This article explains the key points to check in a GST case or audit, including areas under departmental scrutiny like GSTR-1 late fees, ineligible ITC, and reverse charge mechanisms. It also highlights the best practices for preparing for a GST audit and ensuring compliance with GST regulations.

GST Case: A Comprehensive Guide on Key Areas of Departmental Scrutiny

A GST case is conducted by the GST authorities under section 65, 66, 67 or 73 of the CGST Act to ensure compliance with the Goods and Services Tax laws. This article explores critical aspects of the departmental notice, referencing the relevant sections and rules under GST law, helping taxpayers prepare effectively.

Key Points Examined During GST Case

1. Payment to Suppliers within 180 Days

As per Privso to Section 16(2) and Rule 37 of the CGST Act,2017 taxpayers must make payment to creditors within 180 days from the date of invoice. Failure to comply requires the taxpayer to reverse Input Tax Credit (ITC) claimed earlier and pay interest.

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2. Late Fee Payable on delayed filing of GSTR-1

Rule 59 of CGST Rules outlines the filing of GSTR-1, a monthly or quarterly return of outward supplies. Delays in filing attract late fees under Section 47 of the CGST Act, which are subject to verification during case or audits.

3. GST not paid on Reverse Charge Mechanism (RCM) basis

Under Section 9(3) of the CGST Act, specific services such as legal services by advocates, freight (GTA services) and rent paid on property used for commercial purpose etc. fall under RCM, making the recipient liable to pay tax. GST Department typically verify compliance with RCM obligations.

4. Ineligible ITC Claimed, under Section 17(5)

Section 17(5) of the CGST Act lists specific goods/services where ITC is ineligible. Common examples include motor vehicles, food & beverages, club memberships, and certain construction-related expenditures. GST Department closely scrutinize claims to ensure accuracy.

5. Advance from recipient for Services

Advances received for services are liable to GST at the time of receipt, per Section 13(2) of the CGST Act (Time of Supply). GST Department verify if taxes are correctly paid on advances received, and adjustments are accurately done at invoice issuance.

6. Rule 42 & 43 (Common Input Tax Credit)

Rules 42 and 43 of the CGST Rules require taxpayers to proportionately reverse ITC attributable to exempted supplies or non-business use. GST Department examine whether taxpayers have correctly computed and reversed ITC accordingly.

7. Original Invoices on which ITC Claimed by Dealer

Section 16 of the CGST Act mandates proper documentation, including valid invoices, to claim ITC. GST Department review the authenticity and correctness of invoices supporting ITC claims, ensuring compliance.

8. Cross Checking of different GST returns

GST Department typically prepare comparative analyses of various GST returns (e.g., GSTR-1 vs. GSTR-3B, GSTR-3B vs. GSTR-2A etc.) to identify discrepancies in turnover, taxes paid, and ITC claimed. Discrepancies can lead to further investigation and liability adjustments.

9. Restriction on ITC Utilization Rule 86B

Rule 86B of the CGST Rules restricts the utilization of ITC for payment of GST liability up to 99%, applicable under specified conditions. GST Department verify compliance with these restrictions and appropriate cash payments towards GST liabilities.

Best Practices for GST Case Preparation

• Maintain Accurate Documentation: Ensure all transactions, invoices, and returns are properly documented.
• Regular Reconciliation: Periodically reconcile data across GST returns to avoid mismatches.
• Compliance Checks: Regularly verify compliance with critical sections such as 16(2), 17(5), 9(3), and rules like 42, 43, and 86B.
• Professional Consultation: Engage GST professionals or advisors for periodic health checks and GST compliance guidance.

Conclusion

A thorough understanding and compliance with GST provisions and rules significantly reduces risks associated with departmental case or audits. By focusing on the highlighted areas and proactively addressing potential issues, taxpayers can ensure smooth and compliant GST practices.