Namaste,
What according to you is a GST Audit or GST Notice?
When we think of a GST Audit or a GST Notice, the first thing that comes to our minds is that the Department will check any mismatch between returns filed, a mismatch between the Input tax credit availed, refund claimed and related things.
If you also think the same, you are right but only up to a limit!
Allow us to share an insider fact with you that can save you lacs of rupees and tons of troubles.
The GST Department classifies mistakes as Preventive Effect or Deterrent Effect according to replies and particular scenarios.
Let's understand this with the help of a small example.
As per Section 16 of CGST Act 2017, you can have availed a claimed Input Tax Credit on the day on which goods you receive at your office or warehouse, specified in your Registration Certificate. However, it is common for Businesses to avail the Input Tax Credit on the day of invoice date reflected in the Tax Invoice.
To take an example, let's assume you placed an order and in turn get a bill dated 30th of December while the order is delivered on the 3rd of January in your warehouse. There is a possibility that you avail the input tax credit on the 30th of December because,
- You have an original bill which reflects the date of 30th December.
- The bill reflected in GSTR 2A as well as in GSTR 3B.
When we check the GST guidelines, this is against the rules, and you have technically committed a mistake.
The GST law allows availing the ITC only when the goods have been received.
We are not surprised because you are not the only one who follows the same process.
According to a business survey, 93% say that they are either not aware of the same law or financially viable to abide by the law as it involves huge cost.
According to the GST Audit Manual, if you avail the ITC in December, this is considered a Deterrent Effect as you are committing a mistake despite knowing that doing so is against the law. This will invite the reversal of ITC, attract interest u/s 50, penalties u/s 74 and other audit problems.
On the other hand, if you avail the ITC in January, it will be considered a Preventive Effect. You represent a law-abiding business that shows fear of detection by the GST Department Auditors.
A survey has also conducted in this regard, in which surprisingly 76% businessman says that if the Audit comes, then the GST Officers will consider mistake as a Deterrent Effect and not as a Preventive Effect, even if the mistake has happened inadvertently.
But have you ever wondered why this happens?
We experienced that this happens in most of the cases because the reply submitted is of an elementary level where it is given as mere formality, and it is thought that by giving bribe, the matter will be resolved.
We have witnessed many cases in which Businesses have submitted replies stating that all taxes' tally is correct despite claiming the ITC in the preceding month. Since there is no Government's monetary loss, the matter should not proceed further, and demand should be dropped.
On the contrary, sending a proper reply to the officer in time, assuming that the Department will use the formal submission to analyse further, will consider the mistake to be non-intentional and having a Preventive Effect.
So just giving the reply can affect future notices and the amount of penalties in the current audit.
This is how the same GST mistake can have different consequences for your Business.
You have to understand that
An inappropriate reply will increase your risk score tremendously and the probability of your business receiving an audit notice in the future!
These factors are often ignored by Businesses and cause even more significant troubles. Small elements like these can make huge differences, and you must make sure that your business does not make any such mistake. Therefore, the reply should be tactfully and appropriately prepared so that even the Deterrent Effect can be considered as a Preventive Effect.
Contact GST DOST to know you can protect your business from this and all other related risks and operate Tension-Free!!!
T: 90 8888 3000
E: support@gstdost.com
Thanks & Regards
Team GST DOST
