Departmental Audit and Investigation By CA Ashok Batra
Departmental Audit and Investigation -By CA Ashok Batra -Partner – A K Batra & Associates, New Delhi -9811069299 -caashokbatra@gmail. com
SCOPE OF DISCUSSION �Departmental Audit-power of audit, Scope, process, duties of Taxpayer, way of approach- Section 65 �How to handle investigation, attending summons and written replies in course of investigation �SECTION 59. Self-assessment. — Every registered person shall selfassess the taxes payable under this Act and furnish a return for each tax period as specified under section 39.
Audit � Audit is not a new concept for chartered accountants �Tax Audit In Income Tax �Audit under companies Act �Internal audit, investigation audit, proprietary audit, stock audit or any other audit for specific purpose � Term Audit defined in statutory provisions for the first time �GST, like other taxes, is based on self assessment, therefore departmental audit is provided to ensure that suppliers have discharged rightful taxes �Deterrent for the dishonest tax payer and to encourage compliances from honest tax payer
Audit – Sec 2 (13) � “audit” means the examination of �Exhaustive definition � records, returns and other documents �(41) “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 (21 of 2000); �(97) “return” means any return prescribed or otherwise required to be furnished by or under this Act or the rules made thereunder; �“records” not defined in GST � maintained or furnished by the registered person �and not taxable person � under this Act or the rules made thereunder or under any other law for the time being in force
Audit – Sec 2 (13) �to verify 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 the rules made thereunder;
Approach to Departmental Audit �In case of big clients pre-audit by tax professional is recommended �Otherwise audit by internal staff and areas as discussed in preceding slides are to be looked into. �In case of wrong claim of credit or short payment of liability, voluntary discharge of tax liability with interest is recommended to minimise the cost of interest and to avoid penalty. �Any procedural non-compliances, to be rectified and shortcomings in the records etc. also to be corrected.
Approach to Departmental Audit �Pre-intimation is given unlike survey or search �Confirm the period for which audit can be conducted �Proper documentation and systematic arrangement of invoices, agreements and support for claim of credit �Reconciliations of information submitted to department in the returns submitted with the financial records of the auditee. �Audit by department is also a part of verification process therefore whatever is discussed in the context of audit shall apply for investigation also
Section 65 – Departmental Audit �Audit by tax authorities. — (1) The Commissioner or any officer authorised 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. The �Period of audit shall be a financial year [or part thereof] or multiples thereof – Rule 101(1) �(2) The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.
Section 65 – Departmental Audit � (3) Time Limit for Issuance of Notice �The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed. �The proper officer shall issue a notice in FORM GST ADT-01 - Rule 101(2) � (4) Time Limit for Completion of Audit �The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit : �Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.
Section 65 – Departmental Audit � Explanation. — For the purposes of this sub-section, the expression “commencement of audit” shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later. � (5) During the course of audit, the authorised officer may require the registered person, — � (i) to afford him the necessary facility to verify the books of account or other documents as he may require; � (ii) to furnish such information as he may require and render assistance for timely completion of the audit.
Section 65 – Departmental Audit � (6) Findings to be informed within 30 days from conclusion of audit �On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings. � (7) If short payment, non payment etc. action u/s 73/ 74 �Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.
Rule - 101 � (3) The proper officer authorised to conduct audit of the records and the books of account of the registered person shall, with the assistance of the team of officers and officials accompanying him, verify �the documents on the basis of which the books of account are maintained and �the returns and statements furnished under the provisions of the Act and the rules made thereunder, �the correctness of the turnover, exemptions and deductions claimed, �the rate of tax applied in respect of the supply of goods or services or both, �the input tax credit availed and utilised, �refund claimed, and other relevant issues �and record the observations in his audit notes.
Rule - 101 �(4) The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished. �(5) On conclusion of the audit, the proper officer shall inform the findings of audit to the registered person in accordance with the provisions of sub-section (6) of section 65 in FORM GST ADT-02.
How to handle investigation, attending summons and written replies in course of investigation Basics �First steps before issuance of SCN �Initially only facts and figures to be provided and legal propositions not to be stated. �Verify the documents before submission to the department and if possible approval of the consultant may be taken. �Office copy must be kept in record which should be replica of whatever is submitted to department. �If documents are demanded time and again please submit it as many times as asked for but don’t forget to mention and attach the proof for submitting the same earlier.
How to handle investigation, attending summons and written replies in course of investigation - Basics � Verify the Legality of the notices including proper jurisdiction i. e. territorial, functional or categorical. If want to challenge in the court do it at the earliest as once joined the investigation some of the grounds are lost. � Whether information asked for is for the period within limitation � Summons are issued in the correct name, under proper sections read with Code of Criminal procedure and sufficient time is given �Normally not to be issued in the name of MD/ senior officer �Some times “through the authorised person” is deleted � Records for the period for which investigation is within limitation must be finalised and reconciled before submitting to the department � If statement of third party is relied by the department
How to handle investigation, attending summons and written replies in course of investigation Summons � SECTION 70 (1) The proper officer under this Act shall have power to summon any person whose attendance he considers necessary �either to give evidence; or �to produce a document; or �any other thing in any inquiry; �in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908 (5 of 1908). � (2) Every such inquiry referred to in sub-section (1) shall be deemed to be a “judicial proceedings” within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
How to handle investigation, attending summons and written replies in course of investigation Summons � The provisions of code of civil procedure shall be applicable for issuance of summons � Person summoned is legally bound to attend either in person or through authorised representative as per the officer. � Section 2(i) of criminal procedure code “judicial proceedings” includes any proceeding in the course of which evidence is or maybe legally taken on oath. � Proceedings are quasi-judicial in nature and statement given before proper officer have evidentiary value. � Section 193: False evidence � Section 228: Insult/interruption of public servant during proceedings � Note: Both the offences section 193 and section 228 are punishable with fine or imprisonment or both
How to handle investigation, attending summons and written replies in course of investigation Summons �Other Relevant sections of Code of Criminal Procedure �Section 132 - Women who according to customs and manners in the country ought not to be compelled to appear in public shall be exempt from personal appearance in court �Section 133 - Provides exemption to certain dignitaries like President of India, Vice President et cetera from appearance in court
How to handle investigation, attending summons and written replies in course of investigation Summons �Guidelines issued by CBIC for issuance of summons �Summons to be issued as last resort when assessee is not cooperating �Not to be used for top management CEO, CFO etc should not generally be issued summons only in cases where their direct involvement in the decision making process is evident which led to loss of revenue �Language used in summons should not be harsh and illegal causing unnecessary stress to the assessee
How to handle investigation, attending summons and written replies in course of investigation Summons �Reply to summons and notices to be drafted carefully and precisely �If issued by superintendent’s prior permission of officer not below the rank of assistant commissioner to be obtained �If due to operational reasons permission cannot be obtained telephonic permission from such officer must be octane and conveyed to him at the earliest opportunity �Officer issuing summons should submit a report recording proceedings in brief
How to handle investigation, attending summons and written replies in course of investigation Summons �Other relevant provisions of Indian Penal Code (IPC) �Section 172 : absconding to avoid service of summons or other proceedings �Section 175: permission to produce document to public servant by person legally bound to produce it �Section 174: non-attendance in obedience to an order from public servant �Note: Again all the three section that is 170 to 175 and 174 or punishable with fine or imprisonment or both
How to handle investigation, attending summons and written replies in course of investigation Statement �While getting statement recorded either in pursuance to summons or otherwise following safeguards must be taken: �Don’t loose your cool �If not sure about any fact, say will inform after verifying from records �Be clear about the fact and stick to your stand as same question will be asked in different forms to confuse and to support the case of department. �Investigating officer will try to put his words in your mouth, don’t get trapped even if threatening language is used. �Utmost care to be taken while giving statements during investigation
How to handle investigation, attending summons and written replies in course of investigation Statement �Sometimes called again to get statement recorded. In such situation maintain consistency in statements �Admission should be made with caution �Once the statement is recorded should be noted immediately to the extent it is possible and consult you consultant because if retraction is to be done it should be done at the earliest. �Where an assessee is being tried under the act for an offence which requires a culpable mental state such a state would be presumed and the burden of proof would be on the assessee to prove otherwise
SCN – Nature and Feature �First step towards litigation �Foundation of the litigation as scope and quality of SCN can not be improved once it is issued, however in cases of apparent mistake corrigendum can be issued �No recovery can be made without issuance of SCN �SCN has to be specific and cannot be issued based on assumptions, presumptions and surmises. �Proper notice must be given so that proper defence can be taken by the noticee. �Procedure as prescribed in Rules must be followed otherwise legality of the notice can be in
SCN – Nature and Feature � SCN must be served with all RUD’s, if not asked for it. � Notice is deemed to have been served on the day when such RUD’s are provided and because of such delay some period may get time barred. � This is the first stage of litigation so provide all documents information on which litigant wants to rely as it is candid principle of law that though legal grounds can be taken at appellate stage but additional evidences cannot be give at appellate stage. Litigant has to file an application and also to prove that litigant was prevented by sufficient cause to produce the same before adjudicating authority. � Verify the jurisdictional(i. e. territorial, functional or categorical) validity of the notice. If wish to challenge the same it should be taken as first defence.
SCN – Nature and Feature �Take all possible defences both legal as well factual as your grounds for contest without prejudice to each other. �Every allegation must be rebutted and demand proposed on each account must be challenged including time barred, revenue neutrality, cum duty, not leviability of interest and penalties including personal penalties in the case of firm and companies wherever applicable. �All defences should not only be legally pleaded but must be supported by evidences with proper documentation for each defence. To quote in case of time barred date of service of notice v. proof of relevant date, similarly detailed data for
Section – 73 � 73(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder. �Only a notice, no recovery can be made on issuance of SCN
Section – 73 �(2) Time Limit for issuance of SCN �The proper officer shall issue the notice under sub- section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order. �(3) Statement to be issued for subsequent period �Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
Section – 73 � (4) Service of statement deemed to be service of SCN �The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice. � (5) Voluntary Payment before issuance of SCN or Statement and intimation thereof � The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
Section - 73 � (6) SCN not to be issued after voluntary discharge of tax and interest �The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. � (7) If voluntary payment falls short of tax payable SCN for the difference to be issued �Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable. � Note: In practice SCN for the whole amount and appropriation of the tax and interest paid in order to levy penalty on the gross amount
Section – 73 & 74 � (8) Tax and interest paid within 30 days of issuance of SCN proceedings deemed to be completed �Where any person chargeable with tax under sub- section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded. � (9) Adjudication order after representation and penalty of 10% of tax or Rs. 10000/- which ever is higher �The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.
Section - 73 � (10) Time limit for issuance of order � The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund. Note: time limit for passing an order is prescribed as compare to time limit of issuance of notice in earlier laws � (11) Penalty as discussed shall be payable if self-assessed tax or any amount collected as tax not paid within 30 days from the due date � Notwithstanding anything contained in sub-section (6) or sub- section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax. Note : Collection of tax does not mean charging of tax in the invoice
Section - 74 �Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. �Otherwise similar to section 73, will deliberate only on differences
Section - 74 � (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice. ü (2) Time Limit of issuance of SCN �The proper officer shall issue the notice under sub- section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
Extended Period not Invokeable �Where more than two interpretations are possible looking to the language of the section �Contradictory judgments of the courts or authorities �Where tax is not charged and collected as per trade practice �Where facts are in the knowledge of the department �Revenue Neutrality �Bona fide belief �Subsequent SCN or Statement
Section - 74 � (3) period Statement to be issued for subsequent �Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax. � (4) Service of statement deemed to be service of SCN �The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful misstatement or suppression of facts to evade tax, for periods other than those covered under
Section - 74 � (5) Voluntary Payment of tax, interest & penalty equivalant to 15% of tax and intimation thereof � The person chargeable with tax may, before service of notice under sub- section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. � (6) No service of SCN on voluntary payment � The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. � (7) If voluntary payment falls short of tax payable SCN for the difference to be issued � Where the proper officer is of the opinion that the amount paid under sub- section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable. Note: In practice SCN for the whole amount and appropriation of the tax and interest paid in order to levy penalty on the gross amount
Section - 74 � (8) Tax, interest & penalty of 25% of tax paid within 30 days of issuance of SCN proceedings deemed to be completed � Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. � (9) Adjudication order after representation � The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. � (10) Time Limit for issuance of an order � The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.
Section - 74 �(11) Payment of tax, interest and penalty of 50% of tax within 30 days of proceedings deem to be concluded order �Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.
Section 73 & 74 � Explanation 1. — For the purposes of section 73 and this section, — � (i) the expression “all proceedings in respect of the said notice” shall not include proceedings under section 132; � (ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded. � Explanation 2. — For the purposes of this Act, the expression “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.
Thanks - CA Ashok Batra
- Slides: 41