JANUARY 13, 2020

By K Srinivasan

THE question of audit is always purely private. There cannot be an official audit by the Government of the business premises or offices of the taxpayers.

In case of any specific information or belief, that some evasion is suspected, then a visit to the premises of the business or offices of such suspicious tax payers is justified, but not as a matter of routine.

The C&AG in the past was following the same practice of auditing the accounts of the tax payers, by visiting the premises of the business or offices which has been progressively discouraged by the Government.

A number of laws suits were filed against the above practice, starting from Calcutta High Court and the Courts have not been favourable about the above age old practice of visits to business premises/offices for conducting audit of the accounts by the C&AG.

As a result, post GST audits by C&AG are confined to the Tax Department, to check the accuracy of the systems employed by the Department, which is more by way of a system audit.

In the GST era, the entire taxation is run by electronic portals and the entire data is available in the Data Warehouse, fully capable of being mined and analysed in all possible ways desired by the C&AG.

The same rationale is applicable to even the GST Department. There is no need for visiting the premises of the business/offices of the tax payers for auditing the accounts.

The tax returns are under self-assessment system and discrepancies can be noticed on scrutiny by the assessing officers whose job it is, to detect any discrepancies leading to possible evasion or leakage of revenue.

In case of any specific information or reasonable belief of tax evasion, then a visit by the enforcement wing under the authority of an authorised officer can be undertaken and not otherwise, as a matter of routine, to audit the accounts of the business.

It has been recently noticed that Audit plans by the GST Department doing the rounds, of proposed visits to be undertaken by audit teams to conduct audit of the accounts of the tax payers, post GST.

GST is equally a self-assessment scheme of taxation open to scrutiny by the assessing officers. Returns are filed electronically, invoices are being contemplated of electronic issue by the Government and e-way Bill is in force, intended to regulate movement of goods with GPRS-fitted radio frequency chips to track the movement of trucks carrying goods.

Where is then the question of a battalion of officers visiting the business premises/offices of the tax payers to do audit of their accounts, in the above environment strongly envisaging Zero officer interface, where audit would sound like an oxymoron of GST?

Wherever there is some specialized audit required, then accounting experts, who are empanelled by the Government, can be entrusted with the work to submit detailed costing reports/financial reports/company law related secretarial reports, to additionally equip the assessing officers to take a final call on scrutiny of certain returns of doubtable nature.

It is understood from the speech of the former Finance Minister Shri.Arun Jaitley at the time of tabling the Union Budget that only a fraction of a percentage of the IT returns, are picked for detailed scrutiny. The rest are fast-tracked.

Even the complex GST returns which are prepared and filed with the help of return filers and GSTP's, need to be fast tracked for assessment and only a fractional percentage need close scrutiny which can be done by the assessing officers.

While audit can be propped up as one of the pillars of tax administration like the enforcement, those pillared structures of taxation have become obsolete and out dated now, and you have better structures to tackle even high seismic attacks.

And so are the modern electronic tax returns, desk review and other forensic methods, through which all kinds of checks and balances can be exercised and enforced.

The GSTN-run electronic system to support the taxation of GST, of course needs to be audited by the C&AG to check and certify its efficacy and efficiency.

The proof of the pudding is in the eating and the practical working of the GSTN-developed system in the hands of tax administration, needs to be system audited as well, but not the individual tax payers by undertaking visits to their business premises and offices, one by one.

It is not at all acceptable to trade and industry whether it is by the C&AG or by the GST Department, to have their accounts audited in addition to scrutiny of their electronic returns.

No audit of the accounts of the IT assesses are undertaken by the Government, in addition to scrutiny by another sister tax Department that nets as much as 11.17 trillion against an indirect tax collection of 7.40 trillion.

No accounts of the customs aseessees are audited from whom a customs duty collection of 1.45 trillion has come in this fiscal.

But, why only audit of the accounts of the GST assesses ? Will it not look a discriminatory practice against them under Article 14 of the Constitution of India, let alone whether there are subordinate provisions of some miscellaneous rules 5A of the Service Tax Rules read with Section 174(2)(e) of the CGST Act and so on, as ruled in Ess Infraproject Pvt Ltd vs UoI - 2019-TIOL-1414-HC-MUM-ST, just another latest one from the catenae and so forth.

The Courts are no more than the creatures of Law and therefore their examination of the extent to which these Laws circumscribe, can't be ascribed to anything more than the text of these subordinate legislations, which must but subjugate to the mandates of Article 14 of the Constitution.

The announcement of Audit plans by the Department, if believed to be true, is likely to spell only chaos and confusion and perhaps doom to GST.

There is already news of 75,000 show cause notices issued in the State of Gujarat alone for possible GST evasion of protective nature.

If audit is also undertaken, there will be only show cause notices and all judicial forums will be choking with cases, as it is customary to confirm invariably 100 out of 100 cases of the notices issued by the lower adjudicating authorities.

In fact, there is not even the categorization of lower and higher adjudicating authority now a days, as officers of the rank of Joint/Additional Commissioners and above have no adjudication functions and even persons in the rank of commissioners have no appellate function, as it has been relegated to the Joint/Additional Commissioners.

The officers from the rank of Commissioners and above have curiously, no quasi-judicial functions either, under the GST regime and have only administrative work.

In the wake of the newly announced Dispute Resolution Scheme (SABKA VISHWAS), even the old baggage of litigation will be gone.

The Tribunals looking like on their way out, what will be quasi-judicial function left with, for the senior officers, looks really like a big question mark, unless some new justification is figured out by the Government.

All administration with little to administer is the paradoxical situation of the GST Department and that of the newly christened Board of Indirect Taxes and Customs (CBIC), is the serious doubt among many stake-holders of GST.

In the above backdrop, it is necessary to take an urgent call to make a systemic study of the nature of GST Audit and the possible complications that it can trigger if allowed to be undertaken as per the audit plans of the Directorate of Audit – the apex wing of CBIC responsible for this function.

Will the Government contemplate quickly on a solution even if a quick-fix one, rather than letting the taxation environment to be fractured and torn by audit without hopes of any recovery, is the serious concern of many.

(The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)