ERRATA

In October issue of AIFTP Journal Page No. 5 first para Late Justice Dr. B. P. Saraf, the former Chief Justice of India is wrongly printed. He was the former Chief Justice of Jammu & Kashmir High Court. The error is regretted.

1. Introduction

1.1. After a long wait and much deliberation, GST was finally introduced from 1-7-2017. Though there is still some feeling that it is introduced hurriedly, without full preparation etc., but, the ball has to be set rolling and it is expected that in due time things will get adjusted.

1.2. In fact, the tax laws have never got settled. We are still facing litigation for the past years under the erstwhile sales tax and other indirect tax laws. GST being complete transformation of indirect taxation, it will have more teething problems.

1.3. In this article we are going to discuss the issues relating to determining and disclosing Inward Supply in Annual Return and GST Audit Report.

2. Importance of GST Annual Return & Audit

2.1. Unlike under the Bombay Sales Tax Act, the policy of Government under GST is to have self-assessment by way of returns and to deal with only selective issues for assessment. To ensure that the self assessed returns filed by the assessee are true and correct, the concept of audit by an independent agency is prevailing under taxation laws. The concept of audit which is prevalent under Income-tax Act and which was also inducted into various State Value Added Tax Acts is continued under GST. Therefore, there is great importance to audit as it is at par with assessment.

2.2. The GST Audit is to be filed in prescribed Form-9C. There is lot of debate going on as to the scope of an Auditor since Form-9C is only a reconciliation of Annual Return with the Books of Account. Whatever be the conclusion of the debate, one thing is clear that GST Audit plays an important role in vouching that the self-assessed returns filed by the registered person are true and correct.

2.3. Under GST, there is a four tier system of ensuring and checking that correct returns are filed by the registered persons. Firstly, the registered person is required to file self-assessed returns by reporting invoice details of all his outward supplies and claiming eligible ITC on the basis of matching of inward supplies. Secondly, the registered person is liable to file an annual return to consolidate all the returns. Thirdly, if the turnover exceeds certain specified limit, the registered person is liable to file GST Audit Report which is a reconciliation of the Annual Returns with its books of account. Fourthly, all the returns and reports filed by the registered person can be scrutinized and assessed by the Department.

3. Brief introduction of Annual return

3.1. Form GSTR-9 is prescribed as Annual Return for regular tax payers and Form GSTR-9A is prescribed as Annual Return for Composition Tax payer. For the purpose of present Article, I have explained the provisions of Form GSTR 9 for regular tax payer.

3.2. Annual Return is consolidation of monthly/quarterly returns filed by the registered person. It is expected that it will be quantum merely total of monthly/quarterly returns filed by the registered person during a Financial Year. The Annual Return will also give effect to credit notes and debit notes issued against the invoices of the current financial year provided such credit notes and debit notes are issued upto the September following immediately after the end of Financial Year. Now here the issue arises is when the annual return is for a financial year, whether the said return can travel into details available in returns subsequent to said financial year. How can the said return be called as an Annual Return for a Financial Year?

3.3. It is to be kept in mind that though the Annual Return is merely consolidation of returns already filed during the Financial Year, at some places calculations are required to be made for filling the rows.

4. Explanation of relevant Rows in GSTR-9 relating to Inward Supplies

4.1. Input Tax Credit (ITC) is the back bone of any Value Added Tax System. In layman terms, ITC is nothing but tax paid on inward supplies. Where such inward supplies are used for providing outward supplies, the registered person shall be eligible to avail the ITC of tax paid on inward supplies and set off the said ITC against the tax payable on outward supplies.

4.2. Under GST also the basic concepts of ITC remain the same. However, the legislature has prescribed various conditions for availing the ITC. If the said conditions are not fulfilled, then the registered person shall not be eligible to ITC. Therefore, computation of correct ITC is very important to avoid litigation and differential payment with interest/penalty.

4.3. Under the CGST Act, the ITC provisions are contained in Section 16, 17 and 18. The provisions are not discussed herein in detail. However, the points for verification for reporting of ITC in Form GSTR-9 are discussed hereinunder.

5. Part III of Form GSTR-9 – Details of ITC:

5.1. Part III of Form GSTR-9 requires reporting of details of ITC as declared in returns filed during the Financial Year. Now, from a plain reading of the description contained in the heading of PART III, one has to understand that Part III requires reporting of only figures which are reported in monthly returns during the Financial Year. Simply put, Part III is merely consolidation of whatever figures have been shown in the monthly returns. There shall be no amendment or revision of figures in any circumstances, whether the said availment of ITC in monthly returns is incorrect or ineligible. In some of the erstwhile VAT Acts such as Maharashtra Value Added Tax Act, the dealers were eligible to revise the entire years turnover of sales and purchases and ITC by filing one annual return at the time of VAT Audit. However, such is not the case with GST Annual Return. For filling up the GST Annual Return, the old but golden rule for Bank Reconciliation has to be applied, i.e. “DO WHATEVER IS DONE, DO NOT DO WHATEVER IS NOT DONE”. In other words, do not treat the Annual Return as a platform for revising the monthly returns. Under the current law, revising the returns is neither intended nor provided.

5.2. Now, the Part III of GSTR-9 is divided into three main tables of reporting.

1. Table 6 – Details of ITC availed as declared in returns filed during the FY.

2. Table 7 – Details of ITC Reversed and Ineligible ITC declared in returns filed during the FY.

3. Table 8 – Other ITC related information

5.3. In addition to Part III, Rows 12 and 13 of Part V are also relevant for the purpose of reporting ITC reversed or availed in relation to current Financial Year but included in the returns filed for the period April to September of immediately succeeding financial year.

5.4. Now let us exame the points of verification in each Table of Part III of Form GSTR-9.

6. Points of verification in Table 6 of Part III of Form GSTR 9

6.1. Row 6A of Part III of Annual Return

6.1.1. Row 6A is the annual total of ITC availed during all the months of A Financial Year as Table 4A of GSTR 3B. The figures in row 6A shall be auto populated. However, looking at the forms, it seems that the auto-populated figure can be edited manually if the auto-populated figure is incorrect or if there is an error in generating the auto-populated figure. The total ITC appearing in Row 6A shall be further bifurcated into various heads in Row 6B to 6H. Thereafter, the total of 6B to 6H will be compared with total of 6A in order to ensure that there is no difference. Thus, total ITC in 6A is the basis for comparing the ITC under various. Naturally the said total ITC is the total of all ITC claimed in GSTR-3B under all heads of 4A for a Financial Year.

6.1.2. The total of ITC in row 6A shall also be the basis of comparing the total ITC as per GSTR-2A. GSTR-2A is the total of all inward supplies received by a registered person where his corresponding suppliers have filed return in GSTR-1.

6.2. Rows 6B to 6H of Part III of Annual Return

6.2.1. While filing GSTR-3B, Table 4A only requires bifurcation of total ITC availed in that month on following accounts:

• ITC on import of goods

• ITC on import of services

• ITC on inward supplies liable to reverse charge

• ITC on inward supplied from ISD

Thus, the Table 4A did not provide for any bifurcation of ITC on the basis of inputs, capital goods or input services.

6.2.2. However, Table 6B to 6E requires reporting of the bifurcation of ITC on the basis of inputs, capital goods and input services.

6.2.3. Row 6B requires reporting of inward supplies including services received from SEZ but excluding imports and inward supplies liable to reverse charge. Now, the difficulty which a Registered Person will face is that while claiming the ITC in GSTR-3B, there was no bifurcation of supplies received from normal suppliers and SEZ suppliers. Further 6B only requires to include inward services received from SEZ suppliers since the inward supplies of goods has to be reported in Row 6E. Thus, a registered person will have to once again visit all the ITC invoices for a Financial Year to find out the bifurcation as required in Table 6B. This will only increase the efforts of the tax-payers. In my view the Government should have simply included the said bifurcation in the GSTR-3B itself in order to avoid the double efforts and save the man hours. If not in the past, at least for the future the said bifurcation can be adopted in the GSTR-3B. This is will further help in autopopulating the figures in the annual return which in essence is nothing but mere mathematical consolidation of 12 month’s figures.

6.2.4. In a case where the Total in Row 6A is more than Total ITC as per GSTR 2A, it means that, the registered person has claimed ITC in GSTR 3B in excess of what is shown by its suppliers in their GSTR 1. This difference can be on account of ITC on import of goods and services of ITC on supplies liable on RCM basis. Assuming, that proper ITC has been availed by the Registered Person based on the tax invoices available with him and there is no import or RCM based ITC, one of the most common reason for difference is that some of the suppliers may not have filed returns in GSTR – 1 or have filed the returns but have filed incorrect data.

6.2.5. As per Section 42 of the CGST Act, 2017 the details off every inward supply furnished by a registered person shall be matched with the corresponding outward supply shown by the corresponding supplier. In a case where the ITC claimed by the registered person of an inward supply is in excess of the tax declared by the supplier for the same supply or where the outward supply is not declared by the supplier in his returns, the discrepancy shall be communicated to both the persons. Where the amount claimed as ITC is found to be in excess, it shall b added to the output tax liability of the registered person who claimed excess ITC.

6.2.6. Now, the above mechanism prescribed in Section 42 of matching inward supply with outward supply would be possible only if the return system as originally envisaged under the GST law would have been if force, i.e. GSTR-2 which is the details of inward supplies would have been in force. In the absence of GSTR-2, matching the inward supply with outward supply is not possible on the system.

6.2.7. However, the Revenue can still check whether there is any excess ITC claimed by the registered person by simply comparing the total of Row 6B with the Total ITC as per GSTR-2A. When, there is an exess amount in Row 6B, there can be only two conclusions, either the supplier of the registered person has not filed the return or the registered person has claimed excess credit.

6.2.8. Thus, in case where the total of Row 6B is more than the total of ITC as per GSTR 2A, it is advisable that the registered person carries out the exercise of invoice wise matching of inward supplies with his GSTR 2A for that F.Y. and find out the discrepancy. If the excess credit is taken due to any reason such a duplicay of invoices, error in figures, etc. the same shall be part of reconciliation in GSTR-9C. No effect shall be given in GSTR-9 for that Financial Year.

6.2.9. However, if the ITC pertaining to the concerned FY. is already reversed by the registered person in the returns filed for the month of April to September following the concerned FY., then the same shall be reported in Row 12 of Part V of Form GSTR-9 of th concerned FY.

6.2.10. In a reverse case where the total of ITC in GSTR-2A is more than the total in Row 6B, it can be safely concluded that the registered person has availed lesser ITC that eligible to him. Now, this lesser ITC may be due to various reasons such as, blocked ITC under Section 17(5) is not availed at the threshold, the registered person missed out to include or did not receive certain invoices for the inward supplies received during the FY., the registered person has not accounted for the debit note raised by the supplier, etc. In such case, one has to be careful to avail the eligible ITC on missed out invoices and debit notes by including the same in returns filed for April to September immediately succeeding the FY. No ITC shall be allowed for any invoice pertaining to a particular FY. after the due date of furnishing return for the month of September following the end of FY. as per Section 16 (4) of the CGST Act, 2017.

6.2.11. It may be noted that the Government’s intention as per the recent press note and tweets has been clear that any ITC for invoice pertaining to FY. 2017-2018 shall be not allowed after due date for filing GSTR 3B for September 2018. The due date for filing GSTR-3B for September 2018 was 25th October 2018. In my view the above stand of the Government is debatable and needs to be tested in court of law. Firstly, GSTR-3B is not a return as envisaged under Section 16(4) read with Section 39 of the CGST Act, 2017. GSTR-3B is merely a makeshift return or a summary return till the time the actual return in GSTR-3 is brought into force. The implementation of GSTR-3 has been stalled due to various system problems being faced by the Government. Without referring to such problems, it will be suffice to say that the restricting or foreclosing the rights of the registered person without fulfilling the promise on their part will be wholly unjustifiable on the part of the Government. Secondly, looking at the larger perspective, the said restriction for availing the credit may also be challenged as unconstitutional since it is against the basic tenets of a value added tax system wherein the tax paid on inward shall be set off against the out put tax liablity. Having said so, the restriction on time limit for availing ITC is not uncommon to Indirect Tax legislation. The Service Tax Acts (Finance Act, 1994) as well as certain State VAT Act already had provisions similar to GST putting restriction on time limit for availing the ITC on inward supplies.

6.2.12. As this point is also relevant to the recent press note of CBIC wherein it has been clarified that in September return eligible ITC for 2017-18 can be claimed irrespective of reconciliation with GSTR 2A. In other words, it is conveyed that one should avail all eligible ITC whether reflected in 2A or not in September, 2018 return and the actual reconciliation can be done subsequently.

6.2.13. As far as the reporting in the Annual Return is concerned of inward supply invoices of concerned FY for which the ITC is availed in the returns filed for the period April to September following the concerned FY, the same shall be reported in on consolidated figure in Row 13 of Part V of Form GSTR 9.

6.2.14. Row 6C and Row 6D requires reporting of inward supplies attracting reverse charge liability on which tax is paid and ITC is availed. It may be noted that there are two Sections for liability on RCM basis. One is Section 9(3) of CGST Act, 2017 which is in case of specific notified services such as GTA, Sponsorship, Legal Services, etc. Another is liability for RCM under Section 9(4) of CGST Act, 2017 which is on any supplies received from an unregistered person. Corresponding provisions in IGST Act, 2017 is Section 5(3) and Section 5(4) respectively. In Table 4A of GSTR-3B, the registered person may have already reported ITC on inward supplies liable on RCM basis. However, now the same needs to be bifurcated in Inward Supplies from Unregistered Person under Section 9(4) which is to be reported in Row 6C and Inward Supplies from specified suppliers in Row 6D. Again the said bifurcation needs to be worked out. One may also note that w.e.f. 13-10-2017, the RCM liability under Section 9(4) has been exempted till further notification. Thus, atleast from 13-10-2017 there shall be no liability under Section 9(4) for the FY 2017-2018.

6.2.15. Row 6E requires reporting of ITC availed only on imports of goods including supplies from SEZ. This will be readily available in Table 4A of GSTR-3B.

6.2.16. One more important task to be done in reporting all the above Row 6B to 6E is that there is sub-bifurcation required between ITC on inputs, capital goods and input services. Now, this requirement is a herculean task at this stage. If this had been included in the monthly returns itself or had been prescribed earlier, the registered person would have maintained the data or customized the system accordingly. To take out the bifurcation now for the entire year is like rebooking all the invoices for the entire year based on the above heads of inputs, capital goods and input services. Large business houses which have robust accounting softwares may still manage to do it, however for small and medium enterprises this will be additional efforts.

6.2.17. Row 6F requires reporting of ITC availed on Import of Services but excluding services received from SEZ suppliers. Services received from SEZ suppliers is included in Row 6B. The same is available in Table 4A of GSTR-3B with little work over on supplies from SEZ.

6.2.18. Row 6G requires reporting on ITC on inward supplies received from input Service Distributor. The same is readily available in Table 4A of GSTR 3B.

6.2.19. Row 6H requires reporting of reclaimed ITC under any of the provisions of Act. For example, where the registered person has reversed the credit on inputs for non payment to the vendor beyond 180 days, the ITC can be availed on making the payment. The same said reclaimed ITC shall be reported in Row 6H and not in Row 6B. In Row 6B it is already reported once and the reversal of same is also reported in Row 7A.

6.3. After reporting the bifurcation of ITC in Rows 6B to 6H the total of the said rows will be reported in Row 6I. The total in Row 6I will be compared with Total in Row 6A and the difference shall be reported in the Row 6J. According to me, there should be no difference in total of 6I and 6A since it is total in row 6A only which is bifurcated into 6B to 6H. Thus, if there is any difference, then the total in Row 6B to 6H need to be checked until the difference becomes zero.

6.4. Rows 6K to 6L of Part III of Annual Report

6.4.1. Row 6K requires reporting of Transitional Credit availed by a registered person by filing TRAN I or revised TRAN I as the case may be. The final figure appearing as per the Revised TRAN I will be reported over here.

6.4.2. Row 6L requires reporting of Transitional Credit availed by a registered person by filing TRAN II or revised TRAN II as the case may be. The final figure appearing as per the Revised TRAN II will be reported over in this Row.

6.4.3. It may be note that only transitional credit availed during the concerned FY will be appearing in these Rows. The time limit of filing TRAN-I and 
TRAN-II has been extended periodically and as of now the last date is 31st January 2019. In such case, even though the transitional credit is availed by the registered person by filing the TRAN-I in say December 2018, it will not be reported in Annual Report for 2017-2018. The said transitional credit availed by filing the TRAN-I or TRAN-II shall be disclosed in Annual Return for 2018-19.

6.4.4. It is further to be noted that any reversal of excess transitional credit actually done in the concerned financial year only will be reported in Row 7F and 7G of Annual Return for that FY. Where the reversal is made in any subsequent financial year, than said reversal shall be reported only in the Annual Return for such subsequent financial year.

6.5. Row 6M requires reporting of ITC availed but not specified in Rows 6A to 6L. As per the instructions the said Row 6M will contain details of ITC availed under Form GST ITC-01 on account of stock held on application of new registration within the prescribed limit. Row 6M may also cover ITC availed in Form GST ITC-02 on account of transfer of ITC on sale, merger, demerger, amalgamation, lease transfer, etc.

6.6. Thereafter Row 6O will contain the total of ITC availed by the registered person during the Financial Year.

7. Points of verification in Table 7 of Part III of Form GSTR-9

7.1. Table 7 of the Annual Report requires reporting of ITC reversed and ineligible ITC declared in the returns filed for the Financial Year. Again, the figures are merely the addition of the monthly returns and no revised figure can be added or deducted from Table 7. If there is any less reversal or excess reversal, the same can be either given effect by row 12 or 13 if such changes are effected in the monthly returns filed for the period of April to September following the end of financial year.

7.2. Row 7A requires reporting of reversal of ITC on account of non-payment of conservation beyond 180 days as per Section 16(2) of the CGST Act, 2017. It is to be noted that, in Row 7A only that figure which has been reported in the monthly returns will be shown. If for any reason the registered person has failed to report any such reversal any of the monthly return than the same will not appear in Row 7A. The effect for the same shall be either given in Row 12 or in the Annual Return of the next financial year. The said figure of reversal under Rule 37 will be included in Row 4B(2) of the GSTR-3B. Individual bifurcation of the same needs to be worked out for reporting in Row 7A.

7.3. Row 7B requires reporting of ITC which is reversed from the distribution made by the Input Service Distributor under Rule 39 of the CGST Rules. The said figure is not separately shown in Table 4B of GSTR-3B, hence it needs to be worked out manually. Rule 39(1)(i) provides for reversal of ISD, if there is credit note in respect of which ITC is distributed. When the supplier of ISD issues credit note there will be reduction in distributable ITC. Therefore, ITC has to be correspondingly reduced by the recipient. Rule 39(2) provides similar position for reduction in distributable ITC for any other reasons. The reversal of ISD credit can be verified from the GSTR – 6 filed by the ISD for distributing the credit.

7.4. Rows 7C and 7D requires reporting of reversal made by the registered person on account of Rule 42 and Rule 43 of the CGST Rules. As per section 17(1) or (2) of CGST, the ITC which pertains to Input or input services used for non business activity is required to be reduced. Similarly when the ITC is for taxable as well as for exempt supplies, it is required to be reduced on pro rata basis given in rule in relation to exempt supplies.

7.5. Rule 42 of the CGST Rules provides for manner of distribution of input tax credit in respect of inputs or input services used partly for business purposes and partly for other purposes, or partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies. Similarly, Rule 43 provides for manner of distribution of input tax credit in respect of capital goods used partly for business purposes and partly for other purposes, or partly for effecting taxable supplies and partly for exempt supplies.

7.6. The above figure for reversal under Rules 42 and 43 is available in Row 4B(1) of GSTR-3B. The same needs to be bifurcated into Rows 7C and 7D. Any lower reversal or excess reversal which has been given effect to in the returns filed for April to September following the end of financial year shall be shown in Rows 12 or 13 of the Annual Return.

7.7. Row 7E of the annual return requires reporting of ineligible ITC on account of blocked credit under Section 17(5) of the CGST Act. The said figure is readily available in Row 4D(1) of GSTR-3B. It is to be noted here that many registered persons while filing the return had shown the ITC in Row 4A of GSTR 3B as net of blocked credit in Section 17(5). In such case, my opinion would be to continue to show the ITC in Row 6A as net ITC excluding blocked credit under 17(5) in order to avoid the difference. The figure in Row 7E relating to blocked credit will appear only if the same is also included in total ITC as pr Row 6O. If the blocked credit is not included in Row 6O, then it will result in difference in Net ITC as per Annual Return and as per GSTR 3B.

7.8. Rows 7F and 7G require reporting of any reversal in Transitional Credit made during the F.Y. The same will be included in Row 4B(2) of GSTR-3B.

7.9. Row 7H relates to any other ITC Reversal which may be made but not included in any other Rows of Table 7. This may include the reversals made on account of Show Cause Notice or pursuant to any order of the court, etc.

7.10. Row 7I is the total ITC reversed or ineligible included in Rows 7A to 7H.

7.11. Row 7J provides the total of net ITC availabe for utilization by deducting the total ITC reversal in 7I from the total ITC availed in 6O. The Net ITC availed in 7J is an important figure as the same will be taken as base to compare the ITC as per books of account in Row 12E of the Audit Report in Form GSTR-9C. The total in Row 7J will also be the base for comparison of expenses wise ITC in Row 14S of Audit Report in Form GSTR-9C.

8. Points of verification in Table 8 of Part III of Form GSTR-9

8.1. Table 8 of the Annual Return prescribes other information relating to ITC such as total amount of ITC available as per GSTR 2A, total amount of ITC lapsed during the Financial Year. The said figures of lapse of ITC will then be available in the system of GST for cross reference during assessment.

8.2. Row 8A will be auto populated figures of total ITC as per the GSTR-2A. The same will be used for comparison of ITC as per Row 6B. The same is intended to verify that the total ITC availed matches with the tax paid by the suppliers on supplies made to the registered person.

8.3. Row 8B will also be auto populated figure containing total of Row 6B and 6H. Row 8C requires reporting of total ITC on inward supplies received during the FY 2017-18 but availed in the return filed for the period April 2018 to September 2018.

8.4. In Row 8D, the total ITC as per GSTR 2A will be compared with the Total ITC claimed by the registered person for FY 2017-18. The difference of the total ITC as per GSTR-2A and total ITC claimed by the registered person for FY 2017-18 upto the due date for filing the return for the month of September 2018 will be reported in Row 8D.

8.5. If the difference in Row 8D is in positive, it means that Registered Person has claimed less ITC than what is available as per GSTR-2A. If the difference in Row 8D is negative, it means that Registered Person has claimed excess ITC than what is available as per GSTR-2A. In such case, again the reason needs to be found out for such excess credit. The excess credit may be on account of duplicate credit availed in monthly returns or the suppliers of the registered person have not filed the 
GSTR-1.

8.6. If the difference is in positive, than said difference will be further bifurcated in Rows 8E and 8F. Row 8E is the amount of ITC out of the difference in 8D which was available as per GSTR 2A but has not been availed by the registered person in any of the GSTR-3B till return filed for the month of September 2018. Row 8F is the amount of ITC out of the difference in 8D which was available as per GSTR-2A bot not availed by the registered person on account of ineligibility, e.g. blocked credits.

8.7. Row 8G requires reporting of Total IGST paid on import of goods (including supplies from SEZ). The same needs to be found out by the registered person for the FY from its books of account. Row 8E is the Total ITC availed on import of goods including supplies of goods from SEZ. The same will be autopopulated as per Row 6E.

8.8. The difference between, 8G and 8E is reported in 8I. The said difference amount in 8I is nothing but ITC available on import of goods but not availed by the registered person as appearing in Row 8J.

8.9. Row 8K is the total of Row 8D and Row 8J. The said total is the amount of ITC which was available to registered person but not availed for any reason. As per description of Row 8K, the same total is proposed to be lisped ITC for the said FY.

8.10. In my view, the legal effect of the said Row 8K needs to be challenged on two grounds, 1) the unveiled ITC which was eligible but not availed beyond September 2018 may be challenged on the grounds discussed in Para 6.2.11 above. 2) the unallied ITC on import of goods needs to be challenged on the ground that there is no time limit prescribed under the CGST Act or the Rules for availing ITC on the basis of Bill of Entry filed for imported goods. As per Section 16(2)(a) the registered person shall be entitled to claim ITC on the basis of three documents, namely;

• Tax invoice issued by registered supplier

• Debit note issued by registered supplier

• Such other tax paying documents as may be prescribed in Rule 36(1). Bill of Entry is one of the tax paying documents.

8.11. Section 16(4) of the CGST Act, 2017 provides that a registered person shall not be entitled to ITC is respect of any invoice or debit note after the due date for filing return for the month of September following the end of FY. The said Section 16(4) does not speak about ITC on the basis of specified documents such as Bill of Entry. It only provides for invoice or debit note.

8.12. Thus, Row 8K providing for lapse of unavailed ITC on import of goods is not sustainable and against the provisions of law.

9. Brief introduction of GST Audit Report

9.1. After GSTR-9, the next requirement is filing GSTR-9C which is the prescribed Form for GST Audit Report. The GST Audit is applicable only when the turnover of registered person exceeds ₹ 2 crores in a financial year.

9.2. This is last tier of self-assessment and verification of correctness of returns filed during the year is carried out by an Independent Auditor.

9.3. Though the Form-9C is loosely called as GST Audit Report, in essence it is a reconciliation of Annual Return with the books of account. Form GSTR-9C is reconciliation of figures given in GSTR-9 vis-à-vis books of account for the financial year. An issue can arise whether the auditor is required to see correctness of the books of account or to report the details as asked in Reconciliation Statement.

9.4. For example, the registered person has claimed ITC on food services to employees. It is blocked credit as per section 17(5). It will be reflected in ITC availed in 3B and correspondingly in GSTR-9. While giving reconciliation statement, auditor notices this wrong availing. Whether auditor should do reconciliation with account as filled up in GSTR-9 by audited or should change the same to correct position? Issue requires clarification from authorities.

10. Explanation of relevant Rows in GSTR-9C relating to Inward Supplies

10.1. Tables 12, 13, 14, 15 and 16 are relevant for reporting on Inward Supplies. Out of the aforesaid Tables, Tables 13 and 15 are merely list of reasons for differences in reconciliation of Table 12 and Table 14 respectively. Table 16 is further calculation of liability on difference listed in Table 13 and Table 15.

11. Points of verification in Table 12 of Part IV of Form GSTR-9C

11.1. Table 12 is reconciliation of Net ITC availed as per Annual Return with ITC availed in the books of account. The reconciliation starts with manually filling the figure of Net ITC availed for the FY. in a State as per the Books of Account. The first problem which may be faced by a multi state registered person not maintaining separate trial balance for each State will be about finding out the Net ITC for each State. Here, the registered person is expected to internally derive their ITC for each individual GSTIN and declare the same in Row 12A. The next question which may arise is whether the Auditor is to verify the correctness of Net ITC figure derived by the Registered Person for declaration in Row 12A. In my view, the same is the responsibility of the registered person to arrive at the correct figure and any figure nearest to the correct figures. The Auditor may not be required to go behind the figures declared by the Registered Person for verifying the same. In any case, the more the difference between the GSTR-9 and the declared figure, more will be the liability on the Registered Person. At the same time, to avoid any discrepancy, it will suffice if the Auditor merely takes note of the method employed for arriving at the figure of Net ITC for each State.

11.2. Row 12B requires addition of ITC which was booked in the earlier FY years but claimed in the current FY of Audit. The said addition is to arrive at the figure 
of Net ITC as per GSTR-9 where the ITC is claimed in this FY. This will also include Transitional Credit which may have been booked in the earlier FY year but claimed in the GST Return in current FY.

11.3. Row 12C requires deduction of ITC booked in the current FY but claimed in the return of subsequent FY. This is required to arrive at the ITC claimed in returns for the current FY.

11.4. Row 12D arrives at the net ITC availed as per the audited financial statement for the current FY. The said total in Row 12D will be compared with Net ITC claimed in the Annual Return as shown in Row 7J of Annual Return equal to Row 12E of the Audit Report.

11.5. If there is difference in the ITC as per Audited Books of Account and Annual Return, the same shall be shown as un-reconciled ITC in Row 12F. If there is a positive difference, it means that ITC in audited books of accounts is higher than the ITC as per Annual Return. The balance ITC not availed in Annual Return may lapse for not being availed within time limit prescribed subject to other provisions of the Act. In any case, the difference for un-reconciled ITC needs to be explained in Table 13. However, if there is negative difference meaning thereby the ITC as per the Audited Books is less than the ITC as per the Annual Return, the difference needs to be be explained in Table 13. It also means that registered person has availed more ITC than what is available as per books of account. This may result in demand depending upon the reasons for difference.

12. Points of verification in Table 14 of Part IV of Form GSTR-9C

12.1. Apart from the Reconciliation of Net ITC as per Annual Return with the Net ITC as per Books of Account, the registered person is also liable for reconciling the ITC on the basis of each expense head.

12.2. Row 14A to 14Q require the registered person to classify the net ITC as per the books of accounts and Annual Return on the basis of various expense heads such as, purchases, freight / carriage, power and fuel, rent and assurance, imported goods (including received from SEZ), goods lost, stolen, written of, or disposed of by way of gift or free samples, royalties, employee’s cost, etc. The said list is only illustrative and not exhaustive. Thus, it may happen that whatever heads of expenses are shown in the debit side of trading and profit and loss account, all such heads needs to be mentioned in Table 14. The ITC on each of such head as per the books of accounts needs to be mentioned in the Table 14 along with its value, the total amount of ITC, the total amount of eligible IT availed in the books of account. This, is going to be a challenging part of the Audit Report, as many registered persons may not have maintained the books of accounts in a manner in which the ITC on above heads can be clearly distinguished and arrived at. If the ITC is parked in a common account, the same needs to be worked out entirely for a particular year with utmost accuracy to avoid any differences. The various heads of expenses in Table 14 are extracted below for ready reference:

	Description	Value	Amount of Total ITC ₹	Amount of eligible ITC availed
	1	2	3	4
A	Purchases
B	Freight / Carriage
C	Power and Fuel
D	Imported goods (Including received from SEZs)
E	Rent and Insurance
F	Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
G	Royalties
H	Employees Cost (Salaries, wages, Bonus etc.)
I	Conveyance charges
J	Bank Charges
K	Entertainment charges
L	Stationery Expenses (including postage etc.)
M	Repair and Maintenance
N	Other Miscellaneous expenses

12.3. Row 14R is the total of ITC availed on all the expense heads mentioned in Table 14. The said total in Row 14R will be compared with Net ITC claimed in the Annual Return as shown in Row 7J of Annual Return equal to Row 14S of the Audit Report.

12.4. If there is difference in the ITC as per Audited Books of Account and Annual Return, the same shall be shown as un-reconciled ITC in Row 14T. If there is a positive difference, it means that ITC in audited books of account is higher than the ITC as per Annual Return. The balance ITC not availed in Annual Return may lapse for not being availed within time limit prescribed subject to other provisions of the Act. In any case, the difference for un-reconciled ITC needs to be explained in Table 15. However, if there is negative difference meaning thereby the ITC as per the Audited Books is less than the ITC as per the Annual Return, the difference needs to be be explained in Table 15. It also means that Registered Person has availed more ITC than what is available as per books of account. This may result in demand depeding upon the reasons for difference.

13. Conclusion

13.1. Though the attempt by the GSTR-9 and GSTR-9C is well intended to find out ultimate ITC as per books, the process will be far fetched and will require separate exercise and efforts. There are chances that there will be multiple interpretation of various ITC items like expenses heads. No provision is made to give details about grouping made. Great care will be required as well as consistency will be required to be maintained from year to year.

The details in audit report also required to auditor to prevail in the records and returns of the previous and subsequent year. This is also unexpected like the auditor will be reporting about ITC taken in the returns of April to September of subsequent year from the end of the financial year under Audit. This figures will be unaudited and will be incorporated as given by auditee. In my opinion this aspect is also required to be clarified by the authority.

13.2. One more missing aspect is as to how to carry out recommendation for payment etc. There should be provision for filing up one final return post audit like it is under MVAT Act. Such return will be updated and will be in consensus with report and finality will come to the GSTR-9 and returns. At the end, we expect modification and much more clarification in the forms in future.

 

Who makes us ignorant? We ourselves. We put our hands over our eyes and weep that it is dark.

— Swami Vivekananda

Introduction

Goods and Services Tax revolves around the occurrence of the event “supply”, the whole concept of indirect taxation in the new GST regime have changed from the point of ‘manufacture’ under erstwhile central excise law or providing of ‘service’ under erstwhile service tax law or point of ‘sale’ under erstwhile Sales Tax/ VAT law to the point of ‘supply’ under the new GST law.

GST can be levied inaccordance to Section 9 on the ‘supplies’ of ‘goods’ or ‘services’ or both and scope of supply has been provided in Section 71 of the CGST Act 2017, so first, we need to understand that whether the event of occurrence of a transaction falls within the ambit of ‘Scope of Supply’ and the Schedules prescribed therewith.

In the light of the ‘Scope of Supply’ as provided in Section 7 and the Schedules prescribed therein under the CGST Law, it is also essential to critically analyse the event of occurrence of a transaction that whether it is a transaction of ‘goods’ or a transaction of ‘service’ specially in the light of the deeming fiction used in the legislation. The provisions for application of the GST Law has been separately provided for a transaction of ‘goods’ and a transaction of ‘service’ like time, place and value of the supply of goods and service are quite different and need to be carefully applied and analysed. The provisions of the Input Tax Credit as well as the various Notifications issued under GST Law needs to be appropriately identified and applied inrelation to the specific facts and circumstances of the event of the occurrence of a ‘supply’ transaction in either case of an ‘outward supply’ or an ‘inward supply.’

The taxation in GST is primarily based on ‘outward supply’ which have been defined in Section 2(83) of the CGST Act 2017 as ‘outward supply’ in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business”.2 Since scope of this Article is confined to issues relating to outward supply we are not touching the other areas of supply mainly ‘inward supply’ in the GST which in itself needs detailed analysis.

While, considering ‘outward supply’ we need to recognise the concept of ‘taxable person’, ‘goods’, ‘services’, ‘sale’, ‘transfer’, ‘barter’, ‘exchange’, ‘license’, ‘rental’, ‘lease’, ‘disposal’ etc., as first by their definition provided in the GST Law and also their legal meaning from the jurisprudence. The colour from correct interpretation of each of the segment of ‘Outward Supply’ is essential to be recognised. Lot of established law from the Indian Courts as well as International Courts are available on these words which may be considered in the light of the specific definitions wherever provided under the GST Law.

The determination of the GST liability is the ultimate requirement of disclosure in the Annual Return, so we need to determine every ingredient or requirement to logically decide by dissecting in the light of the provisions of GST Law for the ‘outward supply’. The process of determination of nature of the transaction and the tax due thereon under GST Law starts from the very beginning i.e., at the time of issue of tax invoice or even prior to that i.e. at the time of receiving the advance for the expected supply of goods or service or both, so we need to be careful in determining every relevant attribute of an outward supply transaction at the time of structuring the transaction itself at the very initial stage. Thus, the determination of the tax liability in accordance to the nature of the transaction has already happened at the time of performing the transaction and recording it in the books of account, which is also being disclosed to the Government either by way of tax invoice being raised on the webportal itself or through the supporting e-way Bill being issued from the web-portal of the Government. However, the further disclosure of the transaction is again required to be made at the time of filing the Monthly/Quarterly Return in GSTR-13or GSTR-3B or GSTR-44 while the Annual Return in GSTR-95 or GSTR-9A6 are the summary of the transactions already disclosed and declared in the Monthly/Quarterly Returns.

Now, we need to discuss within the scope of this Article viz., Issues relating to determining and disclosing outward supply in Annual Return, so we are confining to the details of outward supplies which have been specified in Part-II of Form GSTR-9 as prescribed u/r. 80 known as ‘Annual Return’.7

In Part-II of Form GSTR-9 i.e., Annual Return the details of outward supply and inward supply during the Financial Year in the tabular form in following categories has been required with their taxable value, Central Tax, State/UT Tax, Integrated Tax and Cess. It is important to note that not only the taxable value and tax payable thereon for a completed supply, but also the advance received have to be disclosed. The calculation of the ‘taxable value’ should be inaccordance to the provisions of the GST Law and also should be as declared in the returns filed during the financial year i.e., Monthly/Quarterly Returns regularly filed as required under the provisions of GST Law. Thus, the Annual Return in Form GSTR-9 is precisely a consolidated statement/summary of the Monthly/Quarterly Returns. However the various categories of supplies needs to be differently disclosed in the Annual Return than they were earlier disclosed in the Monthly/Quarterly Return, so care must be taken to understand the requirement of exact disclosure in Annual Return.

Under the same Notification and Provisions of Law as referred above, the Annual Return i.e., Form GSTR-9A has also been prescribed for ‘composition tax payers’.8 The details required for outward supply and for inward supply in GSTR-9A are quite simpler to analyse, calculate and disclose as well as are also different than the GSTR-9.

Now, brief discussion about the specifically required information viz., ‘taxable value’ and ‘tax payable’ thereon under various categories of the ‘Outward supplies’ in Part-II Column 4 of GSTR-9 shall be made in the sequence as they are required in the ‘Annual Return’:-

A. Supplies made to Unregistered customers (B to C)

Aggregate value of supplies made to consumers and unregistered persons on which tax has been paid shall be declared in this column. These will include details of supplies made through e-Commerce operators and are to be declared as net of credit notes or debit notes issued in this regard. Table 5 i.e., outward interstate supply to unregistered dealers, Table 7 i.e., Inter-State supply alongwith respective amendments in Table 9 and Table 10 i.e., Amendments for outward supplies of Form GSTR-1 may be used for filling-up these details.

B. Supplies made to registered person (B to B)

Aggregate value of supplies made to registered persons under GST (including supplies made to UINs) on which tax has been paid shall be declared in this column. This also includes business to business transactions. These will include supplies made through e-Commerce operators, but shall not include supplies on which tax is to be paid by the recipient on reverse charge basis. Details of debit and credit notes are to be mentioned separately. Table 4A i.e. details of invoice details of all supplies (rate wise) other than reverse charge/made through e-commerce operator and Table 4C i.e., meant for invoice details of supplies (operator-wise and rate-wise) effected through e-Commerce Operator attracting collection of tax at source of Form GSTR-1 may be used for filling up these details.

C. Zero-rated supplies on payment of tax (except supplies to SEZ)

Zero rated supply are the supply on which 0% GST is to be discharged while making an outward supply of goods, e.g., Supply made for exports of goods or services under GST. Assessee gets the ITC on inputs used for making such supplies subject to ITC restrictions under Sec. 17.

Aggregate value of exports (except supplies to SEZs) on which tax has been paid shall be declared in this column. Table 6A of Form GSTR-1 may be used for filling-up these details. Care is to be made by recognising the distinction between an export without payment of tax e.g., export under LUT9 or export with payment of tax or purchase of export goods from domestic market at concessional rate of 0.1%.10

D. Any supplies which are made to SEZs

Aggregate value of supplies to SEZs on which tax has been paid shall be declared in this column. Table 6B of GSTR-1 may be used for filling up these details. The concerns as explained above for exports also needs to be considered.

E. Deemed Exports

It means such supplies of goods as may be notified under section 147.11 Section 147 says, Government can notify deemed export of goods where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India. The legal position needs to be examined with regard to the deemed export transaction for claim of the exemption or concession under the GST Law.

Aggregate value of supplies in the nature of deemed exports on which tax has been paid shall be declared here. Table 6C of Form GSTR-1 may be used for filling-up these details.

F. Advances on which tax has been paid but invoice has not been issued.

Details of all unadjusted advances as on 31st March, advance has been received and tax has been paid, but invoice has not been issued in the current year shall be declared in this column. Table 11A of Form GSTR-1 may be used for filling-up these details.

G. Inward supplies on which tax is to be paid on reverse charge basis.

Aggregate value of all inward supplies (including advances and net of credit and debit notes) on which tax is to be paid by the recipient (i.e., by the person filing the Annual Return) on reverse charge basis. This shall include supplies received from unregistered persons on which tax is levied on reverse charge basis. This shall also include aggregate value of all import of services. Table 3.1 (d) of Form GSTR-3B may be used for filling-up these details.

H. Credit Notes issued in respect of transactions specified in Item (B) to Item E above (-)

Aggregate value of credit notes issued in respect of B to B supplies (4B), export (4C), supplies to SEZs (4D) and deemed exports (4E) shall be declared here. Table 9B of Form GSTR-1 may be used for filling-up their details.

I. Debit Notes issued in respect of transactions specified in Item (B) to Item (E) above (+)

Aggregate value of debit notes issued in respect of B to B supplies (4B) exports (4C), supplies to SEZs (4D) and deemed exports (4E) shall be declared here. Table 9B of Form GSTR-1 may be used for filling-up these details.

J. Supplies/tax declared through amendments (+)

K. Supplies/tax reduced through amendments (-)

Details of amendments made to B to B supplies item (4B), exports item (4C), supplies to SEZ’s item (4D) and deemed exports item (4E), credit notes item (4I), debit notes item (4J) and refund vouchers shall be declared in column J and K. Table 9A and Table 9C of Form GSTR-1 may be used for filling-up these details.

Details of outward supplies on which tax is not payable as declared in monthly/quarterly returns filed during the financial year.

A. Zero rated supply (Export) without payment of tax

Aggregate value of export (except supplies to SEZs) on which tax has not been paid shall be declared in this column. Table 6A of Form GSTR-1 may be used for filling-up the details.

B. Supply to SEZs without payment of tax

Aggregate value of supplies to SEZs on which tax has not been paid shall be declared in this column. Table 6B of GSTR-1 may be used for filling-up these details.

C. Supplies on which tax is to be paid by the recipient on reverse charge basis

Aggregate value of supplies made to registered persons on which tax is payable by the recipient on reverse charge basis shall be declared in this column. Details of debit note and credit notes are to be mentioned separately. Table 4B of Form GSTR-1 may be used for filling-up the details.

D. Exempted

The supplies made under Schedule-III as prescribed u/s 7 of the CGST Act is to be declared under the category of exempted as legally they are supplies covered under GST Act, but specifically exempted from payment of tax. The value of ‘no supply’ shall also be declared here.

E. NIL rated

F. Non-GST Supply

Aggregate value of exempted, NIL rated and non GST supplies shall be declared in columns D, E and F respectively. Table 8 of Form GSTR-1 may be used for filling-up these details.

The ‘HSN-wise summary of Outward Supplies’ have been required in Part-VI Column 17 of GSTR-9 which needs to be carefully segregated inaccordance to the correct classification of the goods or service. For the Annual return to be filed by 31st December 2018 i.e., for the period from1st July 207 to 31st March 2018 of Financial Year 2017-18 the Government has given leverage that tax payer having turnover in the preceding year upto ₹ 1.50 crore has an option not to give any of these details, while it is mandatory to report HSN Code at 2 digits level for tax payers having annual turnover in the preceding year from ₹ 1.5 crore upto ₹ 5 crore and at 4 digits level for tax payers having Annual Turnover above ₹ 5 crore. UQC i.e. Unique Quantity Code is only to be furnished for supply of goods. It is important to note that the quantity is to be reported net of the quantity of goods return. Table 12 of Form GSTR-1 may be used for filling-up details in Table 17.

Conclusion

As the name suggests ‘Annual Return’ i.e. GSTR-9 acts as a consolidated statement of all the previous returns like GSTR-1 and GSTR-3B for an entity. Since, the tax liability arises when the chain of outward supply continues, the discussion above should be of sufficient help to file Annual Return. It is important to note that the Annual Return in Form GSTR-9 reports all the outward as well as inward supply of the entity and its quantum value. The important point that is to be noted in the return is with respect to correct entry being made under relevant heading. Even though GST is new law for Indian businessman, lot of improvements and modifications have been made to ease the working of entity and enable smooth supply of goods and/or services in the country. GSTR-9 also aims the same and meets continuous changes to avoid multiple interpretations. There are numerous intricate issues of interpretation on the basis of which different course of action arises for filing of the Annual Return, we need to dwell upon them in depth to arrive at an appropriate decision.

Some Issues

Some pertinent issues have been raised in respect to preparation and filing of Annual Return for which discussions seems to be necessary, so they are placed in the shape of queries and their clarification.

1. How and which Annual Return to be filed if the Composition Scheme has been opted by a dealer for part of the Financial Year and for the balance period GSTR-3B were filed?

ANS. The tax payer-assesse who is registered in GST under the special category known as ‘Composition Dealer’ need not to file GSTR-9 which is quite exhaustive and required extensive details about the Outward and Inward Supplies, but they have to file Quarterly Return in Form GSTR-4 and Annual Return in Form GSTR-9A. This facility with the aim of reducing tedious procedural formalities is only for composition dealers whose turnover is upto ₹ 1 crore as discharge their GST liability on their total taxable turnover. The limit of total taxable turnover is 
₹ 75 lakhs for ones in Himachal Pradesh or north eastern states.

If a particular dealer has opted ‘Composition Scheme’ only for some part of the Financial Year while he had paid tax due under GST as a normal dealer than such dealer has to file Annual Returns in GSTR-9 as well as GSTR-9A for the respective periods otherwise there would be a mis-match from the Monthly Return filed under Form GSTR-1 and GSTR-3B as normal dealer vis-à-vis GSTR-4 as Composition Dealer in the respective periods.

2. Which ‘turnover’ as per audited final accounts is to be declared in GSTR-9C?

ANS. The word ‘turnover’ has not been defined under CGST Act while the concept of ‘total turnover’ and what components are included in ‘total turnover’ has been referred in Forms for Annual Return. However, the term “aggregate turnover” has been defined which means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

In the ‘Reconciliation Statement’ i.e. Form GSTR-9C the turnover to be declared in Part-II Column 5A has been mentioned as ‘Turnover (including exports) as per audited financial statements for the State/UT(for multi-GSTIN Units under same PAN the turnover shall be derived from the audited annual financial statement)’. This amount of ‘turnover’ needs to be reconciled with the amount in Part-II Column Q which mentions ‘turnover as declared in Annual Return (GSTR-9)’ which is as per Part-II Column 5N of GSTR-9 viz. Total Turnover (including advances) and has been explained in the footnotes as Total Turnover including the sum of all the supplies (with additional supplies and amendments) on which tax is payable and tax is not payable. It has further been explained that this Total Turnover shall also include amount of advances on which tax is paid but invoices have not been issued in the current year. However, this turnover shall not include the aggregate value of Inward Supplies on which tax is paid by the recipient (i.e. by the person filing the Annual Return) on reverse charge basis. It is important to mention that additions and deletions needs to be made with their reasons and of course subjected to verification to reconcile the turnover declared in Item A and Item Q of Column 5 of Part-II of GSTR-9C. Further, taxable turnover needs to be arrived after certain adjustments in-accordance to the provisions of GST Law to calculate the correct liability of GST by the tax payer.

3. Whether the turnover declared in GSTR-9 to include for the full Financial Year i.e. including the turnover declared under VAT or under Central Excise Act of the earlier period?

ANS. The GSTR-9 is the Annual Return prescribed and mandatorily required under the GST Law, the turnover after the implementation of GST i.e., w.e.f. 1st July 2017 is subject to GST, so the turnover for the period from 1st July 2017 to 31st March 2018 i.e., for 9 months needs to be disclosed in GSTR-9. The turnover for the period of April to June 2017 is subject to earlier laws of VAT or Service Tax or Central Excise and so the requirements provided under such laws needs to be adhered with.

4. Whether the ‘rate of tax’ on ‘outward supply’ needs to be examined and verified while filing of the Annual Return GSTR-9?

ANS. Yes. ‘Rate of tax’ applicable on the goods or service or composite supply or mixed supply is a matter of classification of the supply based on various factors and interpretations of the established analysis of HSN/ SAC Codes and the respective entries of the goods or services. The question of applicability of correct rate of tax on the supply is an important factor and must be properly examined and verified in-accordance to the existing provisions of the Law. The correct rate applicable for the period for which the Annual Return is being filed is necessary to be verified from all angles.

5. Whether the Foreign Exchange gain or loss on a supply transaction which is subsequently arrived could be a part of the taxable turnover?

ANS. The component for foreign exchange gain or loss specifically attributable to a transaction of supply of export or import shall be considered as a part of the taxable turnover and needs to be taxed inaccordance to the provisions of GST Law and has to be accordingly declared in the Annual Return.

6. What will be the treatment of ‘Sale of Assets’ under GST and how will it be declared in GSTR-9?

ANS. Sale of Assets is a usual transaction of outward Supply of goods and as such it will be subject to GST as a usual transaction of supply of goods under the classification appropriate to such asset. This transaction of supply of goods as assets shall be declared in the category of supply as required in GSTR-9.

7. Should the verification of valuation of outward supply be made for disclosure of turnover in respective categories of GSTR-9?

ANS. Correct valuation of supply and its proper disclosure is of great importance as the liability of tax due is based on the valuation. Valuation of goods and service is a ticklish issue and must be verified at the time of filing of the Annual Return as wrong declaration may lead to penalties and interest. Valuation of supply between the related parties is a sensitive issue and needs to be dealt-with carefully. The provisions of valuation must be appropriately applied considering the facts and circumstances of the transaction of supply. However, it would be much prudent to examine the issue of valuation of supply in an intricate transaction at the time of the transaction itself i.e., at the time of issuing the tax invoice, as once the tax invoice is issued and the transaction is reported in GSTR-1 then it would be little critical to rectify the same.

 

 

1 Gives the meaning of expression “supply”

2 CGST Act 2017, S. 2 (83)

3 Details of outwards supplies of goods or services

4 Quarterly return for registered persons opting composition levy

5 Rule 80 of CGST rules 2017

6 Provision of Rule 80(1) of CGST rules 2017

7 Notification No. 39/2018-CENTRAL Tax, dated 4th September 2018 as gazetted at Entry No. 613, Part-II, Section 3(i) dated 4th September 2018 on Page 21.

8 Sec. 10 CGST Act 2017

9 Vide circular No. 40/14/2018-GST dated 6/4/2018

10 Vide Notification no. 41/2017- Integrated tax(Rate) dated 23/04/2017

11 CGST Act 2017, Sec. 2 (39)

In this article, an endeavour has been made to explain the various terms and expressions used in the annual return as well as audit report/reconciliation statement prescribed under the GST law. The relevant provisions thrusting these obligations on the registered persons under GST law are contained in sections 35(5) and 44. Certain terms employed therein require more explanation/clarification so that compliance is done correctly. The provisions of CGST Act are referred to, for the purpose of explaining the meanings and wherever necessary, IGST Act is referred.

1. Turnover-Section 35(5) uses the expression “turnover”as opposed to the terms defined under the Act. Section 2 of the CGST Act which defines various terms employed in the said Act, has provided definitions of the terms “aggregate turnover” under clause (6) and “turnover in State” or “turnover in Union territory” under clause (112) thereof. There is a marked difference in the two types of turnover. “Aggregate turnover” covers the supplies to be computed all over India basiswhereas “turnover in State” or “turnover in Union territory” covers such supplies made from the specific State or UT, as the case may be. However, section 35(5) refers to only “turnover”. At the same time, rule 80(3) which prescribes such turnover limit refers to aggregate turnover and therefore, one can infer that section 35(5) considers aggregate turnover for all over India. The limit prescribed is ₹ 2 crores.

Take a case of a supplier who has multi state activities. The supplier has his principal place of business in the state of Gujarat. He usually supplies goods from the State of Gujarat. Therefore, the major turnover is effected from the State of Gujarat. However, as one of stray transactions, he imports goods in the State of Maharashtra and sells them to the customers in Maharashtra. The question here is whether he is required to obtain a registration in the State of Maharashtra. As per the provisions relating to place of supply as also the principles laid down by sections of IGST Act as regards interstate and intra-state supplies of goods/services, the above supplier can treat his supplies in the State of Maharashtra as inter-state supplies so that he does not have to obtain registration in Maharashtra. The location of the supplier of goods, in this case, is in Gujarat whereas the place of supply is in Maharashtra. Therefore, such supplier can continue supplying the goods based on his registration in Gujarat. However, section 22 clearly states that every supplier shall be liable to get registered in the State or Union Territory from where he makes taxable supply of goods or services of both. The expression used here is “from where he makes taxable supply”. Therefore, the supplier in this case is obliged to take a registration in the State of Maharashtra since he is making the supplies from that State. By virtue of his being registered in the State of Maharashtra, he also has to comply with the provisions, inter-alia, of section 35(5) and 44 i.e., file annual return and GST audit report in the State of Maharashtra as well.

Stretching the example further, a person may be registered in various states and his aggregate turnover considering all states exceeds ₹ 2 crore which is the limit of TO prescribed by rule 80. However, in one of the states, he has TO much below ₹ 2 crores. Still, he will have to file audit report u/s. 35(5) in that state as well.

2. Registered person-Section 35(5) uses the term “registered person” which is defined u/s. 2(94) to mean a person who is registered u/s. 25 but does not include a person having a unique identity number (UIN). Thus, any specialized agency of the United Nations organisation or any multilateral financial institution and organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries are not required to get their accounts audited under section 35(5) or file audit report and reconciliation statement under section 44.

Similarly, persons not liable for registration under section 23 also are not required to comply with section 35(5) and 44. They include the persons engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under CGST Act or under IGST Act. They also include an agriculturist to the extent of supply of produce out of cultivation of land.

If as per the proviso under sub-section (2) of section 25, separate registration have been obtained for business verticals, separate annual returns and GST audit reports will have to be filed.

Person who gets registered himself voluntarily also has to comply with the said provisions provided of course, his TO exceeds the prescribed limit.

The next question comes of the persons who, though liable to get registered have not obtained registration. The other consequences under the Act will certainly follow but can they be made to file annual return and audit report as well? Section 25(8) empowers the proper officer to get such person registered and, in my view, the obligations cast upon a registered person including that of annual return and audit report etc. will have to be complied as a consequence.

3. Non-GST supply: The Act defines “non-taxable supply”, not “non-GST” supply. However, in the context of the form of Annual return (Table 4-row F), it will have to be allotted same meaning. Clause (78) of section 2 defines “non-taxable supply” which means supply of goods and services on which no tax is leviable under CGST or IGST Act. In short, no GST is leviable thereon. This could happen when the transactions of such goods or services do not constitute supply or the goods/services or are completely out of the purview of GST law. The term is definitely referring to supplies other than the exempt or nil rated supplies.

The first category falling into non-GST supply that strikes our mind is that of the goods covered under the definition of “goods” but levy of tax thereon is deferred for the time being. They are 5 types of motor spirits (crude oil, petrol, diesel, aviation turbine fuel, natural gas). Section 9 categorically excludes levy on alcoholic liquor for human consumption. Thus, these are 6 types of goods which are outside the ambit of levy of GST. Therefore, they can be considered as “non-GST” supply. The oil companies dealing in these products have to file returns both under State VAT law and GST law. They are required to disclose the motor spirit TO in the GST returns as well though no tax is payable. Similarly, subsequent dealers in these products such as petrol pumps, bunker oil agents etc. also have to disclose this TO in their GST returns under the same category.

The transactions in Schedule III are the ones which are considered as neither supply of goods nor of services. Sale of land or building, subject to clause (b) of paragraph 5 of schedule II, is one of such transactions which is required to be disclosed here. However, the same cannot be treated as non-GST supply and hence, need not be disclosed in the returns or annual return.

Another such example would be high sea sales. Notification No. 3/1/2018 dated 25-5-2018 has now clarified that the high sea sales effected prior to the transaction on which customs duty is paid u/s 12 of the Customs Act, 1962, shall not be subject to tax. However, section 7(2) of the IGST Act postulates that supply of goods imported into India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of interstate trade or commerce. Thus, under the law, these transactions of high sea sales are not exempted from tax but the point of levy of tax is merely deferred till the goods are cleared from customs as per the proviso to section 5(1) of the IGST Act. Therefore, the question arises whether such sales are to be shown as exempt sales, which strictly speaking, they are not, or non-GST sales, where again they do not fall. In absence of any clarification, it is advisable to disclose them in either of the two columns in annual return. Further, a moot question that arises here is whether the TO of high sea sales should be considered for the purpose of calculating the limit of ₹ 2 crores as per rule 80. Keeping in view the above legal position, in my view, such sales have to be considered in the TO limit. However, the impending amendment in CGST Act proposes to include such sales in Schedule III which will mean that such transactions will neither be treated as supply of goods or as supply of services. In that case, there is no need to consider them for computing the TO limit of ₹ 2 crore.

Capital Goods: Table 6 of form 9 mandates separate details of inward supplies of inputs, input services and capital goods which are not readily available in form GSTR-3B. This is a challenge before the RPs to segregate these details form the total turnover of inward supplies. These terms are defined under the CGST Act. Let us examine the definition of “capital goods” u/s 2(19) which states that capital goods mean goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

The said definition is not linked to any Act such as Income-tax Act. All that needs to be seen is whether the said goods are capitalized in the books of account or not. If yes, then those are to be considered as capital goods. The decision to capitalize particular goods may be influenced by the provisions of Income Tax Act. It may so happen that the decision regards capitalization of assets/goods may have to be reversed based on the statutory/tax auditors. In that case, the GST auditor will have to reconsider the issue and classify such goods accordingly.

Normally, the assets in a business are built by way of a composite contract of work and labour which ultimately result into immovable properties. The term “works contract” is defined u/s. 2(119) to mean all such contracts giving rise to immovable properties including plant and machinery. By virtue of clause 6(a) of schedule II, the activity of works contract is treated as service. Here the question arises whether such services which are capitalized should be considered as capital goods. Especially in view of clause (c) of section 17(5) which allows set off in respect of works contract services resulting into immovable property being plant & machinery, it is more necessary to ascertain these services.

There is no definition provided for “capital services”. However, it is a common phenomenon that services utilized in building up a capital asset also go into the value of the capital asset. The capital assets may include either tangible or intangible goods. Intangible assets such as copy rights, trade marks, brand names etc. are capitalized in many cases in the books of account. The services which are utilized in building up such incorporeal rights are capitalized. What treatment should be given to such services?

Clause 5(d) of Schedule II treats development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software as service. Purchase of sophisticated software may be capitalized in the books. Whether such services can be considered as capital goods?

Here, one needs to understand that schedule II seeks to treat certain activities as either supply of goods or supply of services in the hands of the supplier for the purpose of taxation. It will merely have an impact on the discharge of liability. However, in the hands of the recipient, the same activity may be either be goods or services depending upon the true nature of the transaction. The supply of above referred software may be treated as supply of services in the hands of the supplier but the recipient may treat it as goods to be capitalized since time and again, the customized as well as off the shelf software is treated as goods by the courts. This aspect also needs to be looked into while classifying the capital goods and other inputs/input services.

Segregation of capital goods is essential since some of them find place in the negative list. For example, motor vehicles. In clause (d) of section 17(5), all goods and services going into the construction of immovable property meant for own use, excluding plant and machinery, are not eligible for set off. The question crops up here whether all these goods and services should be treated as capital goods and services on which set off is not admissible?

Clarification on these issues ought to be given by the Board.

Transitional credit: So far as transitional credit is concerned, there are many issues therein. For example, form TRAN-1 is filed to show refund of higher amount which is actually not shown in the last return filed before the appointed day. Even if such last return is revised to claim the higher refund, it cannot be considered in view of section 142(9)(b) which prohibits such additional refund to be carried forward. Since TRAN-1 does not auto-check the refund amount filed in the last return under existing law, it allows the higher amount of refund to be carried forward. However, such transition being unlawful, has to be repaid with interest and penalty if utilized to discharge the GST liability. Therefore, transitional credit if improperly availed/utilized, must be repaid with consequential penal burden. But Annual Return expects reporting of the actual amount of such credit carried forward, whether right or wrong. But the GST auditor will have to report such discrepancy.

As one proceeds to conduct the GST audit and file annual return, we will face many more ambiguities and differences in the interpretations.

1. RELEVANT PROVISIONS

The objective of the GST audit can be ascertained from the definition of Audit given in Section 2(13) of Central Goods and Services Tax Act, 2017 (CGST Act). The said definition reads as follows:

“audit means the 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.”

Two important provision which are relevant in this context are Section 35(5) and Section 44(2) of CGST Act read with rule 80(3) of CGST Rules.

In terms of section 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”.

In terms of section 44(2) “every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed”.

In terms of Rule 80(3) of the CGST Rules “every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of the audited annual accounts and a reconciliation statement, duly certified, in GSTR-9C, electronically through the commonportal either directly or through a Facilitation Centre notified by the Commissioner.

The council has recently notified GSTR-9 format on 4 September, 2018 via Notification no. 39/2018 central Tax and Audit reconciliation format on 13 September 2018 via Notification No. 49/2018-central tax.

2. PERSONS WHO ARE REQUIRED TO FILE ANNUAL RETURN AND COMPLY WITH THE AUDIT PROVISIONS –

As per Sec. 35(5) read with Rule 80(3), every registered person whose aggregate turnover during a financial year exceeds two crore rupees is liable to GST Audit. It must be noted that the term aggregate turnover has been defined in CGST Act, as

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Aggregate turnover is PAN based while turnover in a State/UT is similarly worded except to the extent that turnover in a State/UT is limited to a State. For the financial year 2017-18, the GST period comprises 9 months whereas the relevant section 35(5) uses the expression financial year. Therefore, in the absence of clarification from government, also to avoid any cases of default, it is reasonable to understand that to reckon the turnover limits prescribed for audit i.e., ₹ 2 crore one has to reckon the turnover for the whole of the financial year which would also include the first quarter of the financial year 2017-18.

3. DUE DATE FOR FILLING ANNUAL RETURN AND AUDIT REPORT

As per Section 44(1), the due date to file annual return is on or before the thirty-first day of December following the end of such financial year for which annual return is being prepared. Section 44(2) of the CGST/ SGST Act 2017 provides a Registered Person has to file an Annual Return in FORM GSTR-9 along with copy of reconciliation statement in FORM GSTR-9C. Thus, FORM GSTR-9C has to be filed along with FORM GSTR-9 in case where aggregate turnover exceeds ₹ 2 crores. Thus it can be interpreted that due date for filing reconciliation statement in FORM GSTR-9C is also on or before the thirty-first day of December following the end of such financial year for which reconciliation statement is being prepared.

4. ANNUAL RETURN

The Government has notified GSTR-9 format on 4 September, 2018 via Notification no. 39 Central Tax. This GSTR 9 has two parts to it i.e. PART-l of the format contains basic-points.

1	Financial Year
2	GSTIN
3	Legal Name
3A	Trade Name (If any)

PART-II – It consist of the details of all outward supplies and advances received during the FY for which the annual return is filed. The details filled in Part II are a consolidation of all the supplies declared by the taxpayer in the returns filed during the FY.

TABLE-4 of GSTR-9 requires reporting of details related to outward supplies (except Sl. No. G which relates to inward supplies which attract GST under reverse charge) it includes

1. Supplies made to unregistered Persons (B2C)

2. Supplies made to Registered Persons (B2B)

3. Zero rated supply (Export) on payment of tax (except supplies to SEZs).

Sl. Nos. I to L describe Credit notes, Debit notes and supplies/tax amendments.

TABLE 5: Details of Outward Supplies on which Tax is not payable as declared in returns filed during the financial Year.

Table 5 has been divided under various segments from Rows 5A to 5N and the Government intends to capture the details of all those outward supplies on which tax is not payable by the taxpayer on fulfilment of essential conditions of the law.

The supplies which are to be covered under this Table may be exports, supplies to SEZ, outward supplies on which the recipient is liable to pay tax i.e., which are subject to RCM, exempted supplies, nil rated supplies, non-GST supply including no supply to be reported in Rows 5A to 5F.

As far as credit and debit notes issued pertaining to such outward supplies and further amendments made in such outward supplies through Amendment Table-9 of GSTR 1, during the financial year covered as above are to be reported separately Sl.No. 5H to 5K.

Table 6: Details of ITC availed as declared in returns filed during the financial year.

Table 6A of GSTR-9 contains the details of ITC availed in GSTR-3B during the financial year. The purpose of this clause is to aggregate the quantum of Input Tax Credit availed by the Registered Person on import of goods, import of services, Inward Supplies liable to reverse charge, tax credit received from the Input service distributors and any other ITC availed on regular inward supplies. Table 6A will be auto-populated from the system only.

Table 7: Details of ITC Reversed and Ineligible ITC as declared in returns filed during the financial year.

Details of input tax credit reversed due to ineligibility or reversals required under rule 37, 39, 42 and 43 of the CGST Rules, 2017 shall be declared here. This column should also contain details of any input tax credit reversed under section 17(5) of the CGST Act, 2017 and details of ineligible transition credit claimed under FORM GST TRAN-I or FORM GST TRAN-II and then subsequently reversed. Table 4(B) of FORM GSTR-3B may be used for filling up these details. Any ITC reversed through FORM ITC -03 shall be declared in 7H.

Table 8: Table 8 of GSTR-9 contains two sections. The first section relates to comparison of credit availed on forward charge by the tax payer with the credit available as per inward supply uploaded by the suppliers in GSTR-1, duly reflected in GSTR-2A (Clause A to F of Sl. No. 8). The second section relates to comparison of IGST paid on import of goods with IGST availed on import of goods (Clause G to J of Sl. No. 8). The differences in both the cases (Clause K of Sl. No. 8) is sought ‘to be lapsed’. Table 8 primarily seeks to determine:

(a) ITC availed on forward charge which has lapsed

(b) ITC availed on forward charge which is not eligible

(c) ITC not eligible on import of goods

(d) Total ITC which has lapsed : Aggregate of 8E + 8F + 8J

Table 9: Details of tax paid as declared in the returns filed during the Financial Year.

It requires the person filing an Annual Return to report the details of tax, interest, late fee, penalty and other amounts payable and paid thereon on cumulative basis for the financial year (in case of Financial Year 2017-18 it should be considered and read for the period of July 2017 to March 2018 only).

Part-V: It contains Particulars of the transactions for the previous FY declared in returns of April to September of current FY.

Table 10: to Table 13 contains details of additional invoices related to 2017-18 or Debit notes or Credit notes dated before March 31, 2018 but omitted to be reported in 2017-18 and reported in the returns for the months of April 2018 to September 2018.

Table 14: Consist details of any Differential Tax Paid on account of Declaration in Table 10 &11.

Part-VI – It contains Table 15 to Table 19. In Table 15 assesse needs to disclose particulars of Total Refund claimed, Refund sanctioned, refund rejected and refund pending. It also includes details regarding total demand of taxes and Demand outstanding.

Table 16- contains Information on supplies received from composition taxpayers, deemed supply under section 143 and goods sent on-approval basis.

Table 17- HSN wise summary of outward supplies

Table-18 HSN wise summary of inward supplies

Table-19 Late Fees payable and paid.

5. FORM-GSTR-9C RECONCILIATION STATEMENT

Form GSTR-9C is the relevant form prescribed in terms of Rule 80(3) of the CGST Rules. It is for reconciling the value of supplies declared in annual return with the audited annual financial statement. This Form GSTR-9C has two parts to it i.e.:

(i) Part A titled the “Reconciliation Statement” and

(ii) Part B which is the Certification portion. Part I seeks to capture the basic details of the Registered Person under Part A (Reconciliation Statement) which has 4 Sl. Nos. Each of the Sl. Nos in Part I is significant in terms of the disclosure requirement.

Like GSTR-9, PART-l of the format contains basic-points like FINANCIAL YEAR, GSTIN, LEGAL NAME, TRADE NAME.

Part II: Reconciliation of turnover declared in audited Annual Financial Statement with turnover declared in Annual Return (GSTR 9).

Table-5A – Auditor is intended to report the turnover as per the audited Annual Financial Statement for a GSTIN. There may be cases where multiple GSTINs (State-wise) registrations exist for the same PAN. This is common for persons/entities with presence over multiple States or in respect of multiple registration in a single State/UT. The Government vide it is instructions has indicated that such persons/entities will have to internally derive their GSTIN wise turnover and provide to the Auditor to verify and declare in this Sl. No.

Other points covered under this Table are-

5B	Unbilled revenue at the beginning of Financial Year
5C	Unadjusted advances at the end of the Financial Year
5D	Deemed Supply under Schedule I
5E	Credit Notes issued after the end of the financial year but reflected in the annual return
5F	Trade Discounts accounted for in the audited Annual Financial Statement but are not permissible under GST
5G	Turnover from April 2017 to June 2017
5H	Unbilled revenue at the end of Financial Year
5I	Unadjusted Advances at the beginning of the Financial Year
5J	Credit notes accounted for in the audited Annual Financial Statement but are not permissible under GST
5K	Adjustments on account of supply of goods by SEZ units to DTA Units
5L	Turnover for the period under composition scheme
5M	Adjustments in turnover due to foreign exchange fluctuations
5N	Adjustments in turnover due to reasons not listed above
5O	Annual turnover after adjustments as above
5Q	Turnover as declared in Annual Return (GSTR9)
5R	Un-Reconciled turnover (Q – P)

TABLE-6: Reasons for Un-Reconciled difference in Annual Gross turnover. This portion of GSTR-9C identifies the turnover differences to be placed on record for explaining the differences between the GST Returns and the Audited Financials. All the information filled up in the GST returns has to be flown from the Books of Accounts. However, the un-reconciled turnover on account of disclosure norms as per Accounting Standard issued by ICAI or other statutory provisions or practice adopted by the Registered Person on special approval basis, which are not reconciled at turnover level should be disclosed in this Sl.No.

TABLE-7: Reconciliation of Taxable Turnover.

TABLE-8: Reasons for non-reconciliation between adjusted annual taxable turnover as derived from Table 7 above and the taxable turnover declared.

TABLE -9: The table provides for reconciliation of tax paid as per reconciliation statement and amount of tax paid as declared in Annual Return (GSTR-9). Under the head labelled –RC ,supplies where tax was paid on reverse charge basis by the recipient (i.e. the person for whom reconciliation statement has been prepared) shall be declared.

TABLE-10: The given table mandates an Auditor to identify and disclose the reasons for un-reconciled payment of amount of tax, Interest, Penalty, Cess and Others. Reasons, amounts along with description of reason needs to be disclosed.

TABLE-11: Any amount which is payable due to reasons specified under Table 6, 8 and 10 above shall be declared here.

TABLE-12: It contains reconciliation of Net Input Tax Credit (ITC)

Clause 12A of GSTR-9C is the detail of ITC availed in audited financial statements. The row aims to collect information on the ITC availed in the books of accounts by the Registered Person. This shall be the total ITC including that availed in books of account on Inputs, Input Services and Capital Goods.

12B- Any ITC which was booked in the audited Annual Financial Statement of earlier financial year(s) but availed in the ITC ledger in the financial year for which the reconciliation statement is being filed for shall be declared here. Since this is the first year of GST, this column should ideally be zero. However, as per instruction to the form, transitional credit which was booked in earlier years but availed during Financial Year 2017-18.

Clause 12C of GSTR 9C is the Input tax Credit which is booked in the current financial year but claimed in the returns of GSTR-3B filed during FY 2018-19. This includes all credits which were for any reason (inadvertent or conditions not being fulfilled) were not taken in returns as filed from July 2017- March 2018.

12E. ITC claimed in Annual Return (GSTR 9).

12F Un-reconciled ITC

TABLE-14: Reconciliation of ITC declared in Annual Return (GSTR 9) with ITC availed on expenses as per audited Annual Financial Statement or books of account.

This table is for reconciliation of ITC declared in the Annual Return (GSTR-9) against the expenses booked in the audited Annual Financial Statement or books of account. This point calls for examination of ITC in detailed by Auditor to determine the available ITC as booked in ledgers of various expenses as booked in the books of accounts viz a viz the ITC availed by the Registered Person. In case the Auditor finds that any ineligible or unavailable ITC as per the books of accounts, suitable disclosures are to be made

TABLE-16 Any amount which is payable due to reasons specified in Table 13 and 15 above shall be declared here

Part V to GSTR 9C- Auditor’s recommendation on additional liability due to non-reconciliation

6. PART-B OF GSTR-9C- CERTIFICATION

In this part Auditor has to do certification on the basis of reconciliation and audited financial books of the assessee. It can be done in two ways-

1. Certification in cases where the reconciliation statement (FORM GSTR 9C) is drawn up by the person who had conducted the audit and GST audit certification.

2. Certification in cases where the reconciliation statement in (GSTR 9C) is drawn up by a person other than the person who had conducted the audit of the accounts.

There can be many instances when differences in Annual Return as compared with Monthly/Quarterly Returns may arise as one is not allowed to revise GSTR-1 or GSTR-3B and, adjustments if any, are made in the subsequent months’ Return. It must also be noted that each and every detail that requires rectification must be originally rectified in GSTR-1 or GSTR-3B, then only the details shall be furnished in GSTR-9. In simple words, it is not possible to correct or rectify any details relating to GSTR-3B or GSTR-1 in GSTR-9 Annual Return as was done earlier under the VAT regime.

7. Conclusion

The subject matter is very vast and we have just touched upon some important points relating to GST, Annual Return and GST Audit. Let us hope some more clarifications and guidelines are issued by the Government.

 

Work and worship are necessary to take away the veil, to lift off the bondage and illusion.

— Swami Vivekananda

SPECIAL GST ISSUE

It was recently decided by the AIFTP to bring out a special issue of AIFTP Journal dedicated to GST.

Goods and Services Tax was also termed as good and simple tax by our Honourable Prime Minister Shri Narendra Modi ji.

I had termed it as Great Stress Test for our members, there were opinions for and against the new legislation any how it was implemented from 1-7-2017 with a great bang in the entire country with not so good portal and created lot of difficulties.

After more than one year of implementation of GST, if we look back and analyse we find that anything new out of our comfort zone is not easily acceptable by people.

If any new law or procedure particularly purely digital-based is introduced, it takes time for acceptance by the public at large including professionals. Government was alive to this situation and had visualised probable difficulties but could not gaze its enormity. However the GST council that was constituted on 15-9-2016 in past two years had 30 meetings and took 918 decisions and issued 294 notifications.

The GST council is the best example of federalism where the Centre and State Governments are working hand-in-hand with each other to resolve the difficulties, removing the glitches to make GST a success story.

It is manifest from the October 2018 collection of GST at ₹ 1,00,710/- Crore in itself is the example that GST has proved to be good law, bringing uniformity in local taxation all over the country and helped in curbing malpractices in business of purchasing goods from low tax area and selling in high tax area.

The systems evolved in GST shall have far reaching effects, it will put effective check on unaccounted business, prevent missreporting of turnover, in commercial tax and Income-tax. The immediate result is increase in the number of Income Tax returns, thus the benefit of direct tax collection is a bonus on GST in favour of the Government.

The honourable Prime Minister Shri Narendra Modi Ji has announces new schemes to promote the MSME Sector, the most important is approval of loan up to ₹ 1 Crore for MSMES based on the GST and IT returns within 59 minutes and also 2% less interest subsession. Apart from other benefits, this is something as a direct result of GST implementation.

In this issue we have decided to incorporate articles from GST experts of AIFTP on various subjects lucidly explaining the law and clarifying the doubts in respect of classification and procedure for compliance.

The GST has helped our country to improve International ranking by 35 points to 77 in case of doing business.

I congratulate our editorial board and publication team for bringing out a special issue which will go a long way to help our members. We will endeavour to make it regular feature to balance our education system for direct and indirect taxes. I am sure it will be well taken by our members and they will appreciate the effort.

 

Ganesh N. Purohit
National President

Audit in Limbo

AT THE OUTSET I WISH ALL THE READERS A HAPPY DIWALI AND A MUCH HEALTHIER LAXMI AT THEIR ABODE DURING THE NEW YEAR THAT FOLLOWS

It is for the first time, that the Federation is publishing a special issue on topical subject “Audit” in all its varied aspects. This Federation as in the past continues to disseminate the information and developments to its members through articles as well as by arranging conferences, seminars etc., throughout the Country on regular basis. The present issue of the Journal is earmarked for the subject, since we thought that more elucidation is required.

2. While all the registered persons having turnover in excess of rupees two crore as prescribed in Rule 80(3) of the CGST Rules 2017, have to spend their many hours in preparing the data required to be filled up in several columns of Form GSTR-9C and getting the same audited with the help of a Chartered Accountant who in his turn would also be having his hands full with multifarious types of cases.

3. OTHERSIDE OF AUDIT

It is felt by all professionals that they have to forget their family life during the period of six months from 1st July to 31st December every year, so as to meet with and comply with time Schedule prescribed not only under CGST Act, Income-tax Act but also many other statutory provisions like Companies Act and Public Charitable Trusts Act. The efforts put in by each member of the Chartered Accountancy Profession is hardly appreciated by the beneficiaries of their expertise knowledge especially in the context of the general Indian mentality to wake up only at the fag end of the time limit prescribed under the law. Such people hardly realise about the resultant hard work that will entail at the other end of the professional person. We have been always impressing upon the tax payers to have self-introspection and fall in line with the new developments of the law by removing their past habit of remaining outside the tax net by unhealthy actions on their part.

4. AGGREGATE TURNOVER

The first question that is required to be clarified by the authorities concerned is in regard to the meaning of the term “aggregate turnover” appearing in Rule 80(3) of CGST Rules. The definition in Section 2(6) for the said term not only includes the taxable supplies but also exempt supplies, exports etc. In our view, a supplier dealing with only exempted supplies to the extent of 95%, may have 5% taxable supplies, still he will be covered by definition of the term ‘taxable person’ u/s. 2(107) of the CGST Act. Considering that aspect of the matter, we recommend that while computing the quantum of turnover of ruppes two crore prescribed under Rule 80(3), should exclude the supplies which are outside the purview of the Act or supplies on which no taxes are payable under CGST Act or under IGST Act. By adopting this wholesome principle revenue would not be adversely affected but at the same time it would release sizable volume of unproductive work at all levels.

5. EXCEPTION

The Central Goods and Services Tax Amendment Act, (31 of 2018) added a proviso to section 35(5) whereby a department of Central or State Govt., or a local authority whose books of account were subject to audit under any law for the time being in force, need not get their accounts separately audited under GST, though they would be covered by the definition of the term ‘registered person’. This exception would also grant them freedom from the submission of the annual return as provided in Section 44(2). That provision refers to only registered persons who were required to get their books audited in accordance with Section 35(5), from which the proviso added by the Amendment Act, 31 of 2018 excludes them.

6. GSTR-9

It is also found that various tables of the annual return in Form GSTR-9 inserted by Notification No. 39 of 2018 (Central Tax) dated 4th September, 2018 as a part of 8th Amendment of CGST Rules, contain several parts and tables to be completed by the persons submitting the annual return as provided in Section 44 ending with a solemn affirmation about the correctness and truthfulness in addition to an assurance that nothing was concealed therefrom. The further declaration to the effect that, when there was reduction in rate of tax, the benefit thereof was or will be passed on to the recipient of the supply is also required to be affirmed.

7. ANTI-PROFITEERING MEASURE

The last part of the declaration referred to above, presupposes due compliance of section 171 providing for anti-profiteering measure. It seems the draftsmen while providing the said measure, did not realise the practical difficulties that would be faced by the suppliers. In case a manufacturer-supplier, though very much intending to comply the said provision by passing on the benefit of reduction in the rate of tax to his customer-recipient of supply when faced with simultaneously the unforeseen rise in the cost of production equivalent to or more than the reduction of the rate will not be able to show due compliance of Section 171. We are afraid this provision will be a tool in the hands of the officers of the department to unnecessarily harass such suppliers. We therefore recommend that the authority to be constituted under Section 171(2) should also include an independent judicial member who could well appreciate the circumstances in which the harsh provision could not be complied with.

8. NOW WHAT

The administration of the new law will take its own time to stabilise both in the minds of administrators as well as suppliers but in our opinion both of them as a class are required to change their past attitude inter-se. Non-compliance habit by tax payers as well as treating each supplier to be tax-dodger, by officers of the department should be a matter of history.

 

P. C. Joshi
Member, Editorial Board