Don’t only take Profit & Loss Account Turnover for GST Audit Limit
Q . What is the turnover that should be reckoned to determine the applicability of audit under GST?
Ans. Section 35(5) of CGST Act 2017 commences with the expression “every registered person whose turnover during a financial year exceeds the prescribed limit”
whereas the relevant Rule 80(3) of CGST Rules 2017 uses the expression “every registered person whose aggregate turnover during a financial year exceeds two crore rupees”.
It must be noted that the word turnover has not been defined whereas the expressions aggregate turnover has been defined.
“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 a person having the same Income Tax PAN, to be computed on all India basis and excludes taxes [CGST, SGST, UTGST and IGST] – section 2(6) of CGST Act.
“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 of CGST Act or under section 6 of IGST Act, and includes non-taxable supply– section 2(47) of CGST Act.
Non-taxable supply’ means a supply of goods or services or both which is not leviable to tax under CGST Act or IGST Act – section 2(78) of CGST Act.
Activities or transactions specified in Schedule III of CGST Act 2017 are to be treated as neither goods nor services.
One may note that the expression turnover in State or turnover in Union territory is defined. In this backdrop the following understanding is relevant:
a) Aggregate turnover is PAN based while turnover in a State / UT is similarly worded except to the extent that turnover in a State / UT is limited to a State;
b) It is therefore, reasonable to interpret that the word turnover used in Section 35(5) of CGST Act 2017 ought to be understood as aggregate turnover (PAN level).
c) For the financial year 2017-18, the GST period comprises of 9 months whereas the relevant Section 35(5) of CGST Act 2017 uses the expression financial year;
Therefore, in the absence of clarification from Government and to avoid any cases of default, it is reasonable to reckon the turnover limits prescribed for audit i.e., Rs. 2 crores for the whole of the financial year which would also include the first quarter of the financial year 2017-18.
Please also note that where the expression aggregate turnover (PAN level) is considered, please consider the taxable value under section 15 and not the amount as accounted in the books of accounts.
What is to be included in Turnover
- Supply made without consideration as per Schedule I of CGST Act 2017
- Stock Transfer : Do not ignore taxable value of stock transfers while examining threshold limit for GST Audit
- Alcohol for human consumption : Exempt turnover is defined under CGST Act to mean 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.Section 9(1) of CGST/ SGST Act and Section 7(1) and 5(1) of UTGST and IGST Act respectively exclude alcoholic liquor for human consumption from the levy/charge of GST Alcoholic liquor for human consumption forms part of exempt turnover.Since aggregate turnover includes exempt turnover, value of alcoholic liquor for human consumption is to be included while computing threshold limit of Rs. 2 crores
- Exempted Supply :Even if a person is registered under GST and only provides exempted supplies, he will have to file Form GSTR 9C if turnover exceeds Rs 2 crore.
What is not be included in Turnover
- Exempt Interest and Discounts : Interest or discount received by him on deposits, loans or advances will not be considered for calculating aggregate turnover [though interest is exempted service] – Removal of Difficulties Order No. 1/2017-CT dated 13-10-2017.
List of documents for required for computing Turnover for GST Audit
The following list of documents could be obtained by the Auditor for the purpose of declaring the details of turnover under this Sl. No.:
1. Audited financial statements for the FY to derive the total turnover of the Registered Person;
2. Registrant-wise trial balance to facilitate furnishing the Form GSTR 9C for each registrant;
3. Communication with the other Auditor to obtain details of the turnover declared by him to ensure completeness and holistic reconciliation of turnover of the Registered Person;
4. Form GSTR 9C, if already filed by different Auditor, in case of multiple registrations of the Registered Person;
5. GST (Viz. Form GSTR 3B and Form GSTR 1) returns filed by the Registered Person to ensure that the turnover declared in the returns match with the turnover captured in the audited financial statements
6. Income tax Returns (ITR) to ensure that the turnover details are reconciled with turnover as per GST.
Reconciliation by Auditor
To ensure completeness and correctness of the details of turnover to be declared, the following checks could be used
1. turnover in State/UT (in case of single registration) must reconcile to the turnover disclosed in the audited financial statements;
2. turnover in State/UT (in case of multiple registration) must reconcile to the turnover as recorded in the books of accounts of each registration;
3. Master reconciliation to ensure that the details of turnover declared for different registrations (in case of multiple registrations either due to presence in multiple States/UTs’ or due to unit(s) in SEZ) with the total turnover of the entity