Karnataka GST Department issued procedure and guidelines on e-Shodane under KGST Act, 2017

The Karnataka GST Department (“KGSTD”) vide Commissioner of Commercial Taxes Circular No: GST-14 2020-21, dated December 19, 2020, issued the clarification and instructions related to electronic Scrutiny of High-risk cases, Audit Observations and DRC under Assessment module (“e-Shodane”), an e-Audit module developed by the KGSTD in association with NIC, Karnataka. It is launched to undertake Audit and Assessment proceedings as per the provisions of the Karnataka Goods and Services Act, 2017 (“KGST Act”).

The e-Shodane provides an online platform system for the entire Audit Assessment, for which KGSTD has come up with the detailed procedure process starting from selection of cases for audit, assignment of cases, communication with the Registered Taxable Person(“RTP”) and ending with Audit Report passing of Assessment order. The module captures a log of the activities performed by the proper officers at different stages of the proceedings.

Further, KGSTD specified the procedures and guidelines that is to be followed based on e-GST Audit Module with regard to audit and assessment proceedings required to be undertaken under Section 65, 73 and 74 of KGST Act, in following manner:

• Selection and Assignment of Cases for Audit/Assessment:
• The module provides for selection of cases for audit by way of Wild Card Selection and Risk Based Scrutiny.
  • Wild Card Selection: This is one of the modes of selection of cases during the audit proceedings. If the proper officer, either by information or through other sources comes across cases wherein there is scope for additional revenue involvement and/ or due liability on the part of the supplier/ recipient, and such cases are not listed under risk based scrutiny, the proper officer may request for assignment of such cases of respective jurisdiction for audit after consultation with respective Joint Commissioner, providing valid reasons for such selection. Further, in respect of the Enforcement reports uploaded by the officers of the concerned divisions which do not form a part of risk based scrutiny, the concerned Joint commissioner shall allot such cases through wild card selection.
  • Risk Based Scrutiny: The following risk factors are identified for selection of cases for Audit for the year 2017-18. The system will assign the audit cases based on following risk factors to the Audit Officers for scrutiny. Further, additions/modifications to the risk factors would be undertaken as and when required.

• The Audit officer shall scrutinize the cases assigned to him/her with reference to the information available online in the GST Pro/ Prime module and either recommend such cases for assignment of Audit or reject such cases recording reasons for such rejection. All such cases either rejected or recommended for Audit will be forwarded to the respective Joint commissioner (Admn.). The system is designed in such a way that, an Audit officer can recommend only twenty cases for issue of assignment. The subsequent requests exceeding twenty is not allowed by the system. Such subsequent cases will, be allowed only when the Audit officer disposes/completes audit of a case by issue of GST Form ADT-02. Thus, normally an Audit Officer will be having twenty cases for disposal at any given point of time.
• The Joint Commissioner (Admn.) on receipt of such requests may accept and recommend assignment of such cases for audit or reject the request recording reasons for such acceptance or rejection and the Joint Commissioner (Admn.) has to digitally sign the recommendations with the Digital Signature certificate (“DSC”). Subsequently the cases are forwarded to the Additional commissioner (Audit), who in turn would act upon the recommendation of the Joint Commissioner (Admn.) through Accept/ Reject/Hold. The cases are then forwarded to the commissioner, who in turn will Accept/Reject/Hold the cases for Audit by digitally signing the assignment of cases.
• The Joint Commissioner (Admn.) has the option to assign or reassign the cases to any Audit officer [of the respective jurisdiction] other than the Audit officer who has recommended the case for Audit under scrutiny.
• The system is built in such a way that the cases are assigned to the DCs/ACs/ CTOs in proportion of 1:1.5:2 for scrutiny based on pecuniary limits. The system also allots the audit assignments in a controlled way, whereby each officer will be having twenty cases in his/ her account at any given point of time for disposal. As soon as the Audit Officer disposes one case, a new case will be added/assigned for further proceedings under Section 65 of the KGST Act.
• The Audit officer will receive the assignments for Audit in his login, as soon as the commissioner approves and assigns the case for Audit. The said information also flows to the jurisdictional Joint Commissioner (Admn.).
• The Audit officer may conduct the Audit either at the place of business of the Registered Person or at his/ her office as provided under Section 65(2) of KGST Act. The Audit Officer has to issue information of the date of Audit in Form ADT-01 to the Registered Taxable Person (“RTP”), not less than fifteen working days prior to the conduct of audit. Presently, the audit module provides for generation of Form ADT-01 online and its communication/service to the authorized e-mail id of the RTP. The Endorsements (Reminders) issued, requests for adjournments received and granted have to be recorded in the log by the Audit Officer.
• The Audit officer shall conduct audit of records and books of account by verification of books; returns statements furnished; correctness of turnover, exemptions, deductions claimed; rate of tax applied on supply of goods/services or both; ITC availed and utilized; Refund claimed and other relevant issues. In case the audit officer requires additional information, he may issue Notice seeking additional information to the RTP. Further, the Audit Officer has to record the observations in audit notes and may inform the RTP of any discrepancies noticed as provided under Rule 101(4) of the Karnataka Goods and Services Rules, 2017 (“KGST Rules”). The RTP may file reply to such notice which will have to be recorded in the log. The Audit officer shall finalize the findings of audit after due consideration of the reply by following principles of natural justice.
• The Audit Officer has to conclude the Audit and inform the findings of audit, his rights obligations and reasons for findings to the RTP in Form ADT-02 within thirty days from conclusion of Audit as required under Section 65(6) of the KGST Act. The Audit Officer shall complete the Audit within three months from the commencement of audit as required under Section 65(4) of the KGST Act. The time starts from the date on which records and other documents called for, are made available by RTP or actual institution of audit whichever is later. The Audit Officer has to key in the date of commencement of audit at preliminary report menu and take due care to complete the audit commencement within the prescribed time limit.
• Requires Audit Officer to request Joint Commissioner (Admn.) for extension of time if audit could not be completed within specified time, who in turn, on satisfaction of reasons for such request, shall make recommendation to the Commissioner, through Additional Commissioner (Audit) for extension. The Commissioner may extend the time by a further period not exceeding Six months, for reasons to be recorded in writing.
• If audit results in detection of defaults and if the assessee does not accept the findings of the audit and fails to pay tax, Audit Officer shall proceed to conclude demand and recovery proceeding under Sections 73 and 74 of the KGST Act, as the case may be by seeking separate assignment for the same.
• Clarifies that all communications between officers and the RTP has to be through the Government mail Id and to the registered email Id of the RTP.

The Circular can be accessed at: https://gst.kar.nic.in/Documents/General/circular14191220.pdf