By TIOL News Service

NEW DELHI, JULY 19, 2017: ALTHOUGH the process of audit in the post-GST era would take more than a year to begin but the Directorate of Audit seems to be gearing up for its mega exercise. In the latest communication to all Chief Commissioners, the DG has stated that there should be no break in the functioning of these Commissionerates and the records for the accounting year 2016-17 would need to be adequately checked to plug any revenue leakage. The communication also refers to the CBEC approval of the Audit Strategy based on risk scores like in the past and the Chief Commissioners would use the same scores to allocate the assessees among 48 Audit Commissionerates.

The DG has also observed that as per the provisions of Section 174 (2)(e) of the Central Goods and Services Tax Act 2017, the audit functions would continue to be exercised by CBEC over its tax payers and irrespective of the distribution of administrative control of the registered taxpayers between Central and State Administration, the financial records / books of accounts pertaining to 2016-17 and for the past period can be taken up for verification in the year 2017-18 by Audit Commissionerates. In any case for the past period (i.e. before the appointed date) State officers would not have any power of audit under Central Excise and Service Tax. This work would be the domain of CBEC only.

He further states that the Audit Directorate has already run the risk assessment programme and created list of assessees in Large, Medium and Small categories for each of the erstwhile 45 Audit Commissionerate. Six lists each, i.e. Large, Medium and Small for Central Excise and Service Tax respectively for each Audit Commissionerate is being sent by email to the Chief Commissioner of GST and Central Excise, as well as to the zonal units of the Directorate General. The list contains the CDR code which can be used for such distribution.

The key features of the list are as under:

(i) The categorisation and risk evaluation has been carried out on the Central Excise Returns (ER1, ER2 and ER3) and Service Tax (ST3) data provided by EDW for the financial years 2015-16 and 2016-17.

(ii) The categorisation of the taxpayers into Large, Medium and Small, has been carried out in exactly the same manner as was done in last two years. A document containing the threshold limits for Audit Commissionerates will also be sent by email. Since there has been no feedback from field formations on the assumption on working strength used by this Directorate General, the same assumption of 50% of Sanctioned Strength as Working Strength, has been used.

(iii) The list of assessees sent by email contains the risk scores, whether the assessee is manufacturing sensitive commodity or rendering sensitive service, type of assessee,- whether proprietor, company, firm or government owned; and type of return filed by the assessee.

(iv) The Chief Commissioner's office shall distribute the list of taxpayers to the appropriate Audit Commissionerates in their jurisdiction and selection of taxpayers may be carried out by Audit Commissionerates by applying local risk factors, including whether it has been audited in 2016-17. A schedule of taxpayers to be audited by each Audit Commissionerate may be prepared by taking into account the actual working strength and prescribed norms. At the preparatory stage, the said schedule is to be discussed with the Chief Commissioner's office and the jurisdictional zonal unit of this Directorate General. In case any taxpayer has been audited in 2016-17, they can be ignored and taxpayer contains the CDR code which can be used for such distribution.

The DG has also noted a word of caution for keeping the focus on the transfer of accumulated / excessive CENVAT credit to CGST during the transition to GST. The officers should also be advised to educate the taxpayers with respect to the provisions under GST, should such requests arise during audit and encourage voluntary compliance. He has advised that the Audit Commissionerates should also be advised that the audits should be conducted in such a manner so as to cause least inconvenience to the taxpayer, particularly to medium and small taxpayers. There should not be any disruption in the conduct of business by the taxpayers.