Audit, Assessment, Revision, Demand, Recovery, Appeal ...estv.in/icai/idtc/pdf/Overview of Audit and...

By

K.S.NAVEEN KUMAR

Advocate, Bangalore

K.S.NAVEEN KUMAR, ADVOCATE1

Audit, Assessment, Revision, Demand,

Recovery, Appeal & Misc.Provisions

Scope of session


PRELUDE

AUDIT AND ASSESSMENT

DEMAND AND RECOVERY, REVISION

APPEAL

MISC.PROVISIONS INCLUDING ANTI-PROFITEERING

Audit


Meaning of ‘Audit’

Relevant statutory provisions (sections 65 & 66)

Current regime

Defn.of audit

2(13) “audit” - examination of records, returns and other

documents maintained or furnished by the registered person

under this Act or the rules made thereunder or under any

other law for the time being in force 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.

Accounts and records – sec.35

Sec. 35(5) - Every registered person whose turnover during a

financial year exceeds the prescribed limit shall get his

accounts audited by a chartered accountant or a cost

accountant and shall submit a copy of the audited annual

accounts, the reconciliation statement under sub-section (2)

of section 44 and such other documents in such form and

manner as may be prescribed.

Departmental audit – sec.65

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.

Conduct audit at the place of business of the registered

person or in their office.

Registered person to 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.

Dept.audit… The audit under sub-section (1) shall be completed within a

period of three months from the date of commencement of the audit:

Commissioner may extend – reasons to be recorded - by a further period not exceeding six months.

“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.

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.

Dept.audit…

On conclusion - 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.

Where audit 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.

Special audit – sec.66

At any stage of scrutiny, inquiry, investigation or any other

proceedings before him, any officer not below the rank of

Assistant Commissioner, having regard to the nature and

complexity of the case and the interest of revenue, is of the

opinion that the value has not been correctly declared or the

credit availed is not within the normal limits, he may, with

the prior approval of the Commissioner, direct such

registered person by a communication in writing to get his

records including books of account examined and audited by

a chartered accountant or a cost accountant as may be

nominated by the Commissioner.

Special audit… CA or Cost accountant so nominated to submit report within

ninety days duly signed and certified by him to the said Assistant Commissioner mentioning specified particulars.

Extension possible by Assistant Commissioner may, on application by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason - further period of ninety days.

This audit is notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force

Registered person to be given an opportunity of being heard in respect of any material gathered, which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.

Audit expenses including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.

If special audit 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.

Audit


Issues/concerns:

Departmental audit – whether possible?

Special Audit Vs Departmental Audit

CAG Audit – whether possible?

Issuance of SCN by audit

Value Addition

Pre-audit by CAs

Impact Study

How to handle audit?

Audit Inquiry – Reply

Final Audit Observations – Reply

Approach

Reply up to the point

Lead evidence to support

Audit team has no power to collect tax

Even if liability accepted – file a reply – explain – contest

penalty

Insist on audience

Follow up with letter

Assessment


Meaning of ‘Assessment’

Current regime

Definition in section2(11)

Self-assessment

Re-assessment

Best Judgment Assessment

Summary Assessment

Provisional Assessment

Definition of assessment – sec.2(11)

(11) “assessment” means determination of tax liability under

this Act and includes self-assessment, re-assessment,

provisional assessment, summary assessment and best

judgment assessment

Self-assessment – sec.59

59. Every registered person shall self-assess the taxes payable

under this Act and furnish a return for each tax period as

specified under section 39.

Provisional asst. – sec.60 If the taxable person is unable to determine the value of goods or

services or both or determine the rate of tax applicable thereto, hemay request the proper officer in writing giving reasons forpayment of tax on a provisional basis

Officer shall pass an order, within a period not later than ninetydays from the date of receipt of such request, allowing payment oftax on provisional basis at such rate or on such value as may bespecified by him.

Taxable person to execute a bond in such form as may beprescribed, and with such surety or security as the proper officermay deem fit, binding the taxable person for payment of thedifference between the amount of tax as may be finally assessedand the amount of tax provisionally assessed.

Prov.asst…

Proper officer shall, within a period not exceeding six

months from the date of the communication of the

provisional order pass the final assessment order after taking

into account such information as may be required for

finalizing the assessment:

On sufficient cause shown and for reasons to be recorded in

writing – time limit can be extended by the JC or Addl.

Commissioner for a further period not exceeding six months

and by the Commissioner for such further period not

exceeding four years

Prov.asst….

The registered person shall be liable to pay interest on any

tax payable on the supply of goods or services or both under

provisional assessment but not paid on the due date specified

under sec.39(7) or the rules made thereunder, at the rate

specified under sec.50(1), from the first day after the due

date of payment of tax in respect of the said supply of goods

or services or both till the date of actual

Prov. Asst…

payment, whether such amount is paid before or after the

issuance of order for final assessment.

If registered person is entitled to a refund consequent to the

order of final assessment interest shall be paid on such refund

as provided in section 56

Scrutiny of Returns – sec.61

Proper officer may scrutinize return and related particulars to

verify the correctness of the return and inform him of the

discrepancies noticed – seek explanation

If explanation acceptable - registered person shall be informed -

no further action shall be taken

If no satisfactory explanation furnished within 30 days or further

period or where the registered person, after accepting

discrepancies, fails to take the corrective measure - proper

officer may initiate appropriate action - sections

65/66/67/73/74

Asst.of non-filers of returns – sec.62 62. (1) Notwithstanding anything to the contrary contained in

section 73 or section 74, where a registered person fails to furnish thereturn under section 39 or section 45, even after the service of a noticeunder section 46, the proper officer may proceed to assess the tax

liability of the said person to the best of his judgementtaking into account all the relevant material which is available or whichhe has gathered and issue an assessment order within a period of fiveyears from the date specified under section 44 for furnishing of theannual return for the financial year to which the tax not paid relates.

(2) Where the registered person furnishes a valid return within thirtydays of the service of the assessment order under sub-section (1), thesaid assessment order shall be deemed to have been withdrawn but theliability for payment of interest under sub-section (1) of section 50 orfor payment of late fee under section 47 shall continue.

Asst.of unregistered persons – sec.63

63. Notwithstanding anything to the contrary contained in

section 73 or section 74, where a taxable person fails to obtain

registration even though liable to do so or whose registration has

been cancelled under sub-section (2) of section 29 but who was

liable to pay tax, the proper officer may proceed to assess the tax

liability of such taxable person to the best of his judgment for

the relevant tax periods and issue an assessment order within a

period of five years from the date specified under section 44 for

furnishing of the annual return for the financial year to which the

tax not paid relates:

Provided that no such assessment order shall be passed without giving

the person an opportunity of being heard.

Summary asst.in certain cases –

sec.64 64. (1) The proper officer may, on any evidence showing a tax liability of

a person coming to his notice, with the previous permission of Additional Commissioner or Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue: Provided that where the taxable person to whom the liability pertains is

not ascertainable and such liability pertains to supply of goods, the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and liable to pay tax and any other amount due under this section.

(2) On an application made by the taxable person within thirty days from the date of receipt of order passed under sub-section (1) or on his own motion, if the Additional Commissioner or Joint Commissioner considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 73 or section 74.

Assessment


Issues/concerns:

Time limit for issuing SCN

Time limit for passing orders

Orders passed in some other case – time limit NA

Reasonable time limit??

Assessment in different States??

Assessment by whom??

Revision


Revision of lower authority’s order by a superior authority

Similar to SMR proceedings – current regime

When revision is possible?

Revision


Issues/concerns:

Time limit for revision proceedings

If issue already pending before the appellate authority

Handling Litigation – practical

approach Adjudication stage:

First step after SCN Date of service Relied upon documents Visiting factory/premises Marshalling facts Gathering evidence Expert evidence Preparing reply

Jurisdiction

Merits

Limitation

Quantification

Penalty/Interest

DEMAND AND RECOVERY

NORMAL PERIOD – sec.73

SCN by proper officer

Tax not paid or short paid or erroneously refunded or ITC

wrongly availed or utilised for any reason

Situations not involving fraud or any wilful-misstatement or

suppression of facts to evade tax

Serve notice on the person chargeable with tax

Show cause - amount with interest under section 50 and

penalty leviable under the provisions of this Act or the rules

should not be demanded

Normal period – demand

Time limit – SCN at least three months prior to the time limit

specified for issuance of order.

Subsequent period - proper officer serve a statement on the

person chargeable with tax

Service of such statement deemed to be service of notice on such

person – if grounds are the same


Person chargeable with tax may, before service of notice

or statement pay tax with interest 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

Proper officer, on receipt of such information, shall not serve

any notice or statement in respect of tax so paid or any

penalty payable under the provisions of this Act or the rules

made thereunder


If proper officer finds the amount paid falls short of actuals –

SCN for short payment

If person chargeable with tax pays with interest within 30

days of issue of SCN - no penalty payable - all proceedings

deemed to be concluded


Where liability not accepted - proper officer to consider

representation - 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.

Time limit for passing order - within 3 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


Sec.73(11) 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.

Extended period – demand – sec.74

Tax 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

Proper officer to serve notice on the person chargeable with

tax

Tax plus interest and penalty equivalent to tax

Extended period…

Proper officer to issue the notice – atleast 6 months prior to

the time limit for issuance of order

Subsequent periods – Service Statement on the person

chargeable with tax

Service of statement deemed to be service of notice –

extended period cannot be invoked – other grounds same as

earlier notice

Extended period…

Person chargeable with tax may, before service of notice pay

tax with interest and penalty equivalent to 15% of tax on the

basis of his own ascertainment or as ascertained by proper

officer and inform the proper officer in writing of such

payment

Proper officer, on receipt of such information, shall not serve

any notice or statement in respect of tax so paid or any

penalty payable under the provisions of this Act or the rules

made thereunder

Extended period…

If proper officer finds the amount paid falls short of actuals –

SCN for short payment

Extended period …

If person chargeable with tax pays tax with interest and a

penalty equivalent to 25% 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

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.

Extended period…

Where liability not accepted - proper officer to consider

representation - determine the amount of tax, interest and

penalty equivalent due from such person and issue an order.

Time limit for passing order - within 5 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

Extended period…

If any person served with an order pays tax with interest and

a penalty equivalent to 50% of such tax within 30 days of

communication of the order - all proceedings in respect of

the said notice deemed to be concluded.

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;

Extended period….

Expln.(ii) - where notice issued to main person liable to tax

and some other persons – if proceedings against main person

concluded u/s. 73 or 74 - proceedings against all persons

liable to pay penalty under sections 122, 125, 129 and 130

deemed to be concluded

Extended period…

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.

Gen.principles for determination of tax

– sec.75

If service of notice or issuance of order is stayed by an order

of a court or Appellate Tribunal, the period of such stay shall

be excluded in computing the period specified in sub-

sections (2) and (10) of section 73 or sub-sections (2) and

(10) of section 74, as the case may be.

Gen.principles…

If any Appellate Authority or Appellate Tribunal or court

concludes - notice issued u/s.74(1) - not sustainable –

extended period fails - the proper officer shall determine the

tax payable by such person, deeming as if the notice were

issued u/s.73 for normal period

Gen.principles…

(3) Where any order is required to be issued in pursuance of

the direction of the Appellate Authority or Appellate Tribunal

or a court, such order shall be issued within two years from

the date of communication of the said direction.

(4) An opportunity of hearing shall be granted where a

request is received in writing from the person chargeable

with tax or penalty, or where any adverse decision is

contemplated against such person.

Gen.principles…

(5) The proper officer shall, if sufficient cause is shown by the

person chargeable with tax, grant time to the said person and

adjourn the hearing for reasons to be recorded in writing:

Provided that no such adjournment shall be granted for more

than three times to a person during the proceedings.

(6) The proper officer, in his order, shall set out the relevant

facts and the basis of his decision. (7) The amount of tax,

interest and penalty demanded in the order shall not be in

excess of the amount specified in the notice and no demand

shall be confirmed on the grounds other than the grounds

specified in the notice.

Gen.principles…

(8) Where the Appellate Authority or Appellate Tribunal or

court modifies the amount of tax determined by the proper

officer, the amount of interest and penalty shall stand

modified accordingly, taking into account the amount of tax

so modified.

(9) The interest on the tax short paid or not paid shall be

payable whether or not specified in the order determining

the tax liability.

Gen.principles…. (10) The adjudication proceedings shall be deemed to be

concluded, if the order is not issued within three years as provided for in sub-section (10) of section 73 or within five years as provided for in sub-section (10) of section 74.

(11) An issue on which the Appellate Authority or theAppellate Tribunal or the High Court has given its decisionwhich is prejudicial to the interest of revenue in some otherproceedings and an appeal to the Appellate Tribunal or theHigh Court or the Supreme Court against such decision ofthe Appellate Authority or the Appellate Tribunal or the HighCourt is pending, the period spent between the date of thedecision of the Appellate

Gen.principles…

Authority and that of the Appellate Tribunal or the date of

decision of the Appellate Tribunal and that of the High Court

or the date of the decision of the High Court and that of the

Supreme Court shall be excluded in computing the period

referred to in sub-section (10) of section 73 or sub-section

(10) of section 74 where proceedings are initiated by way of

issue of a show cause notice under the said sections.

Gen.principles…

(12) Notwithstanding anything contained in section 73 or

section 74, where any amount of self-assessed tax in

accordance with a return furnished under section 39 remains

unpaid, either wholly or partly, or any amount of interest

payable on such tax remains unpaid, the same shall be

recovered under the provisions of section 79.

(13) Where any penalty is imposed under section 73 or

section 74, no penalty for the same act or omission shall be

imposed on the same person under any other provision of

this Act.

Handling Litigation

Investigation Stage

Adjudication Stage

Appellate Stage

Writ proceedings

Investigation Stage – practical steps

Issue of summons

Who should attend

Can some one avoid attending summons

Consequence of avoidance

How to attend summons and submit documents

Recording Statements

Statements recorded under coercion, threat etc.

Investigation Stage…

Retraction of statements

Legal effect of un-retracted statement

Obtaining copy of Statement

Whether a CA can attend summons??

Search and seizure operations

Precautions to be taken

Documents seized – drawing of mahazar/seizure memo

Presence of witnesses during search and seizure operations

Investigation stage….

Authorisation to search

Effect of illegal search

Recovery during investigation

Garnishee proceedings

Appeal


Meaning of ‘appeal’

Current regime

Statutory provisions – ss.107 to 121

First appeal – to appellate authority

Second appeal – to Tribunal

High Court – Question of law

Supreme Court – Question of law

Appeal


Mandatory Pre-deposit – 1st appeal/2nd appeal

Department can plead for higher pre-deposit??

Condonation powers in case of delay

Dept.appeal – whether possible?

Cross objections before Tribunal?

No power of remand for first appellate authority?

First appellate authority – Union/State??

Appeal… Authorised representative Vs GSTP?

GSTP formats – disciplinary action?

National Bench, Regional Benches, State Bench/Area Benches

HC or SC – only question of law

Tribunal final fact finding authority

Appeal to HC/SC – entire amount to be paid

National Litigation Policy – matter concluded not a precedent

Electronic and physical filing

Appeal


Issues/concerns:

Delay beyond condonable period –Writ Petition??

Recovery during pendency of appeal or before expiry of time

limit to file an appeal

Revision


Revision of lower authority’s order by a superior authority

Similar to SMR proceedings – current regime

When revision is possible?

Revision


Issues/concerns:

Time limit for revision proceedings

If issue already pending before the appellate authority

Misc.ProvisionsS.143 Job work

S.144 Presumption as to documents in certain cases

S.145 Admissibility of micro films, facsimile copies of documents and computer

printouts as documents and as evidence

s.146 Common portal

s.147 Deemed export

s.148 Special procedure for certain processes

s.149 GST compliance rating

s.150 Obligation to furnish information return

Misc.provisions…s.152 Bar on disclosure of information

s.153 Taking assistance from an expert

s.154 Power to take samples

s.155 Burden of proof – eligibility of ITC

s.156 Persons deemed to be public servants for IPC

s.157 Protection of action taken under this Act

s.158 Disclosure of information by a public servant

s.159 Publication of information in respect of certain cases

Misc.Provisions…s.160 Assessment proceedings etc not to be invalid on certain

grounds

s.161 Rectification of errors apparent on the face of record

s.162 Bar on jurisdiction of civil courts

s.163 Levy of fee

s.164 Power of Government to make rules

s.165 Power to make regulations

s.166 Laying of rules, regulations and notifications

s.167 Delegation of powers

Misc.Provisions..s.167 Delegation of powers

s.168 Power to issue instructions or directions

s.169 Service of notice in certain circumstances

s.170 Rounding off of tax etc.

s.171 Anti-profiteering measure

s.172 Removal of difficulties

s.173/174 Omission of ST law – Repeal and Saving clause

Sec 174 rw Sec 6 of General

Clauses Act

67

Sec 174 (1) –The below mentioned Acts will be repealed except

in certain cases

- the Central Excise Act, 1944 (except as respects goods included in

entry 84 of the Union List of the Seventh Schedule to the

Constitution),

- the Medicinal andToilet Preparations (Excise Duties) Act, 1955,

- the Additional Duties of Excise (Goods of Special Importance)

Act, 1957,

- the Additional Duties of Excise (Textiles and Textile Articles) Act,

1978, and

- the Central ExciseTariff Act, 1985

Sec 174 r/w Sec 6 of General

Clauses Act

68

Repeal of earlier acts not to impact the following—

(a) revive anything not in force or existing at the time of such

amendment or repeal; or

(b) affect the previous operation of the amended Act or

repealed Acts and orders or anything duly done or suffered

thereunder; or

(c) affect any right, privilege, obligation, or liability acquired,

accrued or incurred under the amended Act or repealed

Acts or orders under such repealed or amended Acts


Clauses Act

69

Provided that any tax exemption granted as an incentive

against investment through a notification shall not continue

as privilege if the said notification is rescinded on or after

the appointed day; or

(d) affect any duty, tax, surcharge, fine, penalty, interest as are

due or may become due or any forfeiture or punishment

incurred or inflicted in respect of any offence or violation

committed against the provisions of the amended Act or

repealed Acts; or


Clauses Act

70

(e) affect any investigation, inquiry, verification (including scrutiny and

audit), assessment proceedings, adjudication and any other legal

proceedings or recovery of arrears or remedy in respect of any

such duty, tax, surcharge, penalty, fine, interest, right, privilege,

obligation, liability, forfeiture or punishment, as aforesaid, and any

such investigation, inquiry, verification (including scrutiny and

audit), assessment proceedings, adjudication and other legal

proceedings or recovery of arrears or remedy may be instituted,

continued or enforced, and any such tax, surcharge, penalty, fine,

interest, forfeiture or punishment may be levied or imposed as if

these Acts had not been so amended or repealed;


Clauses Act

71

(f) affect any proceedings including that relating to an

appeal, review or reference, instituted before on, or after

the appointed day under the said amended Act or repealed

Acts and such proceedings shall be continued under the

said amended Act or repealed Acts as if this Act had not

come into force and the said Acts had not been amended or

repealed.

(3) The mention of the particular matters referred to in

sub-sections (1) and (2) shall not be held to prejudice or

affect the general application of Section 6 of the General

Clauses Act, 1897 with regard to the effect of repeal.

Concerns

Whether GST is a game changer or a name changer?

Seamless Credit or Seems-to-be-less Credit?

Transformation of Tax System – possibility?

Compliance Nightmare?

Dual Administrative Control?

Corruption?

Anti-profiteering mechanism

High Rates?

Migratory Steps for professionals Knowledge updation

Attending Sessions

Speaker

Participant

Keep track of updates/changes

By being part of study circle

Updates in Institute Website

Writing articles/ Books


Queries??


Thanks for your generous and unconditional

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