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Internal Audit in GST – Checklist for GSTR 1, GSTR 3B & GSTR 2A

Updated on :  

08 min read.

GST law consists of robust audit mechanism to examine and ensure non-evasion of taxes and due compliance of the provisions. One of the major audit checkpoints will be reconciliation of the book records against GST returns to identify tax evasion. GST council has directed the authorities to analyse the data gaps between GST returns. Businesses should establish the internal controls and conduct periodic checks to eliminate any data gaps and ensure due compliance with the GST laws. Also, GST authorities have started issuing show cause notices for non-compliance to the taxpayers. Internal Audit of GST records can help a business to check the operating effectiveness of internal financial controls, identify significant risk areas and take necessary steps to mitigate the risks. Here’s a checklist that can be used for reviewing the GST records internally and identifying any errors or data gaps

Checking GSTR 3B vis-à-vis GSTR 1 & GSTR 2A

Every month, businesses have to file a summary return GSTR 3B and report consolidated figures for sales and purchases. They are also required to compute and pay the taxes based on self-declaration Also, they are required to file GSTR-1 monthly/ quarterly based on the turnover limit and report invoice wise detail of outward supplies. Based on the GSTR-1 filed by suppliers, GST portal will auto-populate GSTR 2A return for a particular recipient. Problem arises where there exists a difference between the figures declared in the GSTR-1 by a supplier and the corresponding summary figure declared in the GSTR-3B by him. Auditor should include the following checkpoints to ensure nil data gap and avoid the notices from GST authorities –

  •  Reconciling the total summary figures as per GSTR 3B with the total of the Outward Invoices as per GSTR 1 for a particular month
  •  Outward supplies (other than zero-rated, nil rated and exempted),
  •  Zero-rated outward supplies,
  •   Nil rated and exempted outward supplies,
  •  Inward supplies on which GST has to be paid by the recipient under reverse charge mechanism
  • Checking the amount of input tax credit as per GSTR 3B vis-à-vis details mentioned in GSTR 2A. Businesses are eligible for the final input tax credit on the basis of GSTR 2A.
  • Ensuring that the credit notes & debit notes have been mentioned in GSTR 1 at the correct places.

Interest & Penalties in GST Act

If the recipient claims excess input tax credit, he is liable to pay interest @24% p.a on the excess tax amount. Auditor should reconcile the GSTR 3B with GSTR 2A to ensure that the company shouldn’t claim excess input tax credit, and where it has been claimed in excess, company should pay interest and tax amount on due date.  If the GST authorities identify data gaps between GSTR 3B and GSTR 1 returns, taxpayer may have to pay interest and penalty. Read more about the penalties and offenses here.

Amendment in GSTR 1

If the auditor finds any data gaps , he should recommend the management to amend the invoices and details at summary level in GSTR 1. To know more about the amendments in GSTR 1, you can read them here.

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Checking Particulars of Invoice

There are specific rules related to the details to be mentioned in the invoices. If invoice is not issued according to the rules, a penalty of Rs. 25,000 may be imposed. The auditor must test check few sample invoices to ensure that all the details are mentioned in the invoices. If the auditor finds any variance in the format of the invoice, he should advise the management to amend the invoice and incorporate the requirements of GST invoice rules.

Reversal of input tax credit due to non-payment in 180 days

A recipient has to pay the invoice amount and GST to the supplier within 180 days from issuance of the invoice. If he fails to make the payment, the input tax credit will be reversed and added to the output tax liabilityInternal Auditor should check the invoice payment date against the invoice issue date to figure out the transactions where the recipient has made the payment to the supplier after 180 days.

Points to check

  • Difference between invoice date and payment date – It shouldn’t be more than 180 days
  • Payment amount should be equal to invoice amount plus GST. If the payment amount is less than invoice amount plus GST, then input tax credit to the extent of short payment has to be reversed.

If the auditor finds any discrepancies on a regular basis, he should recommend the management to revise the invoice payment process and pay all the dues before 180 days to ensure that entire input tax credit can be claimed.

Reviewing e-way bill vis-à-vis invoices

In respect of the movement of goods worth more than Rs. 50,000, the transporter has to carry e-way bill along with the invoice.In few cases, the e-way bill has to be issued even if the value of goods is less than Rs. 50,000. You can read about the e-way bill in detail here. The auditor must incorporate the checkpoints in audit checklist to ensure that the business is complying with the e-way bill provisions.

Consequences of mismatch in e-way bill vis-a-vis invoice

An e-way bill, once generated, cannot be deleted or edited. It can only be canceled within 24 hours of its generation if the movement of goods doesn’t happen or the actual movement is different from the details mentioned in e-way bill. If the goods are moved without issuance of e-way bill, the proper officer has the power to impose the penalty and/or detain the goods till the owner of the goods doesn’t pay appropriate tax and penalty. For more detailed reading on penalties, click here. The auditor must incorporate the checkpoints in audit checklist to ensure that the business is complying with the e-way bill provisions. He should recommend the management to apply effective controls before issuing an e-way bill to avoid any financial or legal implications.

Points to check

  • Business is issuing e-way bill wherever necessary,
  • Details mentioned in the e-way bill match with the details of sales or purchase invoice as the case may be.

Moving Goods in Non-Motor Vehicles

If the goods are transported in non-motor vehicles, there is no requirement to issue an e-way bill. Some businesses are resorting to the medieval method of transporting the goods in bullock or horse carts  to step aside the e-way bill rules.Internal auditor should closely check the transactions worth more than Rs. 50,000 where the e-way bill is not issued due to transportation of goods in non-motor vehicles.  He should identify whether non-motor vehicles were used genuinely or for bypassing the e-way bill system. If any anomalies are detected, he should report them to help the business avoid massive penalties.

Checking the stock lying with Job Workers on 30-06-17

Goods lying with job workers on 30th June 2017 (before inception of GST) should be received back within 1 year i.e. till 30th June 2018. Machines and other capital goods lying with job workers must be received back within 2 years i.e. till 30th June 2019. If goods or machines are received after the due date, it will be considered as purchase from unregistered supplier. Auditor should make a list of the goods and machines lying with the job workers on 30th June 2017 to reconcile it against the receiving date.  If he finds any goods or capital goods lying with job workers since 30th June 2017, he should recommend the management to call back such goods and capital goods within stipulated time to avoid any adverse implications.

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