deemed that the
registered person has received the goods where the goods are delivered
by the supplier to a recipient or any other person on the direction of
such registered person, whether acting as an agent or otherwise, before
or during movement of goods, either by way of transfer of documents of
title to goods or otherwise;
d. subject to the provisions of section 41, the tax charged in respect of
such supply has been actually paid to the Government, either in cash or
through utilization of input tax credit admissible in respect of the said
supply; and
e. he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or installments,
the registered person shall be entitled to take credit upon receipt of the last lot or
installment:
Provided further that where a recipient fails to pay to the supplier of goods or
services or both, other than the supplies on which tax is payable on reverse charge
basis, the amount towards the value of supply along with tax payable thereon
within a period of one hundred and eighty days from the date of issue of invoice by
the supplier, an amount equal to the input tax credit availed by
the recipient shall be added to his output tax liability, along with interest thereon,
in such manner as may be prescribed:
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 57
 GUIDANCE NOTE ON GST AUDIT

Provided also that the recipient shall be entitled to avail of the credit of input
taxon payment made by him of the amount towards the value of supply of goods
or services or both along with tax payable thereon.
As per Sec. 16(3) of CGST Act, 2017, Where the registered person has claimed
depreciation on the tax component of the cost of capital goods and plant and
machinery under the provisions of the Income-tax Act, 1961, the input tax credit
on the said tax component shall not be allowed.
Rule 36 of CGST Rules, 2017
Documentary requirements and conditions for claiming input tax credit.-
1. The input tax credit shall be availed by a registered person, including the
Input Service Distributor, on the basis of any of the following documents,
namely,-
a. an invoice issued by the supplier of goods or services or both in
accordance with the provisions of section 31;
b. an invoice issued in accordance with the provisions of clause (f) of
sub-section(3) of section 31, subject to the payment of tax;
c. a debit note issued by a supplier in accordance with the provisions
of section 34;
d. a bill of entry or any similar document prescribed under the Customs
Act, 1962or rules made thereunder for the assessment of integrated
tax on imports;
e. an Input Service Distributor invoice or Input Service Distributor
credit note or any document issued by an Input Service Distributor
in accordance with the provisions of sub-rule (1) of rule 54.
2. Input tax credit shall be availed by a registered person only if all the
applicable particulars as specified in the provisions of Chapter VI are
contained in the said document and the relevant information, as contained
in the said document, is furnished inFORMGSTR-2 by such person.
3. No input tax credit shall be availed by a registered person in respect of
any tax that has been paid in pursuance of any order where any demand
has been confirmed on account of any fraud, willful misstatement or
suppression of facts.
Rule 37 of CGST Rules, 2017
Reversal of input tax credit in the case of non-payment of consideration.-
1. A registered person, who has availed of input tax credit on any inward
supply of goods or services or both, but fails to pay to the supplier thereof,
the value of such supply along with the tax payable thereon, within the
time limit specified in the second proviso to subsection(2) of section 16,

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GUIDANCE NOTE ON GST AUDIT

shall furnish the details of such supply, the amount of value not paid and
the amount of input tax credit availed of proportionate to such amount
not paid to the supplier in FORM GSTR-2 for the month immediately
following the period of one hundred and eighty days from the date of the
issue of the invoice:
Provided that the value of supplies made without consideration as specified
in Schedule I of the said Act shall be deemed to have been paid for the
purposes of the second proviso to sub-section (2) of section 16.
2. The amount of input tax credit referred to in sub-rule (1) shall be added
to the output tax liability of the registered person for the month in which
the details are furnished.
3. The registered person shall be liable to pay interest at the rate notified
under sub-section (1) of section 50 for the period starting from the date of
availing credit on such supplies till the date when the amount added to
the output tax liability, as mentioned in sub-rule (2), is paid.
4. The time limit specified in sub-section (4) of section 16 shall not apply to
a claim for re-availing of any credit, in accordance with the provisions of
the Act or the provisions of this Chapter, that had been reversed earlier.
To summarize,
Following are the conditions and Restrictions prescribed in CGST Act, 2017 and
CGST Rules, 2017, in order to take Input Tax Credit:-
1. Possession of a tax invoice or debit note issued by a supplier registered
under CGST Act, 2017 read with Rule 46 of CGST Rules, 2017.
2. Receipt of the goods or services or both
3. The tax charged in respect of such supply has been actually paid to the
Government subject to provisions of matching concepts.
4. The relevant information, as contained in the document is furnished in
the Form GSTR-2 by Input Tax Credit receiver.
5. The return is furnished under Sec. 39 of CGST Act, 2017.
6. In case the goods against an invoice are received in lots or installments,
credit can be taken upon receipt of the last lot or installment.
7. Payment is made within 180 days from the date of issue of invoice, except
in case of tax is payable under RCM.
8. If payment is not made within 180 days from date of invoice then the
amount of value not paid and proportionate input tax credit availed on
such unpaid amount of value shall be added to output tax liability with
interest at the rate of 18% p.a. as per Sec. 50(1) of CGST Act, 2017.
9. The Interest at the rate of 18% p.a. is payable for the period starting from

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 GUIDANCE NOTE ON GST AUDIT

the date of availing credit on such supplies till the date when the amount
added to the output tax liability
10. Input Tax Credit can be re-taken on payment to supplier. There is no time
limit to claim for re-availing of any credit.
11. No Input Tax credit on Capital goods if the registered person has claimed
depreciation on the tax under the provisions of the Income-tax Act, 1961.
12. No Input Tax Credit is available in respect of any tax that has been paid
in pursuance of any order where any demand has been confirmed on
account of any fraud, willful misstatement or suppression of facts.
13. A registered person has not opted composition levy scheme under Sec. 10
of CGST Act, 2017.
D. Time Limit for availing the Input Tax Credit:
As per Sec. 16(4) of CGST Act, 2017, A registered person shall not be entitled to
take input tax credit in respect of any invoice or debit note for supply of goods or
services or both after the due date of furnishing of the return under section 39 for
the month of September following the end of financial year to which such invoice or
invoice relating to such debit note pertains or furnishing of them relevant annual
return, whichever is earlier.
Thus, time limit for availing the ITC is due date of furnishing of the return under
Section 39 for the month of September following the end of Financial Year or
furnishing of the relevant annual Return, whichever is earlier.
E. Documentary evidences and conditions for availing the Input Tax Credit
Input Tax Credit can be availed on the basis of following documents namely, :-
RR Tax Invoice
RR Debit Note
RR Bill of Entry
RR ISD Invoice
RR ISD Credit note
RR Tax invoice raised under RCM and Proof of payment of tax
Input Tax Credit can be availed only if all particulars are applicable as per respective
rule of CGST Rules are contained in the document on the basis of which input tax
credit is to be availed.
F. Blocked ITC
As per definition of input, input services and capital goods read with Sec. 16(1)
of CGST Act, 2017, Input Tax Credit is allowed on goods and services used in the
course or furtherance of business.
However, there are certain goods and services even if used in the course or
60 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

furtherance of business, in respect of which input tax credit is not admissible to

registered person.
As per Sec. 17 (5) of CGST Act, 2017, Input Tax Credit shall not be available in
respect of the following, namely:—
(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C ) imparting training on driving, flying, navigating such
vehicles or conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery except where an inward
supply of goods or services or both of a particular category is used
by a registered person for making an outward taxable supply of the
same category of goods or services or both or as an element of a
taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where––
(A) he Government notifies the services which are obligatory
for an employer to provide to its employees under any law
for the time being inforce; or
(B) such inward supply of goods or services or both of a
particular category is used by a registered person for
making an outward taxable supply of the same category of
goods or services or both or as part of a taxable composite
or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or
home travel concession;
(c) works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input
service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction
of an immovable property (other than plant or machinery) on his own
account including when such goods or services or both are used in the
course or furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the expression

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 GUIDANCE NOTE ON GST AUDIT

“construction” includes re-construction, renovation, additions or

alterations or repairs to the extent of capitalization, to the said immovable
property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person
exception goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or
free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and
130.
Explanation.––For the purposes of this Chapter and Chapter VI, the
expression “plant and machinery” means apparatus, equipment, and
machinery fixed to earth by foundation or structural support that are
used for making outward supply of goods or services or both and includes
such foundation and structural supports but excludes—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
List of admissible and inadmissible input tax credit:-
Admissible Inadmissible
• Input- • Goods which are capitalized in books of
• Any goods other than capital goods accounts
used in the course or furtherance of • Goods used for effecting exempt supplies
business such as • Goods lost, stolen, destroyed, written
• raw material, off, gifted , provided free of cost,
• goods used in factory, office, • Goods used for construction of an
• mobile phones provided to employees immovable property (land, building or
• stationery, and other consumables, any other civil structure) on own account
• safety material • food and beverages
• goods used in erection commissioning • Motor Vehicles
of plant and machinery which includes • Goods used for personal consumption
apparatus, equipment, machinery, • Goods used for construction of land,
fixed to earth by foundation or building or any other civil structure,
structural support that used for making telecommunication tower, pipeline laid
outward supply and includes such outside the factory.
foundation and structural supports. (if • Tax paid after demand made by
not capitalized) department alleging suppression facts,
fraud, willful misstatement etc.
• Tax paid on detention, seizure on goods
and conveyance in transit.
• Tax paid on goods or conveyance
confiscated.

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GUIDANCE NOTE ON GST AUDIT

Admissible Inadmissible
• Capital Goods- • Goods which are used for effecting taxable
• Goods which are capitalized in the supplies but are not capitalized (Goods
books of accounts of the person taken on high purchase, operational or
claiming the credit and which are used financial lease.
or intended to be used in the course or • Motor Vehicles
furtherance of business • Goods used for effecting exempt supplies
• Furniture, Office Equipments, • Goods lost, stolen, destroyed, written
• Motor Vehicle used for making following off, gifted , provided free of cost,
taxable supplies • Goods used for construction of an
• further supply of such vehicles or immovable property (land, building or
conveyances ; or any other civil structure, telephone
• transportation of passengers tower, pipeline laid outside the factory)
• imparting training on driving, on his own account
flying, navigating such vehicles or • Goods used for personal consumption
conveyances; • Tax paid after demand made by
• for transportation of goods department alleging suppression facts,
• Structures, structural supports fraud, willful misstatement etc.
• Tax paid on detention, seizure on goods
and conveyance in transit.
• Tax paid on goods or conveyance
confiscated.
Input Services- • In respect of Motor vehicles and other
• Any service used or intended to be conveyance except used for following
used by a supplier in the course or effecting taxable supplies-
• further supply of such vehicles or
furtherance of business conveyances; or
• Housekeeping, security, • transportation of passengers
• Marketing, sales Promotion • imparting training on driving, flying,
• Professional consultancy navigating such vehicles or conveyances;
• Technical Consultancy • for transportation of goods
• food and beverages, outdoor catering
• Banking and Financial • beauty treatment,
• Transportation both inward and • health services, cosmetic and plastic
outward surgery
• Credit Rating • except where used for making an
• Works Contract services used for outward taxable supply of the same
category of goods or services;
supply of works contract services
• membership of a club, health and fitness
centre,
• Bus transport to employees, auditors or
others in relation to business
• rent-a-cab, life insurance, health
insurance except where obligatory as
per government notification.
• travel benefits extended to employees on
vacation such as leave or home travel
concession.

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 GUIDANCE NOTE ON GST AUDIT

Admissible Inadmissible
• Works Contract Services for construction
of immovable property even when used in
course or furtherance of business.
• Construction services for construction of
an immovable property on own account
even when used in course or furtherance of
business.
• Services used for effecting taxable supplies
under Composition Levy
• Services used for personal consumption
• Tax on input services where paid after demand
made by department alleging suppression
facts, fraud, willful misstatement etc. under
Sec. 74.
• Tax paid on detention, seizure on goods and
conveyance in transit under Sec. 129.
• Tax paid on goods or conveyance confiscated
under Sec. 130.

G. Input Tax Credit on goods and services partly used for business purpose and partly
used for Other Purpose, or partly used for effecting taxable supplies including zero
rated supplies and partly for effecting exempt supplies
As per Sec. 17(1) of CGST Act, 2017, where the goods or services or both are used
by the registered person partly for the purpose of any business and partly for other
purposes, the amount of credit shall be restricted to so much of the input tax as is
attributable to the purposes of his business.
As per Sec. 17(2) of CGST Act, 2017, where the goods or services or both are used
by the registered person partly for effecting taxable supplies including zero-rated
supplies under this Act or under the Integrated Goods and Services Tax Act and
partly for effecting exempt supplies under the said Acts, the amount of credit shall
be restricted to so much of the input tax as is attributable to the said taxable
supplies including zero-rated supplies.
As per Sec. 17(3) of CGST Act, 2017, the value of exempt supply under sub-section
(2) shall be such as may be prescribed, and shall include supplies on which the
recipient is liable to pay tax on reverse charge basis, transactions in securities, sale
of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
In Rule 42 and Rule 43, provides the manner of reversal of inputs, input services
and capital goods used partly for the purpose of business and partly for other
purpose or used partly for effecting taxable supplies including zero rated supplies
Analysis:
1. If goods or services or both are used partly for the purpose of any business
and partly for other purposes: Credit input tax attributable to the purposes
of his business shall be allowed.
64 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

2. If goods or services or both are used partly for effecting taxable supplies
including zero-rated supplies and partly for effecting exempt supplies :
Credit of the input tax attributable to taxable supplies including zero-
rated supplies shall be allowed.
3. No credit of inputs, input services used exclusively for purpose other
than business or effecting exempt supplies
4. No credit of in-eligible inputs and input services as listed in Sec. 17(5) of
CGST Act, 2017.
5. Entire credit on inputs and input services used exclusively in or in relation
to taxable supplies including zero rated supplies is admissible.

6. Out of common credit, credit attributable to exempt supplies shall be

reversed, calculated as per below:-

Input Tax Credit to be reversed=Common Credit*(Exempted Supplies

during the tax period /total turnover during tax period)

7. Credit attributable to non-business purpose shall be 5% of Common

Credit

8. The amount of common credit and reversal thereof shall be calculated

separately for Central Tax, State Tax and Integrated Tax.

9. The input tax credit determined above shall be calculated finally before
due date for filing the return for the month of September of following year.

10. After final calculation of amount of input tax credit needs to be reversed
is excess than amount of input tax credit reversed during the respective
tax period then, the such excess amount shall be added to the output tax
liability in the month not later than the month of September following the
end of the financial year to which such credit relates

11. The Interest on such excess amount at the rate of 18% per annum as per
Sec.50(1) of CGST Act, 2017 is payable for the period starting from the
first day of April of the succeeding financial year till the date of payment.

12. However, after final calculation of amount of input tax credit needs to
be reversed is less than amount of input tax credit reversed during the
respective tax period then, the such amount of input tax credit reversed
in excess shall be claimed as credit by registered person in his return for
the month not later than the month of September following the end of the
financial year to which such credit relates.
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 GUIDANCE NOTE ON GST AUDIT

H. Manner of reversal of input tax credit on capital goods which are used partly for
effecting taxable supplies including zero rated supplies or partly for business purpose
and partly for other purpose is given in Rule 43 of CGST Rules, 2017.
a. The Amount of input tax in respect of capital goods used exclusively for
non-business or used exclusively for effecting exempt supplies shall not
be allowed and shall not be credited to his electronic credit ledger.
b. The entire amount of input tax in respect of capital goods used exclusive
for effecting taxable supplies and zero rates supplies shall be allowed and
shall be credited to his electronic credit ledger.
c. The Amount of input tax in respect of capital goods used partly for
business purpose and partly for other purpose or partly for effecting
exempt supplies and partly for effecting taxable supplies i.e. common
credit shall be denoted as “A”.
d. The useful life of such capital goods shall be taken as five years from the
date of the invoice for such goods.
e. Where capital goods previously used exclusively for non-business purpose,
but later if used for effecting taxable supplies also. Then amount of input
tax credit on such capital goods shall be taken by reducing the input tax
at the rate of five percentage points for every quarter or part thereof shall
be added to the aggregate value of common input tax credit in respect of
capital goods.
f. The amount of common input tax credit attributable to a tax period on
common capital goods during their useful life shall be calculated as
Common Input Tax Credit/60.
g. The amount of input tax credit attributable to exempt supplies shall be
calculated as Total of input tax on common capital goods attributable to
tax period * Exempt Supply during the tax period/Total Turnover during
the tax period.
h. The amount of input tax credit attributable to exempt supplies shall be
added to output liability.
Formula of calculation of input tax credit to be reversed on common capital
goods:-
Useful life of capital goods shall be taken as five years.
Tc= Input Tax Credit attributable to common capital goods
Tm= Input Tax Credit attributable to tax period= Tc/60.
Tr= Sum total of Tm i.e. input tax credit attributable to tax period on all common

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GUIDANCE NOTE ON GST AUDIT

capital goods.
Te= Tr*E/F
E= Exempt supplies during the tax period
F= Total Turnover during the tax period.
Determination of Value of exempt supply and value of total turnover for
calculation on input tax attributable to common inputs, input services and
capital goods
Exempt Supply
Value of exempt supply includes:-
a. Supplies which attracts nil rate of tax
b. Exempt supplies under CGST Act and IGST Act.
c. Non-taxable supply
d. Supplies on which the recipient is liable to pay tax on reverse charge basis
e. Transactions in securities, sale of land and sale of building.
i. The value of land and building shall be taken as the same as adopted
for the purpose of paying stamp duty;
ii. The value of security shall be taken as one per cent. of the sale value
of such security.
Value of exempt supply excludes:
RR Supply of services having place of supply in Nepal or Bhutan, against
payment in Indian Rupees
RR the value of services by way of accepting deposits, extending loans or
advances in so far as the consideration is represented by way of interest
or discount, except
RR in case of a banking company or a financial institution including a non-
banking
RR financial company, engaged in supplying services by way of accepting
deposits,
RR extending loans or advances;
RR the value of supply of services by way of transportation of goods by a
vessel from the customs station of clearance in India to a place outside
India.

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 GUIDANCE NOTE ON GST AUDIT

Total Turnover:
“Turnover in State” or “turnover in Union territory” includes:-
RR The aggregate value of all taxable supplies made
RR The aggregate exempt supplies made
RR The aggregate value of exports of goods or services or both
“Turnover in State” or “turnover in Union territory” excludes:
RR The value of inward supplies on which tax is payable by a person on
reverse charge basis
RR Central tax, State tax, Union territory tax, integrated tax and cess;
RR The amount of any duty or tax levied under entry 84 of List I of the
Seventh Schedule to the Constitution and entry 51 and 54 of List II of
the said Schedule; (i.e. duty and taxes paid on Non-GST supply)
Where value of exempt supplies and total turnover is not available, then values of
exempt supplies and total turnover available in lase tax period shall be taken.
I. Provisions in respect of supply of capital goods:-
RR In case of supply of capital goods or plant and machinery: an amount
equal to the input tax credit taken on the said capital goods or plant and
machinery reduced by the five percentage points as may be specified
in this behalf or the tax on the transaction value of such capital goods
whichever is higher is payable.
RR Where refractory bricks, moulds and dies, jigs and fixtures are supplied
as scrap, the taxable person may pay tax on the transaction value of
such goods.
RR Input Credit of capital goods can be taken in one installment.
J. Special provisions of Banking and Financial Institution
a. A banking company or a financial institution shall have following two
options:-
i. Reverse the input tax credit attributable to exempt supplies as per
Rule 42 of CGST Rules, 2017 or
ii. Avail 50% of eligible input tax credit that month and rest shall lapse.
b. No credit of tax paid on inputs and input services that are used for non-
business purpose
c. No credit of inadmissible inputs and input services

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GUIDANCE NOTE ON GST AUDIT

d. The option once exercised shall not be withdrawn during the remaining
part of the financial year.
e. Restriction of 50% shall not apply to the tax paid on supplies made by
one registered person to another registered person having the same
Permanent Account Number.
f. Option once exercised shall not be withdrawn during the remaining part
of financial year.

K. Summary of provisions of input tax credit in case of special circumstances :-

Sr.
Provision Compliance
No.
1 Application for registration Can take credit of Input Tax in respect of :
within 30 days from the Inputs held in stock
date of becoming liable for Inputs contained in Semi-Finished/Finished goods
registration held in stock &
Tax invoices issued within 1 year after becoming
liable to pay tax.
2 Voluntary registration Can take credit of Input Tax in respect of :
Inputs held in stock
Inputs contained in Semi-Finished/Finished goods
held in stock
Tax invoices issued within 1 year from the date of
Grant of registration subject to certain conditions.
3 A person who ceases to pay Can take credit of Input Tax in respect of :
tax under Composition levy Inputs held in stock
Inputs contained in Semi-Finished/Finished goods
held in stock
Capital goods(Credit can be reduced by prescribed
percentage points)
Within 1 year from the date of issue of tax invoices
after becoming liable to pay tax
4 Where an exempt supply by Can take credit of Input Tax in respect of :
a registered taxable person Inputs held in stock
becomes a taxable supply Inputs contained in Semi-Finished/Finished goods
held in stock
Capital goods, which are
Exclusively used for such supply
From the date from which such supply become
taxable.

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 GUIDANCE NOTE ON GST AUDIT

Sr.
Provision Compliance
No.
5 In case of sale/merger/ The input tax credit can be transferred to such
demerger/amalgamation/ sold/merged/demerged/amalgamated/leased or
lease or transfer of the transferred business in the manner prescribed.
business with the specific
provision for transfer of
liabilities
6 Registered taxable person He shall pay an amount, by way of debit in the
availing input tax credit electronic credit or cash ledger, equivalent to the
switches over as a taxable credit of input tax in respect of :-
person Inputs held in stock
Inputs contained in Semi-Finished/Finished goods
held in stock
Capital goods(Credit can be reduced by prescribed
percentage points)
Check Points:
1. Eligibility of input tax credit on input, input services and capital goods.
2. Correctness of documents on the basis of which ITC is taken.
3. Payment to supplier of goods and services within 180 days.
4. Reversal of ITC in case of failure to make payment value and taxes within
180 days from date of invoice with appropriate interest.
5. Re-credit of input tax credit reversed earlier due to non-payment of value
and taxes within 180 days from date of invoice.
6. Reversal of input, input services and capital goods used partly for effecting
exempt supplies and partly for effecting taxable supplies including zero
rated supplies.
7. Correctness of determination of value of exempt supply, taxable supply,
zero rated supply and total turnover.
8. Applicability of GST on supply of capital goods
9. Reversal of input tax credit in case where inputs and capital goods sent
on job work are not returned within prescribed time limit
10. Reconciliation of input tax credit taken in GSTR-3B and Input tax Credit
appearing in GSTR-2A.
11. Payment of correct taxes on reverse charge basis and eligibility of input
tax credit paid on taxes paid on reverse charge basis.
12. Eligibility of input tax credit carried forward through Tran-1 form.

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 Reverse Charge Mechanism

Reverse Charge under GST

In the normal course the tax is payable by the supplier of goods and / or services.
However, provisions have been made in the GST Act that in certain cases, the tax
liability is shifted on the recipient of goods and / or services. The advantages of such
provisions are that the Government gets maximum revenue from comparatively
lesser number of tax payers. The relevant provisions are as under –
Definition of Reverse Charge
As per Section 2(98) of the CGST Act “reverse charge” means the liability to pay
tax by the recipient of supply of goods or services or both instead of the supplier of
such goods or services or both under sub-section (3) or sub-section (4) of section
9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods
and Services Tax Act.
As per the Provisions of Section 9(3) of the CGST Act and Section 5(3) of the IGST
Act, the Central or State Government can specify categories of supply of goods
or services or both on which tax shall be paid on Reverse Charge basis. Further
Section 9(4) of the CGST Act has a provision that any supply of goods and or
services by an unregistered supplier to a registered supplier, the tax thereon shall
be paid by the registered recipient.
Thus, criteria for Reverse Charge is twofold –
(a) Specified categories of supplies of goods and services.
(b) Purchase of goods and / or services from Unregistered suppliers.
(a) Reverse Charge on Goods and Services -
i) Reverse Charge on Goods -
Notification No. 4/2017- Central Tax (Rate) dt. 28.06.2017 has notified following
goods in respect of which tax shall be paid by the recipient as per the provisions of
Section 9(3) of the CGST Act –
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 71
 GUIDANCE NOTE ON GST AUDIT

Sr. Tariff Description of

Supplier of goods Recipient of supply
No. Heading supply of goods
1 0801 Cashew nuts, not Agriculturist Any registered
shelled or peeled. person
2 14049010 Bidi wrapper Agriculturist Any registered
leaves (Tendu) person
3 2401 Tobacco leaves Agriculturist Any registered
person
4 5201 Raw Cotton Agriculturist Any registered
person
5 5004 to Silk yarn Any person who Any registered
5006 manufactures silk person
from raw silk or silk
worm, cocoons for
supply of silk yarn
6 -- Supply of lottery. State Government, Lottery distributor or
Union Territory or selling agent.
any local authority.
7 Any Used vehicles, Central Govt. Any Registered
Chapter seized and State Govt. Union person.
confiscated goods, Territory or a local
old and used authority.
goods, waste and
scrap
Definition of Agriculturist –
Section 2(7) of the CGST Act defines “agriculturist” means an individual or a Hindu
Undivided Family who undertakes cultivation of land—
(a) by own labour, or
(b) by the labour of family, or
(c) by servants on wages payable in cash or kind or by hired labour under
personal supervision or the personal supervision of any member of the
family;
Thus, any registered person purchasing these specified goods from the specified
suppliers is required to pay the tax on Reverse Charge.
Checkpoints :
1. Verify purchases of goods.

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GUIDANCE NOTE ON GST AUDIT

2. Verify accounting of goods.

3. Verify payment to supplier of goods.
4. Verify payment of tax as per the provisions of Section 12(3) of the CGST
Act, at the earliest of the following dates –
a) Date of receipt of goods.
b) Date of payment as entered in the books of account of the recipient
or the date on which payment is debited in the bank account,
whichever is earlier.
c) Date immediately following 30 days of the issue of invoice.
d) Date of entry in books of account if not determined under (a) to (c)
above.
5. Verify whether invoice is raised by the Recipient for paying the tax.
6. Verify whether the credit of the tax paid is availed, if eligible or not.
ii) Reverse Charge on Services :
Notification 13/2017 Central Tax (Rate) dt. 28.06.2017 has been issued specifying
following services which are covered under reverse Charge.
(a) Services by Goods Transport Agency who has not paid tax in respect
of transportation of goods to specified persons viz. Factories, Societies,
person registered under GST Act, body Corporate, Partnership firm,
casual taxable person.
(b) Services by an individual Advocate including senior advocate or form of
advocates by way of legal services to any business entity located in the
taxable territory.
(c) Legal Service” means any service provided in relation to advice,
consultancy or assistance in any branch of law, in any manner and
includes representational Services before any court, tribunal or authority.
(d) Services supplied by an arbitral tribunal to a business entity.
(e) Sponsorship services provided to any-body corporate or partnership firm.
(f) Services supplied by the Central Government, State Government, Union
Territory or local authority to business entity (except Postal and courier
service, aircraft service, transport of goods or passengers)
(g) Services supplied by the Central Government, State Government, Union
Territory or local authority by way of renting of immovable property to a
person registered under the CGST Act.

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 GUIDANCE NOTE ON GST AUDIT

(h) Services supplied by a director of a company or a body corporate to the

company or body corporate.
(i) Services supplied by an insurance agent to any person carrying on
insurance business.
(j) Services supplied by a recovery agent to a banking company or a financial
institution or a non-banking financial company.
(k) Services supplied by a person located in non-taxable territory by way
of transportation of goods by vessel from a place outside India upto the
customs station of clearance in India.
(l) Services supplied by an Author, music composer, photographer, artist
or the like by way of transfer or permitting the use or enjoyment of a
copyright covered under clause (a) of sub-section (1) of section 13 of the
Copyright Act, 1957 relating to original literary, dramatic, musical or
artistic works to a publisher, music company, producer or the like.
(m) Supply of services by the members of Overseeing Committee to Reserve
Bank of India.
Checkpoints :
1. Identify which services eligible for payment of tax under RCM are received
by the registered person. All such services should be captured for payment.
E.g. Proper differentiation should be done in Transport or Freight Charges
and Goods Transport Agency Services. Transport / Freight Charges are
exempt from tax, but Goods Transport Agency services are taxable.
2. Verify the process / system of determining liability under RCM. Confirm
that all vendors supplying these specified services are captured in the
working.
3. Check appropriate tax rate has been applied for payment of tax.
4. Check the payment is made by debiting the amount Cash Ledger.
5. Check the tax is paid as per the provisions of Section 13(3) of the CGST
act, as earlier of the following dates –
a. Date of payment as entered in the books of account of the recipient
or the date on which the payment is debited in his book of account,
whichever is earlier, or
b. The date immediately following sixty days from the date of issue of
invoice or any other document, by whatever name called, in lieu
thereof by the supplier.
6. Check in case of supply by associate enterprises, where the supplier of

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GUIDANCE NOTE ON GST AUDIT

service is located outside India, the payment shall be done immediately

after the entry in the books of account of the recipient of supply or the
date of payment whichever is earlier.
7. Check invoice is raised by the recipient for payment of tax.
8. Verify that the recipient has availed the Input Tax Credit in all eligible
cases, where the tax has been paid under RCM.
iii) Reverse Charge on Import of Services –
Definition of Import of Service –
Section 2(11) of the IGST Act defines Import of Services as the supply of any service
where –
(i) The supplier of service is located outside India.
(ii) The recipient of service is located in India and
(iii) The place of supply of service is in India.
Section 5(1) of the IGST Act provides that IGST Tax shall be levied on all inter-state
supplies of goods or services or both, except on the supply of alcoholic liquor for
human consumption.
Notification No. 10/2017 – Integrated Tax (Rate) dt.28.06.2017 covers same
services as per Notification under CGST referred above. In addition, there is an
entry as under –
Sl. Category of supply of services Supplier of Recipient of service
No. service
1 Any service supplied by any Any person Any person located in
person who is located in a located in a non- taxable territory other
non-taxable territory to any taxable territory. than non-taxable online
person other than non-taxable recipient.
person.
In view of this provision, when services are imported by any registered person, he
is liable to pay the tax under Reverse Charge.
Section 7(4) of the IGST Act provides that – Supply of services imported into the
territory of India shall be treated to be a supply of services in the course of inter-
state trade or Commerce. In view of these provision, in case of import of services,
the recipient has to pay IGST tax.
Checkpoints :
1. Verify all foreign exchange remittances pertaining to import of services.
2. Identify the payments which are liable for payment of tax under Reverse
Charge.
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 75
 GUIDANCE NOTE ON GST AUDIT

3. Check the conversion rate which should be as per the generally accepted
accounting principles - e.g. RBI rate for the date of time of supply.
4. Ensure that the tax liability under Reverse charge is discharged after
payment.
5. Determine the Place of Supply of service correctly to ensure correct
payment of tax.
6. Ensure that, if the services are received from Associated Enterprises, the
tax is paid immediately after the date of entry in the books of account of
the recipient or date of payment whichever is earlier.
iv) Reverse Charge for Services provided by Electronic Commerce Operator –
Section 2(45) of the CGST Act defines Electronic Commerce Operator means any
person who owns, operates or manages digital or electronic facility or platform for
electronic commerce.
Notification 17/2017 – Central Tax (Rate) dt. 28th June, 2017 provides that in the
following categories of services, the tax on intra-State supplies shall be paid by the
electronic commerce operator –
(i) services by way of transportation of passengers by a radio –taxi , motor
cab, maxicab and motor cycle ;
(ii) services by way of providing accommodation in hotels, inns, guest houses,
clubs, campsites or other commercial places meant for residential or
lodging purposes, except where the person supplying such service through
electronic commerce operator is liable for registration under sub -section
(1) of section 22 of the said Central Goods and Services Tax Act.
Explanation -
For the purposes of this notification, -
(a) “radio taxi” means a taxi including a radio cab, by whatever name called,
which is in two -way radio communication with a central control office
and is enabled for tracking using Global Positioning System (GPS) or
General Packet Radio Service (GPRS);
(b) “maxicab”, “motorcab” and “motor cycle” shall have the same meanings
as assigned to them respectively in clauses (22), (25) and (26) of section 2
of the Motor Vehicles Act, 1988 (59 of 1988).
(c) Services by way of house-keeping, such as plumbing, carpentering etc,
except where the person supplying such service through electronic
commerce operator is liable for registration under sub-section (1) of
Section 22 of the CGST Act.

76 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

Thus, the normal taxi drivers where the customer directly contacts the taxi driver
and gets the services, are not covered under RCM. However, if the customer
contacts third person who controls the taxi drivers and gets the services, the act
will be covered under RCM and the tax will be payable by the Electronic Commerce
Operator.

Similarly, if the house keeping service provider is not liable for registration and if
such services are obtained through Electronic Commerce Operator, the tax will be
paid by such Electronic Commerce Operator.
v) Services of supply by person in non-taxable territory –
Section 14 of IGST Act makes special provision for payment of tax by supplier
of online database access and retrieval services (OIDAR). It provides that if the
supplier of service is located in non-taxable territory and received by non-taxable
online recipient, the primary responsibility for payment of tax shall be on the
supplier of service. However, if he supplies the services through intermediary or he
has any person representing him in a taxable territory or he appoints any person
as his representative, then he will not be liable for payment of GST. But, the
intermediary or such representative shall be deemed to be receiving such service
from a supplier in non-taxable territory.
Section 2(16) of the IGST Act defines non-taxable online recipient as Government,
Local authority, Governmental authority, Individual and any person non registered
under the GST Act and receiving service in relation to any purpose other than
commerce, industry or any other business or profession located in taxable territory.
B) Purchase of goods and / or services from Unregistered suppliers –
As per Section 9(4) of CGST Act and Section 5(3) of the IGST Act, tax is to be paid
on RCM in respect of purchase of goods /services from unregistered persons.
Notification No.8/2017 (Central Tax) Rate dt. 28.06.2017 exempted purchase of
goods and services from unregistered persons upto a value of `5000/- per day.
Further, as per Notification No. 38/2017-Central tax (Rate)dt. 13.10.2017 and
Notification No. 32/2017 Integrated Tax (Rate) dt. 13.10.2017, all categories of
registered persons are exempted from these provisions without any monetary limit.
This Exemption is in force till 30th June, 2018.
In view of this status, it should be seen what would the status of these provisions
after 30th June, 2018.
Checkpoints –
1. Verify that the tax is paid upto 13.10.2017 in all eligible cases where the
purchase of goods and services exceed the value of `5000/- per day.

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 77

 GUIDANCE NOTE ON GST AUDIT

2. Ensure that there is a mechanism ready to address the situation if these

provisions are introduced after 30th June, 2018.
3. Verify that invoice is raised for payment of tax under reverse charge.
4. Verify that the Tax is paid by debiting the electronic cash ledger.
5. Verify that the Input Tax Credit is availed after payment of tax in eligible
cases.
6. Check the exemptions if any applicable to the service and whether the
same is claimed correctly.
Exemptions for certain services covered under Reverse Charge –
Notification No. 12/2017 – Central Tax (Rate) and Notification No. 9/2017 –
Integrated Tax (Rate) dt.28.06.2017 grant exemption to certain services covered
under Reverse Charge. These exemptions are conditional and the tax payer has
to ensure that the relevant conditions are fulfilled and the exemption is rightly
claimed. The specified services are –
1. Services by a hotel, inn, guest house, club or campsite, by whatever name
called, for residential or lodging purposes, having declared tariff of a unit
of accommodation below one thousand rupees per day or equivalent.
2. Services provided by a goods transport agency, by way of transport in a
goods carriage of -
(a) agricultural produce;
(b) goods, where consideration charged for the transportation of goods
on a consignment transported in a single carriage does not exceed
one thousand five hundred rupees;
(c) goods, where consideration charged for transportation of all such
goods for a single consignee does not exceed rupees seven hundred
and fifty;
(d) milk, salt and food grain including flour, pulses and rice;
(e) organic manure;
(f) newspaper or magazines registered with the Registrar of Newspapers;
(g) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; or
(h) defence or military equipments.
3. Services provided by-
(a) an arbitral tribunal to –

78 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

(i) any person other than a business entity; or

(ii) a business entity with aggregate turnover up to twenty
lakh rupees (ten lakh rupees in the case of special category
states) in the preceding financial year;
(b) a partnership firm of advocates or an individual as an advocate other
than a senior advocate senior advocate, by way of legal services to-
(i) an advocate or partnership firm of advocates providing
legal services;
(ii) any person other than a business entity; or
(iii) a business entity with an aggregate turnover up to twenty
lakh rupees (ten lakh rupees in the case of special category
states) in the preceding financial year;
(c) a senior advocate by way of legal services to-
(i) any person other than a business entity; or
(ii) a business entity with an aggregate turnover up to twenty
lakh rupees (ten lakh rupees in the case of special category
states) in the preceding financial year.
4. Services by way of sponsorship of sporting events organized -
(a) by a national sports federation, or its affiliated federations, where
the participating teams or individuals represent any district, State,
zone or Country;
(b) by Association of Indian Universities, Inter-University Sports Board,
School Games Federation of India, All India Sports Council for the
Deaf, Paralympic Committee of India or Special Olympics Bharat;
(c) by the Central Civil Services Cultural and Sports Board;
(d) as part of national games, by the Indian Olympic Association; or
(e) under the Panchayat Yuva Kreeda Aur Khel Abhiyan Scheme.

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 79

 Return Filing

Returns under GST

The basic features of the return mechanism in GST includes electronic filing of
returns, uploading of invoice level information, auto-population of information
relating to input tax credit from returns of supplier to that of recipient, invoice level
information matching and auto-reversal of input tax credit in case of mismatch.
The returns mechanism is designed to assist the taxpayer to file returns and avail
ITC.
Under GST, a regular taxpayer needs to furnish monthly returns and one annual
return. There are separate returns for a taxpayer registered under the composition
scheme, non-resident taxpayer, taxpayer registered as an Input Service Distributor,
a person liable to deduct or collect the tax (TDS/TCS), a person granted Unique
Identification Number. It is important to note that a taxpayer is NOT required to
file all the types of returns. In fact, taxpayers are required to file returns depending
on the activities they undertake. The GST Council has however recommended to
ease the compliance requirements for small tax payers by allowing taxpayers with
annual aggregate turnover up to `1.5 Crore to file details of outward supplies
in FORM GSTR-1 on a quarterly basis and on monthly basis by taxpayers with
annual aggregate turnover greater than `1.5 Crore. Further, GST Council has
recommended to postpone the date of filing of Forms GSTR-2 and GSTR-3 for all
normal tax payers, irrespective of turnover, till further announcements are made
in this regard.
What is GST Return?
A return is a document containing details of income which a taxpayer is required
to file with the tax administrative authorities. This is used by tax authorities to
calculate tax liability.
Under GST, a registered dealer has to file GST returns that include:
RR Purchases
RR Sales

80 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

GUIDANCE NOTE ON GST AUDIT

RR Output GST (On sales)

RR Input tax credit (GST paid on purchases)
To file GST returns, GST compliant sales and purchase invoices are required.
Who should file GST Returns?
In the GST regime, any regular business has to file three monthly returns and one
annual return. This amounts to 37 returns in a year.
GSTR-1 monthly return filed electronically and other two returns – GSTR 2 & 3
will get auto-populated by deriving information from GSTR-1 filed by your vendors.
There are separate returns required to be filed by special cases such as composition
dealers.
Types of GST Returns
Here is a list of all the returns to be filed as prescribed under the GST Law along
with the due dates.
1.1 Any regular business:
As per the CGST Act (Note: subject to change by Notifications /orders)
Return Form Particulars Interval Due Date
Details of outward supplies of
10th of the next
GSTR-1 taxable goods and/or services Monthly*
month
effected
Details of inward supplies of taxable
15th of the next
GSTR-2 goods and/or services effected Monthly*
month
claiming input tax credit.
Monthly return on the basis of
finalization of details of outward 20th of the next
GSTR-3 Monthly*
supplies and inward supplies along month
with the payment of amount of tax.
31st December
GSTR-9 Annual Return Annually of next financial
year
Provisional return for the months 20th of the next
GSTR-3B Monthly
of July 2017 to June 2018 month
1.2. A dealer opting for composition scheme:
A composition dealer  will enjoy the benefits of lesser returns & compliance along with
payment of taxes at nominal rates. A composition dealer will file only 2 returns:

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 81

 GUIDANCE NOTE ON GST AUDIT

Return Form Particulars Interval Due Date

GSTR-4 Return for compounding Quarterly 18th of the month
taxable person succeeding quarter**
GSTR-9A Annual Return Monthly 31st December of next
financial year
1.3. Returns to be filed by certain specific registered dealers:
Return
Particulars Interval Due Date
Form
Return for Non-Resident
GSTR-5 Monthly 20th of the next month***
foreign taxable person
Return for Non-resident
GSTR-5A persons providing OIDAR Monthly 20th of the next month***
services
Return for Input Service
GSTR-6 Monthly 13th of the next month***
Distributor
Return for authorities
GSTR-7 Monthly 10th of the next month
deducting tax at source.
Details of supplies effected
GSTR-8 through e-commerce operator Monthly 10th of the next month
and the amount of tax collected
Once. When Within three months of
registration is the date of cancellation
GSTR-10 Final Return
cancelled or or date of cancellation
surrendered order, whichever is later.
Details of inward supplies to be 28th of the month
GSTR-11 furnished by a person having Monthly following the month for
UIN and claiming refund which statement is filed
* Registered persons having aggregate turnover of up to `1.5 Crore in the preceding financial
year or the current financial year shall furnish GSTR-1on a quarterly basis.
Other Registered persons having aggregate turnover of more than `1.5 Crore shall
furnish these returns on a monthly basis.
Filing of GSTR-2 and GSTR-3 has been postponed till a further announcement in
this regard is made.
Note: Due dates have not been notified for GSTR-2 and GSTR-3 for any of the
months.
Taxpayer need not file GSTR-2 and GSTR-3 for any of the months from July 2017
until a notification is issued in this regard mentioning the due dates.

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GUIDANCE NOTE ON GST AUDIT

Till such time, Form GSTR-3B is required to be filed by tax payers instead of Form
GSTR-3.
Revision of Returns:
The mechanism of filing of revised returns for any correction of errors/omissions
has been done away with. The rectification of errors/omissions is allowed in the
return for subsequent month(s). However, no rectification is allowed after furnishing
of the return for the month of September following the end of the financial year to
which such details pertain, or furnishing of the relevant annual return, whichever
is earlier.
Interest on Late GST Payment
An interest of 18 percent is levied on the late payment of taxes under the GST
regime. The interest would be levied for the days for which tax was not paid after
the due date. An interest of 24 percent is levied on the wrong availment of ITC
Credit.
Penalty for non-filing of GST Returns
In case a taxpayer does not file his/her return within the due dates, he/she shall
have to pay a late fee of `200/- i.e. `100/- for CGST and `100/- for SGST per day
(up to a maximum of
`5,000/-) from the due date to the date when the returns are actually filed.
Note: In case of GSTR-3B
For the months July to September, 2017, the late fee payable for failure to furnish
the return has been waived completely.
From the month of October 2017 onwards, the GST Council has recommended
that the amount of late fee payable by a taxpayer whose tax liability for that month
is ‘NIL’ is `20/- per day (`10/- per day each under CGST & SGST Acts). However, if
the tax liability for that month is not ‘NIL’, the amount of late fee is `50/- per day
(`25/- per day each under CGST & SGST Acts)
Check points by the Auditor:-
RR Correctness of HSN Code and SAC Code
RR Correctness of GST rates
RR Correctness of taxes applicable on the basis of intra-state supply and
inter-state supply, place of supply for goods and services
RR Whether Output Tax liability has been determined and paid correctly.
RR Details of Supply made under exemption notification/ Outward Supply
RR Details of Supply of goods on approval basis
TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 83
 GUIDANCE NOTE ON GST AUDIT

RR Details of reimbursement excluded from the taxable value where

registered person acted as pure agent
RR Details of supply of capital goods or plant and machinery on which
input tax credit had been availed- Sale of capital goods/vehicle/tools
RR Details of Export sales with payment/ without payment of IGST
RR Details of Debit / Credit notes issued under GST
RR Details of Non GST Purchases- Petrol/Diesel
RR Treatment of canteen recovery /telephone recovery / bus recovery from
employee
RR Whether balance of Cenvat Credit is transferred properly through TRAN
1
RR Details of Education Cess/Secondary Higher Education Cess /Krishi
Kalyan Cess Carry forward in Trans-1
RR Whether interest has been paid correctly in case of delay in payment of
tax
RR Whether refunds are claimed properly Levy on Mixed supply or Composite
supply, Works Contract
RR Value of Supply- Inclusion and Exclusion of supply
RR Delay in payment of taxes along with interest @ 18%
RR Wrong payment of taxes under wrong accounting code
RR Reconciliation of Taxes payable as per GSTR-1, accounts Vs Tax Paid
with GSTR-3B
RR Reconciliation of taxable turnover as per GSTR-1 vs. Turnover as per
accounts within the state
RR Details of Transactions where value of supply is based on valuation
rules- Inter unit/ Depot/ Employee
RR Amortisation in case of Tool supplied by vendor
RR Treatment of nonmoving stock written off
RR Review of Contracts in case of credit notes issued for the discounts
RR Reversal / Payment of Tax in case of Free sample/ free supply
RR Whether Returns are filed on or before due date.
RR Documents issued under GST
RR Reasons for the cancellation of the documents
84 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
 Payment of Taxes
Payment of Taxes
Every registered person is required to compute his tax liability on a monthly basis
by setting off the Input Tax Credit (ITC) against the Outward Tax Liability. If there
is any balance tax liability the same is required to be paid to the government.
There are 3 ledgers prescribed by the government that is required to be maintained
by every tax payer –
1. Electronic Tax Liability Ledger 
The electronic tax liability ledger shows the total tax liability of a registered person
at any point of time. This detail can be accessed on the GST portal of a registered
tax payer
RR Amount of Tax Payable
RR Interest , Late Fee
RR Amount of Tax Payable along with interest on account mismatch of
credit based on provisions of Section 29 or Section 29A or Section 43C
RR Any other amount payable by the taxpayer or directed by the board on
account of any proceedings carried out
RR Tax Deducted at Source
RR Tax Collection at Source
RR Tax Payable under Reverse Charge
RR Amount payable by the department against any interest , refund, penalty,
late fee or any other determined under the proceedings of the Act
RR Balance in Electronic Tax Liability Ledger
2. Electronic Cash Ledger 
An Electronic Cash Ledger will also require to be maintained on the GST portal.
It will show the amount deposited by the tax payer towards discharge of his tax
liability or interest or late fee or penalty any other amounts.
Also, it is now mandatory for businesses making payment for more than `10,000
to do it electronically. 

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 GUIDANCE NOTE ON GST AUDIT

3. Electronic credit ledger 

All the taxes paid on the inputs would be recorded in the electronic credit ledger.
The input tax credit in each of the cases mentioned below, shall also be transferred
to the electronic credit ledger: 
RR ITC available due to the taxes paid under the reverse charge mechanism
shall also be transferred to the electronic credit ledger.
RR ITC available on goods/services used for the business and other purposes
shall only be allowed to the extent applicable for business purposes.
RR ITC available to the branch for the amount of credit transferred by ISD
RR ITC allowed on input held in stock and the semi-finished or finished
goods would be credited to electronic credit ledger if the taxpayer applies
for registration within 30 days of becoming liable to pay tax.
RR ITC available on the input held in stock and semi-finished or finished
goods by a taxpayer in the composition scheme converting to a normal
taxpayer shall be transferred to electronic credit ledger.
All the payments under GST have to be made by either using the input tax credit
available in the electronic credit ledger or through the electronic cash ledger.
Utilizing ITC for the fulfillment of Tax liability:
IGST: After the IGST input tax credit is used for payment of IGST then the remaining ITC
can be used to pay tax liability under CGST and SGST.
CGST: The CGST input tax credit cannot be used to pay the SGST liability but can be used
to pay the liability under CGST.
SGST: The SGST input tax credit cannot be used to pay the CGST liability but can be used
to pay the liability under CGST.
Check points by the Auditor:
RR Whether all the payments were made within due date
RR In case of delayed payment whether the interest has be paid
RR Is there any payment made under wrong account head
RR Refund claim filed if any for payment under wrong account head
RR Reversal of Input tax credit shown in the Electronic Credit Ledger
RR Reconciliation of cash ledger, credit ledger and liability ledger with their
books of accounts.
RR Whether all the reconciliation entries should be passed before the year end.
RR Effect of debit note, credit note, rate difference, discount, etc also to be
reconciled.

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 Export of Goods and Services
Export of Goods and Services
Section 2(5) of the IGST Act defines “export of goods” means taking goods out of
India to a place outside India.
Section 2(6) of the IGST Act defines “export of services” means the supply of any
service when,–
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service
in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely
establishments of a distinct person in accordance with Explanation 1 in
section 8;
Zero Rated Supply
As per the GST Act, export of goods and Services supplied to other countries and
supplies to a unit located in Special Economic Zone or to a developer of SEZ are
considered as Zero Rated. Concept of zero rated supplies of goods and services has
following objectives –
(a) Taxes paid on supplies which are Zero Rated are refunded.
(b) Input Tax credit on inputs, input services and capital goods used in such
supplies is allowed.
(c) When the supplies are made without payment of tax, the taxes paid on the
inputs or input services – i.e. the unutilized input tax credit is refunded.
Thus, to qualify any transaction to be considered as Export of Goods, it must carry
the goods outside the territory of India. If the goods are not physically moving out
of territory of India, the transaction cannot be considered as Export of goods, even
if the payment is received in foreign exchange.

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 GUIDANCE NOTE ON GST AUDIT

Checkpoints in Export of Goods and Services–

1. Verify Letter of Undertaking (LUT) is executed before exporting the goods
without payment of tax.
2. If the export is done under claim of rebate, tax should be properly paid
and shown in the monthly returns.
3. The Tax Invoice and Shipping bill should have appropriate remark as to
whether the export is under LUT or On payment of tax.
4. The export documents should also have appropriate remarks if the export
is against fulfillment of any export obligation e.g. Claim of Duty Drawback,
Advance Authorization, EPCG obligation, MEIS etc.
5. Shipping Bill details should be carefully entered in the GSTR-1 return.
Otherwise, due to mis-matching, the refund will not be processed.
6. In case of Services, instead of paying tax on services, the service provider
can claim Refund of Input Tax Credit as per the provisions of Section 54
of CGST Act. Verify which option is exercised by the assessee.

88 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 Import of Goods and Services
Import of Goods and Services –
Definition of Import of Goods - Section 2(10) of the IGST Act, defines import of
goods as bringing goods into India from a place outside India.
Import of Services already dealt with under Reverse Charge Mechanism.
For import of goods, instead of erstwhile CVD, IGST is charged and input tax credit
is allowed of such IGST paid.
Checkpoints –
1. Check the IGST paid, Value declared on the Bill of Entry, taxes charged
etc.
2. In case of High Seas sale, the tax is paid on the value of the buyer clearing
the consignment. CBEC Circular No. 33/2017 – Customs dt. 1st August,
2017 clarified that in case of High Seas Sale the tax should be paid only
once at the time of importation.
3. If the import is under any Export Promotion Scheme, the Bill of entry
should have appropriate remarks on the same.
4. Check the credit is availed of IGST paid on all eligible cases.
5. As per proviso to Sec. 5 of IGST Act, 2017, the integrated tax on goods
imported into India shall be levied and collected in accordance with the
provisions of section 3 of the Customs Tariff Act, 1975 on the value as
determined under the said Act at the point when duties of customs are
levied on the said goods under section 12 of the Customs Act, 1962.
Therefore provisions of RCM are not applicable to import of goods.

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 89

 Job Work

Job Work
Job work means outsourcing of manufacturing activities for completion of a product
beyond the premises of the principal manufacturer. The principal manufacturer
gets the manufacturing facilities through job worker to meet requirement of
customers. Job work is one of the most cost effective ways to get the finished goods
without any investment on plant and machinery for manufacturing process.
Meaning of Job work in Pre-GST era:
In pre-GST era Job Work was carried as per Notification No.214/86-CE and
defined “Job Work” means processing or working upon of raw materials or semi-
finished goods supplied to the job worker, so as to complete a part or of the process
resulting in the manufacture or finishing of an article or any operation which is
essential for the aforesaid process.
Meaning of Job work under GST law:
Section 2 (68) of CGST Act, 2017, “Job work” means any treatment or process
undertaken by a person on goods belonging to another registered person and
expression “job worker” shall be constructed accordingly.
For example, big shoe manufacturers (principal) send out the half-made shoes
(upper part) to smaller manufacturers (job worker) to fit in the soles. The job
workers send back the shoes to the principal manufacturer.
Service classification for manufacturing services on physical inputs (goods) owned
by others (job work) is 9988.
The registered person on whose goods (inputs or capital goods) job work is
performed is called the “Principal” for the purpose of section 143 of the CGST Act.
The principal must be a registered taxable person under Section 25 of the CGST
Act, 2017. The person who under takes to carry job working of another person is
called “job worker”.
The transaction between principal and job worker is fully covered under scope
of supply and GST is payable thereon. But there is exception in terms of Section

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GUIDANCE NOTE ON GST AUDIT

143(1) of the CGST Act, 2017 prescribed that registered person can send any
inputs or capital goods, without payment of tax, to a Job worker for job work and
there subsequently send to another job worker and likewise.
Facility of Job Working:
Section 143(1) of CGST Act, 2017, the inputs and capital goods can be sent for job
work and Section 19 (7) of CGST Act, 2017, Mould and dies, jigs and fixtures, or
tools sent out to a job worker for job work.
Explanation: For purposes of job work, input includes intermediate goods arising
from any treatment or process carried out on the inputs by the principal or the job
worker.
Concessional Rate of 5% for Certain Job work
As per Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-
06-2017, effective from 01-07-2017 as amended from time to time.
Services by way of job work in relation to
1. Printing of Newspapers
2. Textile and textile products falling under chapters 50 to 63 in the First
schedule to the Customs Tariff Act, 1975. Thus, from 22-08-2017, job
work of garments will also be subject to GST @5%.
3. All products falling under chapter 71 of Customs Tariff Act [Pearls,
precious, and semi-precious stones, precious metals (like gold, silver,
platinum) and their Articles, imitation jewellery, coin etc.]
4. Printing of Books, journals and periodicals.
5. Printing of all goods falling under Chapter 48 or 49 which attracts GST
rate of 5% or Nil.
6. All foods and food products falling under chapters 1 to 22 of Customs
Tariff Act [inserted w.e.f. 13-10-2017]
7. Processing of Hides, skins and leather falling under chapter 41 in the
First schedule to the Customs Tariff Act, 1975.
8. All products falling under Chapter 23 of Customs Tariff Act [residues and
waste from food industries, prepared animal fodder] except dog and cat
food put for retail sale [inserted w.e.f. 13-10-2017].
9. Manufacture of clay bricks falling under Tariff item 6901 00 10 [inserted
w.e.f. 13-10-2017
10. Manufacturing of clay bricks falling under tariff item 6901 00 10 [inserted
w.e.f. 13-10-2017
11. Manufacture of Handicraft goods as defined in Notification No. 32/2017-
CT dated 15-09-2017 [inserted w.e.f. 15-11-2017]

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 GUIDANCE NOTE ON GST AUDIT

Job work of Manufacture of Umbrella

GST rate inrespect of job work of manufacture of umbrella is 12% [(6% CGST and
6% SGST)]w.e.f. 13.10.2017 Notification No. 11/2017 CT (Rate) and 8/2017 IT
(Rate)both dated 28.06.2017 amended we.f.13.10.2017
Job work procedure:
Section 143(1) of CGST Act, provides that a registered person (principal) may under
prescribed with due intimation to GST officer and subject to such conditions as
may be prescribe ,send inputs or capital goods , without payment of tax, to a Job
worker for Job work and if required, from there subsequently send to another Job
worker and so on. Subsequently, on completion of the job work (by the last job
worker), the principal shall bring back the goods to his place of business or supply(
including export) the same directly from the place of business / premises of the
job worker within one year in case of inputs or within three years in case of capital
goods ( except moulds and dies, jigs and fixtures or tools).
Responsibility of the Principal manufacturer on job working:
Section 143(1) (a) and (b) of CGST Act, 2017 prescribed that principal manufacturer
shall comply the following responsibilities:
(a) bring back inputs, after completion of job work or otherwise, or capital
goods, other than moulds and dies, jigs and fixtures, or tools, within one
year and three years, respectively, of their being sent out, to any of his
place of business, without payment of tax;
(b) supply such inputs, after completion of job work or otherwise, or capital
goods, other than moulds and dies, jigs and fixtures, or tools, within one
year and three years, respectively, of their being sent out from the place
of business of a job worker on payment of tax within India, or with or
without payment of tax for export, as the case may be.
Job worker’s place -additional place of business:
In order to comply the provisions of Section 143(1) (b) of CGST Act, the principal
manufacturer has to declare the job worker premise as additional place of business
because after the completion of job work of goods, instead of bringing back job
work goods into his own premises, he can directly supply such goods to customers
either payment of GST or without payment of GST for export of goods. The principal
manufacturer does not require to declare additional place of business in a case –
(i) where the job worker is registered under section 25; or
(ii) where the principal is engaged in the supply of such goods as may be
notified by the Commissioner.
Section 143(2) of CGST Act, prescribed that the responsibility for keeping proper
accounts for the inputs or capital goods sent for job work lies with the principal.
92 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

GST shall be payable by the principal manufacturer on “Deemed Supply” in the

following non-compliances:
Section 143 (3) Where the inputs sent for job work are not received back by the
principal after completion of job work or otherwise in accordance with the provisions
of clause (a) of sub-section (1) or are not supplied from the place of business of the
job worker in accordance with the provisions of clause (b) of sub-section (1) within
a period of one year of their being sent out, it shall be deemed that such inputs had
been supplied by the principal to the job worker on the day when the said inputs
were sent out.
Section 143 (4) Where the capital goods, other than moulds and dies, jigs and
fixtures, or tools, sent for job work are not received back by the principal in
accordance with the provisions of clause (a) of sub-section (1) or are not supplied
from the place of business of the job worker in accordance with the provisions of
clause (b) of sub-section (1) within a period of three years of their being sent out, it
shall be deemed that such capital goods had been supplied by the principal to the
job worker on the day when the said capital good sent out.
Special provisions Job work relating to moulds and dies, jigs and fixtures, or tools:
Section 19(7) of CGST Act, specified that time limit of returning goods after Job
work within one / three years is not applicable in case moulds and dies, jigs and
fixtures, or tools sent out a job worker for job work. The job worker can be retained
at place of job work. The further disposal of these goods as scrap liable for payment
of GST by Job worker if he is registered otherwise principal has to pay GST on sale
of such scrap.
Documents for movement of inputs and Capital goods to Job worker:
Rule 55 (1) (c) of CGST Rules, 2017 provides that for the purpose of transportation
of goods for job work, the principal manufacturer may issue a delivery challan,
serially numbered not exceeding sixteen characters, in one or multiple series, in
lieu of invoice at the time of removal of goods for transportation , containing the
following details , namely :-
1. date and number of the delivery challan;
2. name, address and Goods and Services Tax Identification Number of the
consigner, if registered;
3. name, address and Goods and Services Tax Identification Number or
Unique Identity Number of the consignee, if registered;
4. Harmonized System of Nomenclature code and description of goods;
5. quantity (provisional, where the exact quantity being supplied is not
known);
6. taxable value;

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 GUIDANCE NOTE ON GST AUDIT

7. tax rate and tax amount – central tax, State tax, integrated tax, Union
territory tax or cess, where the transportation is for supply to the
consignee;
8. place of supply, in case of inter- State movement; and
9. signature.
Sub-rule (2) of Rules 55, the delivery Challan shall be prepared in triplicate, in
case of supply of goods (a) Original for Consignee, (b) Duplicate for transporter and
(c) Triplicate for consigner.
Taking input tax credit in respect of inputs and capital goods sent for job work:
In terms of Section 19 (1) and 19(4) of CGST Act, the principal shall, subject to
such conditions and restrictions as may be prescribed, be allowed to take credit of
input tax on inputs and capital goods sent to a job worker for job work.
Further, as per Section 19(2) and 19(5) of the CGST Act, the principal shall be
entitled to take credit of input tax on inputs and capital goods, even both are
directly sent to a job worker for job work without their being first brought to his
place of business.
Section 19 (3) of CGST Act, where the inputs sent for job work are not received
back by the principal after completion of job work or otherwise or are not supplied
from the place of business of the job worker in accordance with clause (a) or clause
(b) of sub-section (1) of section 143 within one year of being sent out, it shall be
deemed that such inputs had been supplied by the principal to the job worker on
the day when the said inputs were sent out:
Provided that where the inputs are sent directly to a job worker, the period of one
year shall be counted from the date of receipt of inputs by the job worker.
Section 19 (6) of CGST Act, where the capital goods sent for job work are not
received back by the principal within a period of three years of being sent out, it
shall be deemed that such capital goods had been supplied by the principal to the
job worker on the day when the said capital goods were sent out:
Provided that where the capital goods are sent directly to a job worker, the period
of three years shall be counted from the date of receipt of capital goods by the job
worker
Conditions and restrictions in respect of inputs and capital goods sent to the job-worker:
Rule 45 of CGST Rules, 2017 provides conditions and restrictions in respect of
inputs and capital goods sent to the job worker and the sub-rules as under
(1) The inputs, semi – finished goods or capital goods shall be sent to the job
worker under the cover of a challan issued by the principal, including
where such goods are sent directly to a job-worker.

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GUIDANCE NOTE ON GST AUDIT

(2) The challan issued by the principal to the job worker shall contain the
details specified in rule 55.
(3) The details of challans in respect of goods dispatched to a job worker
or received from a job worker or sent from one job worker to another
during a quarter shall be included in FORM GST ITC-04 furnished for
that period on or before the twenty- fifth day of the month succeeding the
said quarter.
(4) Where the inputs or capital goods are not returned to the principal within
the time stipulated in section 143, it shall be deemed that such inputs
or capital goods had been supplied by the principal to the job worker on
the day when the said inputs or capital goods were sent out and the said
supply shall be declared in FORM GSTR-1and the principal shall be liable
to pay the tax along with applicable interest.
Disposal of scrap and waste after job working:
Section 143(5) of CGST Act, specified that , Notwithstanding anything contained
in sub-sections (1) and (2), any waste and scrap generated during the job work
may be supplied by the job worker directly from his place of business on payment
of tax, if such job worker is registered, or by the principal, if the job worker is not
registered.
Levy and Collection of Tax on supply of services by Job worker:
The concept of supply has been adopted to levy tax in place of manufacture of
excisable goods and supply of taxable services. Section 7 of CGST Act, for the
purpose of expression of “Supply” includes as specified at sub-section (d) that “the
activities to be treated as supply of goods or supply of services as referred to in
Schedule II”.
Schedule II of Section 7 provides the activities to be treated as supply of goods or
supply of services and schedule II (3) any treatment or process which is applied to
another person’s goods is a supply of services.
Thus, Job work process has carried by the Job worker on behalf of the principal
and will attract GST on job work Charges, in case of threshold limit of `20 lakh
of aggregate turnover exceeds in a financial year of a job worker. If the aggregate
turnover exceeds the threshold limit the job worker would be required to obtain
registration under section 25.
Further, the value of goods or services used by the job worker for carrying out
the job work will be included in the value of services supplied by the job worker.
After completion of job work, if the goods directly supply to the customers from
the premises of the job worker , the value of such supply will be included in the
aggregate turnover of the principal.
It is to be noted that in the erstwhile Central Excise and Service Tax provisions

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 GUIDANCE NOTE ON GST AUDIT

where job work charges or supply of services are subject to service tax only, if the
process carried by job worker does not amount to manufacture.
Board clarification on various provisions related to job work:
Further, the Board of Indirect Taxes and Customs vide its Circular No.38/ 12
/2018 dated 26’th March’2018 has clarified the various issues have been raised
by taxpayers regarding the procedures to be followed for job work and the related
compliances requirement for the principal and the job worker. The gist of the said
circular with various procedures to comply legal requirements for job work has
been summarized as under:
1. Scope / ambit of job work:
The job worker is expected to work on the goods sent by the principal.
Whether the activity is covered within the scope of job work or not would
have to be determined on the basis of facts and circumstances of each
case. Further, it is clarified that the job worker, in addition to the goods
received from the principal, can use his own goods for providing the
services of job work.
2. Requirement of registration for the principal / job worker :
(4) Where the inputs or capital goods are not returned to the principal
within the time stipulated in section 143, it shall be deemed that such
inputs or capital goods had been supplied by the principal to the job
worker on the day when the said inputs or capital goods were sent out
and the said supply shall be declared in FORM GSTR-1and the principal
shall be liable to pay the tax along with applicable interest.
The provisions of section 143 of the CGST Act are applicable to a registered
person and it is only a registered person can send the goods for job work
under said provisions. It is choice of registered person to avail or not to
avail of the benefit of these special provisions of job work.
With regard to registration of job worker , when the job worker and principal
are located in the same State in that case job worker is required to take
registration only if his aggregate turnover in a financial year has exceeded
the threshold limit of registration. Where the principal and the job worker
are located in different States, the requirement of registration flows from
clause (i) of section 24 of the CGST Act which provides for compulsory
registration any inter-State supply of taxable services irrespective of
threshold limit of registration. However, exemption from mandatory
registration has granted vide Notification No. 10/2017- Integrated Tax
dated 13.10.2017 in case of inter-State of supply of services. Hence, a job
worker is required to take registration only in cases where his aggregate
turnover, to be computed on all India basis, in a financial year exceeds

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GUIDANCE NOTE ON GST AUDIT

the threshold limit regardless of whether the principal and the job worker
are located in the same State or in different States.
3. Documents required for movement of goods for Job working :
(i) By the Principal to job worker –
The principal shall move goods to job worker under cover of challan in
terms of rules 45 and 55 of the CGST Rules. The challan meant for job
work shall be prepared in triplicate. Two copies of the challan may be sent
to the job worker along with the goods. The job worker should send back
one copy of the said challan to the principal along with the processed
goods on completion of the job work. The FORM GST ITC-04 will serve as
the intimation as envisaged under section 143 of the CGST Act, 2017.
(ii) From one job worker to another job worker :
The goods may move under cover of challan issued either by the principal
or the job worker. Alternatively, the challan issued by the principal may
be endorsed by the job worker indicating the quantity and description of
goods being sent.
(iii) From Job worker to the principal:
The job worker should send one copy of the challan received by him from
the principal while retuning the goods to the principal after carrying out
the job work.
(iv) From supplier to the job worker:
As per instruction of the principal , the supplier may move goods from
his premises to job worker premises with a copy of the invoice issued by
the supplier in the name the principal as buyer and job worker ‘s name
and address should be mentioned as the consignee, in terms of rule 46(o)
of the CGST Rules. The principal shall issue the challan under rule 45
of the CGST Rules and send the same to the job worker directly. In case
of import of goods by the principal, after customs clearances of imported
goods move directly from Customs station of import to premises of job
worker with a copy of Bill of Entry and the principal shall issue challan
under rule 45 of the CGST Rules and the challan send directly to the job
worker.
(v) In piecemeal return by the job worker:
After completion of job work, if the piecemeal quantities are return by the
job worker to another job worker or to the principal, the challan issued
originally by the principal cannot be endorsed and a fresh challan is
required to be issued by the job worker.
(vi) Submission of intimation:
It is clarified that it is the responsibility of the principal to include the
details of all the challan relating to goods sent by him to one or more
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 GUIDANCE NOTE ON GST AUDIT

job worker or from one job worker to another and its return therefrom.
The FORM GST ITC-04 will serve as the intimation as envisaged under
section 143 of the CGST Act.
4. Liability to issue invoice, time of supply and value of supply clearance from the job
worker premises / place of business:
(i) Supply of job work services:
The job worker, as a supplier of services, is liable to pay GST, if he is
liable to be registered under section 25 of the CGST Act. He shall issue
an invoice at the time of supply of the services as determined in terms
of section 13 read with section 31 of the CGST Act. The value of services
would be determined in terms of section 15 of the CGST Act and would
include not only the service charges but also the value of any goods or
services used by him for supplying the job work services, if recovered
from the principal.
It is clarified that the value of moulds and dies, jigs and fixtures or tools
provided by the principal may not be included in the value of job work
services provided its value has been factored in the price for the supply of
such services by the job worker.
(ii) Supply of goods by the principal:
Since the supply is being made by the principal, it is clarified that the
time, value and place of supply would have to be determined in the hands
of the principal irrespective of the location of the job worker’s place of
business/ premises. Further, the invoice would have to be issued by the
principal. It is also clarified that in case of exports directly from the job
worker’s place of business / premises, the LUT or bond, as the case may
be, shall be executed by the principal.
(iii) Supply of waste and scrap generated during the job work:
The waste and scrap generated during the job work may be supplied by
the registered job worker directly from the place of business or by the
principal if job worker is not registered under GST.
5. Violation of conditions laid down in section 143:
As per provisions contained in section 143 of the CGST Act, If the inputs or capital
goods are neither returned to the principal nor supplied from the job worker
premises within one year in case of inputs and three years in case of capital goods,
the principal would issue an invoice for the same, pay GST and declare such
supplies in his return for the particular month. If such goods are returned by
the job worker after stipulated time, the same shall be treated as supply and job
worker is liable to pay GST if the job worker not registered in that case principal
have to pay GST on reverse charge basis as per section 9(4) of the CGST Act.
However, the said provision has been kept in abeyance till June, 2018. Further,
98 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
GUIDANCE NOTE ON GST AUDIT

there is no requirement of returning back or supplying the goods from the job
worker’s premises in case of moulds, dies, jigs, tools and fixtures are concerned.
6. E-Way Bill movement of goods for job work:
An e-way bill is required to be generated by every registered person causes movement
of goods of consignment value exceeding fifty thousand rupees. However, for inter-
State movement of goods e-way bill shall be generated either the principal or by the
registered job worker irrespective of the value of the consignment.
7. Availability of input tax credit by the principal or job worker:
It is clarified that, in view of the provisions contained in clause (b) of sub-section
(2) of section 16 of the CGST Act, the input tax credit would be available to the
principal, irrespective of the fact whether the inputs or capital goods are received
by the principal and then sent to the job worker’s place of business, without being
brought to the premises of the principal. It is also clarified that the job worker is
also eligible to avail ITC on inputs, etc. used by him in supplying the job work
services if he is registered under GST.
Check points by the Auditor:
RR Whether unregistered job workers place is added in registration as
additional place of business.
RR Is GST on RCM paid for all job work charges for the job work charges
paid to unregistered job worker upto 13.10.2017
RR Whether job work goods are received back within 180 days which are
disclosed in the Trans-1 against the stock lying at job workers end.
RR If the job work material is not received within specified time limit ,
whether GST is paid on the same by treating the same as supply.
RR Valuation in case of job work for the related party
RR Clearance of material directly from job workers premises
RR Closure of the delivery challans in time limit 1 year for RM and 3 year
for capital goods.
RR Proper filing of ITC-04 on due date
RR Whether Scrap generated at job workers premises is brought back or
cleared from the job worker premises on payment of GST.
RR E way bill for the job work material sent through delivery challan
RR Job work register showing the outward, inward and balance quantity of
materials, mould, tools and capital assets.

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 Input Service Distributor

As per Section 2(61) of CGST Act, 2017, “Input Service Distributor” means an office

of the supplier of goods or services or both which receives tax invoices issued under
section 31 towards the receipt of input services and issues a prescribed document
for the purposes of distributing the credit of central tax, State tax, integrated tax
or Union territory tax paid on the said services to a supplier of taxable goods or
services or both having the same Permanent Account Number as that of the said
office
It is important to note that the ISD mechanism is meant only for distributing the
credit on common invoices pertaining to input services only and not goods (inputs
or capital goods).
Who is an Input service distributor (ISD) under GST?
An Input service distributor (ISD) is a business which receives invoices for
services used by its branches. It distributes the tax paid, to such branches on
a proportional basis by issuing an ISD invoice.
The branches can have different GSTINs but must have the same PAN as that of
ISD.
2. Let’s understand with an example.
Head office  of ABC limited is located at Bangalore having branches at
Chennai, Mumbai and Kolkata. The head office incurred annual software
maintenance expense(service received) on behalf of all its branches and received
the invoice for the same. Since software is used by all its branches, the input
tax credit of entire services cannot be claimed at Bangalore. The same has to be
distributed  to all the three locations. Here, the Head office at Bangalore is the
Input Service Distributor.
2. Situations where ISD is not applicable
ISD cannot distribute the input tax credit :
RR paid on Inputs e.g. Raw materials and capital goods e.g. Machine
purchased
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RR to outsourced manufacturers or service providers.

3. Purpose of registering as ISD
The concept of ISD is a facility made available to business having a large share
of common expenditure and billing/payment is done from a centralized location.
The mechanism is meant to simplify the credit taking process for entities and the
facility is meant to strengthen the seamless flow of credit under GST.
4. Insight on ISD under GST regime
Point of Difference GST Regime
1.  Who can be Input service An office of the supplier of goods and/or services
distributor?
2.  Document based on whichReceives tax invoices issued by supplier towards
credit can be distributed receipt of input services
3. How to distribute credit?
By issuing an ISD invoice for the purposes of
distributing to a supplier of taxable goods and/or
services having the same PAN as that of the office
referred to above
4. Type of tax credit that The credit of CGST (SGST in State Acts) and/or
can be distributed IGST paid on the said services
5. To whom can it be To supplier having the same PAN. i.e., credit cannot
distributed? be distributed to outsourced manufacturers or
service providers.
Thus, on looking into the highlighted differences between the two regimes,
distribution of credit is restricted to office having the same PAN. The reason could
be due to the shift of taxable event from manufacture to supply. The tax liability
would arise at the time of supply which would be ultimately paid by ISD on the
utilization of available input tax credit.
5. Conditions to be fulfilled by ISD
Registration: Input Service Distributor has to compulsorily register as “ISD” apart
from its registration as a normal taxpayer under the Act, wherein he has to specify
under serial number 14 of the REG-01 form as an ISD. Only then he shall be able
to distribute the credit to the recipients.
Invoicing:  ISD can distribute the amount of tax credit to recipients as earlier
stated by issuing an ISD invoice
Returns: Amount of tax credit distributed should not exceed the amount of tax
credit available with the ISD as at the end of a relevant month to be filed in  GSTR-
6 by 13th* of the succeeding month by ISD.

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 GUIDANCE NOTE ON GST AUDIT

The recipient of the tax credit can view the tax credit so distributed by ISD in GSTR-
2A  that is auto-populated and in turn, can claim the same by filing GSTR-2.
An ISD need not file annual returns as ISD.
Distribution of  Input Tax credit:  The credit of tax paid under reverse charge
mechanism is not available for distribution to the recipients. So, the ISD has to
utilize such credit only as a normal taxpayer.
1)  The tax credit available against any specific input services used entirely by
one of the recipients can be allocated only to that recipient for utilization
of such credit and not to other recipients.
2) The tax credit available against the input services used commonly by more
than one recipients of the ISD shall be allocated to those recipients on a
proportionate basis in the ratio of the turnover of all such recipients that
are operational during the year
3) The tax credit available against the input services used commonly by all the
recipients of the ISD shall be allocated to all the recipients on a
proportionate basis in the ratio of the turnover of all the recipients that
are operational during the year.
6. Recovery procedure for wrongful distribution of credit by ISD
GST Act provides that the following shall be deemed to be inappropriate distribution
of tax credit by Input Service Distributor:
RR credit distributed to all or any recipient in excess of the amount available
for distribution
RR distributed in an inappropriate ratio to all or any recipient
RR distributed in excess to what a supplier is entitled to and shall be
recovered from such recipient(s) along with interest and the provisions
of ‘Demand and Recovery’ shall apply for effecting such recovery.
7. Manner of distribution of credit by Input Service Distributor:
1. As per Section 20 of CGST Act, 2017 The Input Service Distributor shall
distribute the credit of central tax as central tax or integrated tax and
integrated tax as integrated tax or central tax, by way of issue of a
document containing the amount of input tax credit being distributed in
such manner as may be prescribed.
ISD may distribute the credit in following manner
Credit of CGST IGST
Credit as CGST (If Recipient is in Same State) IGST (If Recipient is in other State)
IGST (If Recipient is in other State) CGST(If Recipient is in same State)

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(2) The Input Service Distributor may distribute the credit subject to the
following conditions, namely : ––
(a) the credit can be distributed to the recipients of credit against a
document containing such details as may be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of
credit available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of
credit shall be distributed only to that recipient; (in simple terms
If one to one reference of credit is available, then Credit shall be
distributed only to that recipient.)
(d) the credit of tax paid on input services attributable to more than one
recipient of credit shall be distributed amongst such recipients to
whom the input service is attributable and such distribution shall
be pro rata on the basis of the turnover in a State or turnover in
a Union territory of such recipient, during the relevant period, to
the aggregate of the turnover of all such recipients to whom such
input service is attributable and which are operational in the
current year, during the said relevant period; (In simple term If
credit is attributable to more than one recipient, then credit shall
be distributed on PRO RATA basis of the turnover in a state of such
recipient, during the relevant period, to the aggregate turnover of all
such recipient.)
(e) the credit of tax paid on input services attributable to all recipients of
credit shall be distributed amongst such recipients and such
distribution shall be pro rata on the basis of the turnover in a
State or turnover in a Union territory of such recipient, during the
relevant period, to the aggregate of the turnover of all recipients and
which are operational in the current year, during the said relevant
period. (In simple term If credit is attributable to more than one
recipient, then credit shall be distributed on PRO RATA basis of the
turnover in a state of such recipient, during the relevant period, to
the aggregate turnover of all such recipient.)
Explanation.–– For the purposes of this section,––
(a) the “relevant period” shall be––
(i) if the recipients of credit have turnover in their States or Union
territories in the financial year preceding the year during which
credit is to be distributed, the said financial year; or
(ii) if some or all recipients of the credit do not have any turnover in

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 GUIDANCE NOTE ON GST AUDIT

their States or Union territories in the financial year preceding the

year during which the credit is to be distributed, the last quarter
for which details of such turnover of all the recipients are available,
previous to the month during which credit is to be distributed;
(b) the expression “recipient of credit” means the supplier of goods or services
or both having the same Permanent Account Number as that of the Input
Service Distributor;
(c) the term ‘‘turnover’’, in relation to any registered person engaged in
the supply of taxable goods as well as goods not taxable under this Act,
means the value of turnover, reduced by the amount of any duty or
tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and
entries 51 and 54 of List II of the said Schedule.
RR Recovery of excess Credit Distributed: As per Section 21 of CGST
Act, 2017 Where the Input Service Distributor distributes the credit
in contravention of the provisions contained in section 20 resulting
in excess distribution of credit to one or more recipients of credit, the
excess credit so distributed shall be recovered from such recipients
along with interest, and the provisions of section 73 or section 74, as
the case may be, shall, mutatis mutandis, apply for determination of
amount to be recovered.
RR Procedure for distribution of ITC by ISD [Rule 39] Rule 39 of CGST
Rule. Procedure for distribution of input tax credit by Input Service
Distributor.- (1) An Input Service Distributor shall distribute input tax
credit in the manner and subject to the following conditions, namely,-
(a) the input tax credit available for distribution in a month shall be
distributed in the same month and the details thereof shall be furnished in
FORM GSTR-6 in accordance with the provisions of Chapter VIII of these rules;
(b) The ISD shall, in accordance with the clause iv, separately distribute the
amount of
– Ineligible ITC [Section 17(5) of CGST Act, 2017
– Eligible ITC;
(c) the input tax credit on account of central tax, State tax, Union territory
tax and integrated tax shall be distributed separately in accordance with
the provisions of clause (d);
(d) the input tax credit that is required to be distributed in accordance with
the provisions of clause (d) and (e) of sub-section (2) of section 20 to one
of the recipients ‘R1’, whether registered or not, from amongst the total of
all the recipients to whom input tax credit is attributable, including the
recipient(s) who are engaged in making exempt supply, or are otherwise

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not registered for any reason, shall be the amount, “C1”, to be calculated
by applying the following formula
C1 = (t1÷T) × C
where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1 during the
relevant period, and
“T” is the aggregate of the turnover, during the relevant period, of all
recipients to whom the input service is attributable in accordance with
the provisions of section 20;
(e) the input tax credit on account of integrated tax shall be distributed as
input tax credit of integrated tax to every recipient;
(f) the input tax credit on account of central tax and State tax or Union
territory tax shall-
(i) If recipient is in same state – then as CGST, SGST and UTGST respectively.
(ii) If recipient is in other state – then as IGST.
(g) Input Service Distributor shall issue an Input Service Distributor
invoice, as prescribed in sub-rule (1) of rule 54, clearly indicating in such
invoice that it is issued only for distribution of input tax credit;
(h) Input Service Distributor shall issue an Input Service Distributor credit
note, as prescribed in sub-rule (1) of rule 54, for reduction of credit in
case the input tax credit already distributed gets reduced for any reason;
(i) any additional amount of input tax credit on account of issuance of a debit
note to an Input Service Distributor by the supplier shall be distributed
in the manner and subject to the conditions specified in clauses (a) to (f)
and the amount attributable to any recipient shall be calculated in the
manner provided in clause (d) and such credit shall be distributed in the
month in which the debit note is included in the return in FORM GSTR-6;
(j) any input tax credit required to be reduced on account of issuance of
a credit note to the Input Service Distributor by the supplier shall be
apportioned to each recipient in the same ratio in which the input tax
credit contained in the original invoice was distributed in terms of clause
(d), and the amount so apportioned shall be-
(i) reduced from the amount to be distributed in the month in which
the credit note is included in the return in FORM GSTR-6; or
(ii) added to the output tax liability of the recipient where the amount
so apportioned is in the negative by virtue of the amount of credit
under distribution being less than the amount to be adjusted.
(2) If the amount of input tax credit distributed by an Input
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Service Distributor is reduced later on for any other reason

for any of the recipients, including that it was distributed
to a wrong recipient by the Input Service Distributor,
the process specified in clause (j) of sub-rule (1) shall
apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service Distributor
shall, on the basis of the Input Service Distributor credit
note specified in clause (h) of sub-rule (1), issue an Input
Service Distributor invoice to the recipient entitled to such
credit and include the Input Service Distributor credit note
and the Input Service Distributor invoice in the return in
FORM GSTR-6 for the month in which such credit note
and invoice was issued.
Tax Invoice for Credit Distribution :
As per Rule 54 of CGST Rules, 2017, an ISD have to issue an ISD Invoice for
distributionof credit to his other units having separate GSTIN.
Submission of Return by an ISD:
Every ISD shall, on the basis of details contained in FORM GSTR-6A [Auto
Populated], and where required, after adding, correcting or deleting the details,
furnish electronically the return in FORM GSTR-6, containing the details of tax
invoices on which credit has been received and those issued under section 20.
Points to be noted.
RR Section 20(1) does not permit distribution of CGST as SGST and vice
versa. This flows from the fundamentals of the GST law wherein the
credit of CGST cannot be utilized against SGST and vice versa.
RR Input Service Distributor is not liable to furnish the details of inward
and outward supplies. Input Service Distributor is liable to file return in
GSTR-6 on or before 13th of the month succeeding the tax period. The
details relating to input tax credit distributed is communicated to the
recipient in Part B of GSTR-6A.
RR ISD is not required to file Annual Return.
RR ISD registration is for one office of the taxpayer which will be different
from the normal registration.
RR The revenue generating units have GST liability, so rightly the ITC on
those services used by them must be allocated to them to use the tax
credit to set off against their tax liability.
RR Different offices of a taxpayer can apply for ISD registration.
RR Different offices like marketing division, security division etc. may apply

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for separate ISD.    

RR The credit distributed in contravention of provisions of Act could be
recovered from the recipient to which it is distributed along with interest.
RR ISDs need to file only a return in Form GSTR- 6 and the return has the
details of credit received by them from the service provider and the credit
distributed bythem to the recipient units. Since their return itself covers
these aspects, there is no requirement to file a separate statement of
inward and outward supplies.
Check points by the Auditor:-
RR Whether ISD Registration is obtained
RR Whether multiple ISD registrations are obtained
RR Whether ITC has been distributed properly by ISD
RR Manner of distribution of Common Services
RR Whether RCM is paid under ISD Registration
RR Whether ISD Invoices are raised under GST
RR Whether monthly returns under ISD filed as GSTR-6
RR Ratio of distribution under ISD
RR Distribution of the eligible and Ineligible ITC under Section 17(5) of
CGST Act, 2017
RR Accounting entries in case of ISD ITC Transferred
RR ITC cannot be transferred more than ITC Availed
Annual return.
(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.
(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.

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 Refund
Refund of TAX
Normally, refund provisions apply in case of (a) zero rated supplies (exports and
supplies to SEZ) and (b) Inverted duty structure i.e., input credit more than tax
payable on output supply (but not in case of exempted supply or supply Nil rate
of tax).
‘Taxable Person’ can also claim refund if he has paid excess tax by mistake.
Any person claiming refund of any tax and interest, if any, paid on such tax or
any other amount paid by him, may make an application in that regard to the
proper officer of IGST/CGST/SGST/UTGST before the expiry of two years from
the relevant date in prescribe form and manner – section 54(1) of CGST Act.
Application and Procedure of Refund
The application for refund shall be accompanied by –
(a) Such documentary evidence as may be prescribed to establish that a
refund is due to the applicant, and
(b) Evidence that incidence of duty has not been passed on by him to any
other person. However, where the amount claimed as refund is less than
two lakh rupees, self-declaration based on documents available with him
is sufficient. – section 54(4) of CGST Act.
Application for refund of tax, interest, penalty, fees or any other amount
Any person, except the persons covered by notification issued under section 55 (UN
Agencies, Embassies), claiming refund of tax, interest, penalty, fees or any other
amount paid by him, may file as application in form GST RFD-01 electronically –
Rule 89(1) of SGST Rule, 2017.
Refund of balance in Electronic cash Ledger – Any clam for refund relating to
balance in the electronic cash ledger in accordance with the provisions of section
49(6) may also be made through the return furnished for the relevant tax period in
form GSTR-3, form GSTR-4 or form GSTR-7, as the case may be:- first proviso to
Rule 89(1) of CGST and SGST Rules, 2017.

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Refund application in case of supply of goods to SEZ – In respect of supplies of

goods to a Special Economic Zone unit or a Special Economic Zone developer, the
application for refund shall be filed by the supplier of goods after such have been
admitted in the Special Economic Zone for authorized operations, as endorsed
by the specified officer of the Zone – second proviso (a) to rule 89(1) of CGST and
SGST Rule, 2017.
Refund application in case of supply of services to SEZ – In respect of supplies
of services to Special Economic Zone unit or a Special Economic Zone developer,
the application for refund shall be filed by supplier of services along with the
evidence regarding receipt of services for authorized operations as endorsed by the
specified officer of the Zone – second proviso (b) to Rule 89(1) of CSGT and CGST
Rule, 2017.
Refund claim is case of deemed export either by recipient or supplier – In
respect of supplies regarded as deemed exports, the application may be filed by
(a) the recipient of deemed export supplies; or (b) the supplier of deemed export
supplies in case where the recipient does not avail input tax credit on such supplies
and furnishes an undertaking to effect the supplier may claim the refund – third
proviso to Rule 89(1) of CGST and SGST Rules, 2017 as amended w.e.f. 18-10-
2017.
Refund of advance tax by casual or non-resident taxable person – Refund of
any amount, after adjusting the tax payable by the applicant out of the advance
tax deposited y him under section 27 (casual taxable person or non-resident
taxable person) at the time of registration, shall be claimed either in the last return
required to furnish by him or only after furnishing of the said last return – fourth
proviso to rule 89(1) of CGST and SGST Rules, 2017.
Documents to be filed with refund claim
The application for refund under rule 89(1) shall be accompanied by documentary
evidences, as applicable, to establish that the refund is due to the applicant [Rule
89(2) of CGST and SGST Rules, 2017]
Reund of Unutilised Input TAX Credit
Subject to the provisions of section 54(10), a taxable person may claim refund of any
unutilized input tax credit at the end of any tax period – section 54(3) of CGST Act.
[section 54(10) provides for recovery of penalty, tax or interest from any refund
due].
No refund of unutilized input tax credit shall be allowed in cases other than exports
including zero rated supplies or in case where the credit has accumulated on
account of rate of tax on inputs being higher than rate of tax on output supplies,
other than nil rated or fully exempted supplies – first proviso to section 54(3) of
CGST Act.
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 GUIDANCE NOTE ON GST AUDIT

No refund of unutilized input tax credit shall be allowed in case where the goods
exported out of India are subjected to export duty – second proviso to section 54(3)
of CGST Act.
No refund of input tax credit shall be allowed if the supplier of goods or services
avails duty drawback of CGST/SGST/UTGST or claims refund of IGST paid on
such supplies – third proviso to section 54(3) of CGST Act.
However, drawback of customs duty portion can be availed.
Drawback – “Drawback” in relation to any goods manufactured in India and
exported, means the rebate of duty, tax or cess chargeable on imported inputs or
any domestic inputs or input services used in the manufacture of such goods –
section 2(42) of CGST Act.
Refund only in case of (a) exports and supplies to SEZ (b) inverted rate
structure – Refund will be admissible only in case of physical exports and supplied
to SEZ. Provision of ‘deemed export’ has been made in CGST Act. However, there is
no specific provision of refund in case of deemed exports or supplies to EOU.
Refund is admissible if GST rate on inputs is higher that GST rate of output
supplied. However, refund is not available in case were supply is exempted or nil
rated – first proviso to section 54(3) of CGST Act.
Refund in Case of Inverte Duty Structure
In case of inverted duty rates (i.e. input tax credit more than tax payable on outward
supply)there is provision of refund of excess credit under section 54(3) of CGST
and SGST Act.
No refund if tax is Nil or exempted – The refund is not admissible where the rate
of output supply is Nil or exempted. Thus, some tax must be payable.
No refund in certain cases, even if ITC more than tax paid –As per proviso
(ii) to section 54(3) of CGST and SGST Act, Government can notify supply of
goods and services where refund of unutilized Input Tax Credit (ITC) will not be
admissible, even if ITC is more that tax payable on output supply. Under these
powers, Notification No.5/2017-CT (Rate) and 5/2017-IT (Rate) both dated 28-6-
2017 has been issued. As per this notification, the refund is not admissible even if
ITC is more that tax paid, in the following cases –
RR Woven textile fabrics falling under specified headings in chapters 50 to 55
RR Knotted netting of twine, cordage of rope, made up of fishing nets or
other made up nets, of textile fabrics, falling under heading = 5608
[inserted w.e.f. 14-11-2017]
RR Corduroy fabrics falling under head 5801 [inserted w.e.f. 22-9-2017]
RR Narrow woven fabrics (all goods) falling under chapter 60
RR Railway locomotives and their parts falling under heading 8601 to 8608

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GUIDANCE NOTE ON GST AUDIT

Restriction not applicable in case of export of aforesaid goods – This

restriction is only in respect of refunds under section 54(3)(ii) of CGST Act. Thus,
the restriction is not applicable to refund under section 54(3)(i) of CGST Act i.e.
zero rated supplies. Hence, in case of export of these goods, refund of entire ITC
will be available – MF(DR) circular No. 18/18/2017-GST, dated 16-11-2017. [The
clarification is in respect of fabrics, but principle applies to all goods notified under
Notification No. 5/2017-CT (Rate), dated 28-6-2017].
No refund of ITC even if input tax credit more than GST payable on outward
supply in case of construction of complex – In case of services of construction
of complex [specified in Item5(b) of Schedule II of CGST Act], refund of unutilized
ITC will not be available – Notification No. 15/2017-CT (Rate) and 12/2017-IT
(Rate) both dated 28-6-2017.
Refund In Case Of Export Or Supples To Sez
The taxable person has following options – (a) pay IGST on exports and claim refund
of IGST (b) Clear goods for export without payment if IGST and claim refund of ITC
(c) If this part supplies are exports, he can utilize that credit for payment of GST on
supplies within India. In that case he need not apply for refund at all.
The procedure for exports and claiming of refund has been discussed in the chapter
on ‘Exoprts’.
Doctrine of Unjust Enrichment in Case of Refund of GST
Refund will be normally paid in Consumer Welfare Fund, and not paid to the
taxable person who has applied for refund – section 54(5) of CGST Act.
This is on the basis of doctrine of unjust enrichment, as explained below.
If the supplier of goods and services has recovered GST from recipient, it is clear
that he has passed the burden to the recipient and has already recovered GST from
him. In such cases, refund of excess GST will amount to excess and undeserved
profit to supplier of goods and services. It will not be equitable to refund the duty
to him, as he will get double benefit – from the recipient of goods and services and
again from the Government.
This will be ‘unjust enrichment’ of supplier.
Every person who has paid the tax on goods or services or both under this Act
shall, unless the contrary is proved by him, be deemed to have passed on the full
incidence of such tax to the recipient of such goods or services or both – section
49(9) of CGST Act.
If tax recovered, it means duty incidence has been passed on – If the amount
of tax has been recovered from the recipient, it shall be deemed that the incidence
of tax has been passed on to the ultimate consumer [indeed obvious] – Explanation

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 GUIDANCE NOTE ON GST AUDIT

(ii) to rule 89(2) of CGST and SGST Rules, 2017.

Precautions while claiming refund to avoid doctrine of unjust enrichment
If the burden of tax has been passed on to customer, there is no point in applying
for refund of GST.
In other cases, to establish that burden has not been passed on to customer, the
amount should be shown as ‘claim receivable’ in books of accounts and should
not be charged to profit and loss account.
Additional Checks:
RR Identify source documents- Tax Invoice, Debit Note and Credit Note,
check entries in records to source document on sample basis.
RR Interest on delayed payment of tax should be calculated as per rate
prescribed, based on daily basis from the due date to the date of actual
payment.
RR Use “Mark-Up’ technique based on inward supplies combined with an
inventory check to ascertain if there are any suppressed supplies on
which tax invoices not issued.
RR Verify the Asset Schedule in Financials to know the disposal of used
capital goods , whether output tax have been levied and discharged.
RR Verify bank statements on test check basis for evidence of payments
against invoices on which input tax credit has been availed.
RR Reconcile the inward supplies as per financials with inward supply
register and ascertain whether all inward supplies are reported in the
monthly returns ( Ensure that exempt, nil and non GST inward supplies
are reported in monthly returns (GSTR3B)
RR Verify input tax credit register and ensure that proportionate reversal
is made for common inward supplies used for exempted or non-taxable
supplies.
RR Verify the stock take reports and ascertain how the excess and shortages
are accounted in the stock ledger/bin card and report the tax discharged
on shortages adjusted, items scrapped, samples and lost destroyed or
stolen goods.
RR Verify whether the organization is maintaining proper cost records,
maintenance of proper cost records indicates the adherence to the
systems in the organization and tracking of the resources consumption.

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 Recommendatory Formats for GST Audit
Reconciliation Statement
Consolidated Amount as per
Sl. audited finan-
Particulars amount as Difference
No. per cial statements
(for the GSTIN)
A) Details of supplies and corresponding taxes
1. Total outward supplies
2. Total inward supplies
3. Total tax liability on output supply and supplies liable to reverse charge
4. Input tax credit availed during the year
B) Payment of tax liability on output supply and supplies liable to reverse charge
GUIDANCE NOTE ON GST AUDIT

5. By utilising cash in cash ledger

6. By utilising input tax credit ledger
7. By utilising TDS in cash ledger
C) Other details
8 Deposit by challans
9 Transfer of TDS from deductors
10 Refunds
11 Amounts paid under protest/ as pre-deposit against demand
12 Balances as on date of financial statements (GST payable)
13 Balances as on date of financial statements (ITC)
14 TDS deducted

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Reconciliation of ‘Total tax liability on output supply and supplies liable to reverse charge’
As per Annual return As per Auditor Difference
Particulars Remarks
CGST SGST IGST Cess Total CGST SGST IGST Cess Total CGST SGST IGST Cess Total
Tax liabilities on:
Inter-State supplies NA NA NA NA NA NA
Intra-State supplies NA NA NA
Exports NA NA NA NA NA NA
Supplimentary Invoice /
Debit Notes
Sales returns/ Credit Notes
Supplies liable to reverse
charge

113
Total
114
Reconciliation of ‘Payment of Tax liability on output supply
and supplies liable to reverse charge’
As per return As per financial statements Difference
Particulars Remarks
CGST SGST IGST Cess Total CGST SGST IGST Cess Total CGST SGST IGST Cess Total
By Utilising Cash in
Cash Ledger
By Utilising Input tax NA NA NA NA NA NA
Credit Ledger
By Utilising TDS in NA NA NA
Cash Ledger

Reconciliation of ‘Balances as on date of

financial statements (GST payable)’
Particulars CGST SGST IGST Cess Total
Balance of GST payable as per returns
Balance of Input tax credit as per Financial statements
Difference
Reson for difference
Reason 1
Reason 2
Reason 3
Reason 4
Total
GUIDANCE NOTE ON GST AUDIT

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 Details of Income
(A) Total value of supplies on which GST paid (inter-State Supplies)
Goods As per Annual Return As per audit Reason for
Sl. HSN Quantity Tax Taxable
No. Description Code
Tax Taxable IGST
Quantity Rate value Rate value IGST differences
1
2
3

Services As per Annual Return As per audit

Sl. Service Tax Taxable Quantity Tax
No. Description code Quantity Rate value IGST Rate
Taxable IGST
value
GUIDANCE NOTE ON GST AUDIT

1
2
3

(B)Total value of supplies on which GST paid (intra-State Supplies)

Goods As per Annual Return As per audit
Tax-
Reason for
Sl. HSN able CGST SGST
Description Quantity Quantity differences
Rate
Rate

No. Code value Rate Rate

value

SGST
SGST
SGST

CGST
CGST
CGST

Taxable

Quantity

1
2

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

3

Goods As per Annual Return As per audit

Taxable
Sl. HSN CGST SGST CGST SGST
Description Quantity value Quantity CGST SGST
No. Code Rate Rate Rate Rate
value

SGST

CGST
Taxable

1
2
3

115
 (C) Total value of supplies on which GST Paid (Exports)

116
Goods As per Annual Return As per audit
Reason for
Sl. HSN Tax FOB Customs Tax FOB Customs
Description Quantity IGST Quantity IGST differences
No. Code Rate Value Duty Rate Value Duty
1
2
3

Goods As per Annual Return As per audit

Sl. Service Tax FOB Customs Tax Tax FOB Customs
Description Quantity IGST Quantity IGST
No. Code Rate Value Duty SGST Rate Value Duty
1
2
3

(D)Total value of supplies on which no GST Paid (Exports)

Goods As per Annual Return As per audit Reason for
Sl. No. Description HSN Code Quantity Tax Rate FOB Value Quantity Tax Rate FOB Value differences
1
2
3

Goods As per Annual Return As per audit

Sl. No. Description Service Code Quantity Tax Rate FOB Value Quantity Tax Rate FOB Value
1
2
3

(E)Value of Other Supplies on which no GST paid

Goods/ As per Annual return As per Audit Reason for
Sl. No.
service Value Value differences
1.
2.
3.
GUIDANCE NOTE ON GST AUDIT

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 (F) Sales Returns
Goods As per Annual Return As per audit
Tax- Reason for
Sl. HSN Tax
Description Quantity CGST SGST IGST Quantiy able CGST SGST IGST differences
No. Code Value
value
1
2
3

(G) Other Income (Income other than from supplies)

GUIDANCE NOTE ON GST AUDIT

Specify As per Annual return As per Audit Reason for

Sl. No.
Head Amount Amount differences
1.
2.
3.

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

117
118
GST Payable (Liability - Outward Supply)
As per Books As per Returns-GSTR 3B Difference
Month
IGST CGST SGST Cess Total IGST CGST SGST Cess Total IGST CGST SGST Cess Total
April - - - - - - - - - - - - - - -
May - - - - - - - - - - - - - - -
June - - - - - - - - - - - - - - -
July - - - - - - - - - - - - - - -
Aug - - - - - - - - - - - - - - -
Sep - - - - - - - - - - - - - - -
Oct - - - - - - - - - - - - - - -
Nov - - - - - - - - - - - - - - -
Dec - - - - - - - - - - - - - - -
Jan - - - - - - - - - - - - - - -
Feb - - - - - - - - - - - - - - -
Mar - - - - - - - - - - - - - - -
GST Payable (Liability - RCM)
As per Books As per Returns-GSTR 3B Difference
Month
IGST CGST SGST Cess Total IGST CGST SGST Cess Total IGST CGST SGST Cess Total
April - - - - - - - - - - - - - - -
May - - - - - - - - - - - - - - -
June - - - - - - - - - - - - - - -
July - - - - - - - - - - - - - - -
Aug - - - - - - - - - - - - - - -
Sep - - - - - - - - - - - - - - -
Oct - - - - - - - - - - - - - - -
Nov - - - - - - - - - - - - - - -
Dec - - - - - - - - - - - - - - -
Jan - - - - - - - - - - - - - - -
Feb - - - - - - - - - - - - - - -
GUIDANCE NOTE ON GST AUDIT

TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Mar - - - - - - - - - - - - - - -
119 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
3.
2.
1.

Sl No.
UOM
Full Description
of final product
Description as would
appear in the invoice
Specifications
having a bearing on
either classification
or the commercial
nomenclature
Final Product

HSN Chapter heading

No. & sub - heading No.
of the schedule under
which each goods fall.
Rate of Tax leviable
No. & date of the
relevant notification (S) if
any, having bearing on
applicable rate of tax
(i)
(i)
(i)

(v)
(v)
(v)

(ii)
(ii)
(ii)

Description of inputs

(iv)
(iv)
(iv)

(iii)
(iii)
(iii)

UOM
Nature of the input i. e
whether raw material,
component, packaging
material, catalyst solvent
etc.,
Input
PRODUCT CLASSIFICATION (Self Certification for HSN)

Input item tariff

classification
Description of
intermediate products,
if any
Intermediate product
-Tariff classification
Remarks
GUIDANCE NOTE ON GST AUDIT
 GUIDANCE NOTE ON GST AUDIT

Notes

120 TAX RESEARCH DEPARTMENT, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA