## GST Input Tax Credit: Balance Sheet Classification and Audit Procedures

### The Inverted Duty Structure Scenario

When input GST rate > output GST rate, ITC cannot be utilised against output tax → balance accumulates → refundable under GST law.

Example: Output product @ 5% GST; inputs @ 12–18% GST → ITC accumulates.

### Balance Sheet Classification

```

Current Assets

└─ Other Current Assets

└─ GST Input Tax Credit Receivable / Electronic Credit Ledger Balance

```

Not under Trade Receivables or Loans.

### Audit Procedures

Procedure	Purpose
Prepare reasonability analysis: apply applicable input GST rate to purchases and reconcile to booked ITC	Identify unexplained variances
Obtain copies of GST returns filed on GST portal (GSTR-2A/2B, GSTR-3B)	Verify balance is supported by filed returns
Verify balance per books ties to claim filed with authorities (access GST portal) — if refund still outstanding	Confirm completeness of claim
Verify receipt of refund from bank statement — if refund received subsequently	Confirm settlement of balance

### Reasonability Analysis Method

```

Total eligible purchases × applicable GST rate = Expected ITC

Compare to: ITC as per Electronic Credit Ledger

Investigate: Any significant variance

```

Worked example

### Example 1

WTE Private Limited:

Facts: Finished goods GST 5%; input materials GST 12% and 18%. Electronic Credit Ledger balance ₹60 lacs at year-end; refundable under GST law.

Classification: Current Assets → Other Current Assets (₹60 lacs)

Audit procedures applied:

1. Reasonability check: Total purchases × 12%/18% (weighted) → expected ITC ≈ ₹60 lacs; reconcile to books.

2. GSTR-3B and GSTR-2B downloaded from GST portal → confirm ITC claimed matches books.

3. Refund application filed → amount in application reconciles to ₹60 lacs per books.

4. Post year-end bank statement → confirm ₹60 lacs received (if refund settled before audit completion).

⚠️ Common exam mistakes

Classifying ITC under Trade Receivables instead of Other Current Assets
Not performing a reasonability analysis by applying GST rates to purchase figures
Relying solely on management-provided ITC schedule without cross-checking the GST portal
Not verifying whether a refund application has been filed where the balance is refundable

Reference: Schedule III – Current Assets classification: Other Current Assets — Schedule III to the Companies Act, 2013; GST Act, 2017

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GST Input Tax Credit (ITC) Balance – Classification and Verification

Worked example