Publish: January 20, 2026
What is the relevance of VAT in post-GST audits?
Continuing Validity of VAT Laws Post-GST
- Although GST subsumed most indirect taxes from 1st July 2017, VAT laws were not repealed
- VAT continues to govern transactions up to 30th June 2017, especially for goods not under GST like alcohol and petroleum
- Therefore, VAT records remain legally enforceable and subject to audit by state tax departments
- States retain the right to initiate or complete VAT assessments and audits for the pre-GST period
- Businesses must maintain VAT records, returns, and documents for several years post-GST as per state laws
VAT Records Required in Post-GST Audits
- Auditors may request VAT returns (e.g., Form 231, Form VAT 100), purchase/sales registers, and stock records
- Documents like input tax credit ledgers, tax invoices, VAT payment challans, and audit reports are examined
- Businesses must reconcile VAT closing balances with GST opening balances (via TRAN-1 filings)
- Records for interstate stock transfers, works contracts, and branch transactions under VAT are often reviewed
- VAT compliance history influences transitional credit eligibility and audit findings in GST
Transitional Credit and VAT-GST Linkage
- One key focus in post-GST audits is the carry forward of VAT input credit into the GST regime
- Auditors verify the correctness of credit reported in TRAN-1 and its correlation with VAT returns
- Any mismatch or unsupported VAT credits may result in reversal of GST credit or penalties
- Proper treatment of closing stock and input tax on stock is critical to avoid disputes
- Auditors also check if VAT credits were legally admissible and properly documented before migration
Risk Areas and Audit Triggers
- Non-reversal of VAT input tax credit on exempted goods or stock given away as free samples
- Incorrect classification of goods under VAT leading to underpayment or misreporting
- Use of ineligible VAT credit in TRAN-1 due to expired invoices or missing records
- Differences in inventory valuation or turnover between VAT and GST periods
- Incomplete documentation of last VAT return filed before 30th June 2017
Importance for Compliance and Litigation
- VAT audit findings can result in tax demands, interest, and penalties, affecting financial reporting
- Unresolved VAT matters can delay GST refunds or result in notices from both regimes
- Many businesses are facing ongoing litigation for VAT disputes, even several years post-GST
- Effective handling of VAT audits supports closure of legacy tax issues and strengthens compliance systems
- VAT findings may also influence income tax scrutiny or other indirect tax verifications
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