Analysis
(i) The importance of maintenance of books and records need no emphasis. It is presumed that all business entities would be aware of the nature of books and records to be maintained. However, it is important to note that the GST Law is a devil in details. It means that there is a lot of emphasis placed on primary and secondary books and records. There is no need to stress on the relevance or importance of maintenance of such records, since it is common in the digital world for businesses to maintain such books and records electronically. Having said that, one must bear in mind the importance of maintaining the primary book or ecord of entry that would have evidentiary value.
(ii) This section emphasises “true and correct” account meaning – the concept of materiality is largely given the go-bye. Tax authorities would go by the actual records maintained and would not place much reliance of the concept of materiality.
(iii) Every registered person is required to keep and maintain accounts and records in that reflect the true and correct account of the transactions effected. In other words, separate accounts shall be required to be maintained by a single person, in respect of each of the GSTINs operative during the year reflecting the following details:
Production / manufacture of goods;
Inward and outward supply of goods or services or both;
Stock records of goods;
Input tax credit availed output tax payable and paid; and
Such other particulars as may be prescribed in this behalf.
(iv) The accounts are to be maintained at the principal place of business (as mentioned in the certificate of registration). In case of multiple places of business (as specified in the certificate of registration), the accounts relating to each place of business shall be kept at the respective places of business concerned. Where records are maintained manually, all records pertaining to the operations at a place of business shall be maintained in such place of business.
(v) The registered person has the option to keep and maintain accounts and other records in electronic form. In such a case, the records shall be authenticated by way of digital signature. Additionally, the GST Law mandates that a proper electronic back-up is maintained and preserved where accounts are maintained electronically, to restore information in the event of its destruction, within a reasonable period of time.
(vi) It is important to note that in respect of quantitative information, the ‘unit of measurement’ must be such that the actual units used for procurement and supply can be determined or computed. For example, in case goods are procured in ‘square meters’ and they are supplied in ‘square feet’, the accounts for the stock of goods must be maintained in either sq.mt. or sq.ft., or a conversion-ratio must be applied so as to extract information in terms of one of the units. The translation losses, if any, may be written off – however, input tax credit to the extent of reduction would also require a reversal. In case of any increase, the value may be ignored, given that the increase does not result in additional pay-out to the supplier.
(vii) The Commissioner is empowered to:
(a) Notify a class of taxable persons to maintain additional accounts or documents for specified purpose – No notification has been issued in this regard as of date.
(b) Permit a class of taxable persons to maintain the records in any other manner – If he believes that they are not in a position to keep and maintain accounts in accordance with this Section.
(viii) There is no standalone Section that requires a registered person to get his accounts audited by a chartered accountant or a cost accountant. This requirement has been included by way of a sub-section to this Section, in case of every registered person – i.e., audit under the GST Laws would be GSTIN-wise.
(a) While Rule 80(3) of the Rules speaks of the prescribed threshold limit at Rs. 2 Crore which is attributed to the ‘aggregate turnover’, the relevant section speaks of the turnover in the State / turnover attributable to a GSTIN. Therefore, if a registered person is liable to get his accounts audited under Section 35, all the registrations obtained under the same PAN will also be liable for such audit, regardless of the turnover in each State in which the other registrations have been obtained. For example if the aggregate turnover (PAN based) is at Rs.5 crores and the registered person is carrying on business in two different States having a turnover of Rs.4.75 crores and 0.25 crores respectively, the law mandates that audit is required to be carried out in both the States.
(b) The registered person is required make the following submissions to the proper officer:
(i) the annual return for the financial year;
(ii) a copy of the audited statement of accounts;
(iii) a reconciliation statement u/s 44(2), reconciling the value of supplies declared in the annual return with the audited annual financial statement (expected to be in a prescribed form & manner – Form GSTR-9C, which is presently under consideration);
(iv) Other particulars as may be prescribed.
(v) Note: No other documents have been prescribed in this regard as of date. The details that may be sought for, may be an extract of any of the records / documents which are required to be maintained under this Section.
(c) The audit of the transactions undertaken under the GST regime will cover the entire gamut of transactions of a particular GSTIN. For instance, if the audit is undertaken for a registered person being an agent for supply of goods, it must be understood that the agent would be recording all the good received on behalf of the Principal as inward supply of goods, as also the goods dispatched on behalf of the Principal as outward supply of goods. On the other hand, the income / revenue that would be reflected in his books of account under any other statute would only be limited to the commission income. Accordingly, for the purpose of the GST Laws, the agent would be regarded as a person engaged in effecting outward supply of goods, and would therefore be required to maintain all the stock records that are to be maintained by a trader.
(d) Considering the minimal governance that industry has been seeking, one would need to await the enactment of the provisions / Forms for conducting a GST audit and to understand the reporting requirements, to assess the extent of responsibility in the hands of the registered person / auditor in this audit exercise.
(ix) The following checks / approach may be adopted for the purpose of ensuring comprehensiveness in reporting:
(a) Inward supplies: Every inward supply effected by a registered person shall be one of the following:
Appear in the details for inward supplies (including the effect of debit / credit notes received) furnished in the returns, (including cases of exchange, barter,deemed supply such as agency transactions, etc.) while the details may be of:
(1) Eligible credits – including partly ineligible credits which are reversed to the extent ineligible;
(2) Ineligible credits.
Appear as exempt / nil rated / non-taxable inward supplies; or
Appear as inward supplies from composition suppliers; or
Not reported for any of the following reasons:
(1) It is neither a supply of goods nor a supply of services (such as salary paid to employees); or
(2) It is an inward supply received from a registered supplier wherein the supplier is unaware of the fact that the supply is made to a registered person (i.e., where the supplier reports the transaction as part of summary details under B2C supplies in his GST returns) – e.g., food bills, etc.
(3) It is an accounting entry made in the books of account by virtue of a requirement under another statute – such as provision for accrued expenses, depreciation, bad debts written-off, debit / credit notes issued in the capacity of a recipient, etc.
Note: Every inward supply that is eligible for credits shall form part of detailed entries (invoice-level information) in Form GSTR-1 of any registered supplier, except in the case of inward supplies liable to tax on reverse charge basis .
(b) Outward supplies: Every outward supply effected by the registered person would need to appear in the returns for outward supplies where:
Every taxable outward supply that is effected to a registered person shall be reported at invoice level, including:
(1) Credit notes having a reduction in taxable value / tax, unless the same is time-barred under the GST Laws;
(2) Debit notes issued for increase in taxable value / tax;
(3) The value of expenses incurred by the recipient, although liable to be incurred by the registered person as a supplier, the value of incidental expenses such as delivery charges, etc. and any other amount liable to be included in the value of supply in terms of Section 15(2) of the CGST Act, 2017;
(4) The value determined under the valuation rules, where the price is not the sole consideration for the supply, or where the supply is made to a related person, is to be reckoned for these purposes;
(5) Transactions regarded as supply despite lacking consideration (i.e., activities specified under Schedule I);
Summary details to be reported in case of supply of exempted / nil-rated / nontaxable outward supplies, and supplies to unregistered persons.
(x) Special attention is, in cases of requirement to reverse input tax credit availed, as provided under Section 16(2), Section 17(2) or Section 17(5)(h) – Where goods are lost, stolen, destroyed, written off, or disposed of as gifts or free samples, proportionate input tax credit should be reversed.
(xi) One needs to pay attention to the relevant Rules, wherein it is mandated that the details specified / prescribed ought to be captured while maintaining books and records viz., name, address, GSTIN, description, quantity value etc., as stipulate in section 31 needs to be captured. Special category of persons such as works contractors, lessors agents, auctioneers etc ought to maintain data / details in the manner specified.
(xii) It is important to note the import of Rule 56(6). It clearly specifies that taxable goods stored in an unregistered place of business without cover of valid documents would be subject to tax as if such goods have been supplied.
(xiii) Entries in books and records cannot be erased, effaced or overwritten. However, any such act needs to be attested in cases of manual maintenance of books and records while digital records would require a suitable log of such corrections to be maintained.
(xiv) Rule 56(10) is presumptive in nature. Meaning any documents or books and records found in a place other than the registered persons’ place of business, it would be presumed to be maintained by such registered person. All other consequences under the GST Laws would automatically follow.
(xv) The law mandates the following persons to maintain the records of the consigner, consignee and other relevant details of the goods, even if such persons are not registered under the Act:
(a) A transporter of goods; and
(b) Persons who own and operate, or persons who operate any warehouse, godown, etc. for storage of goods – the goods shall be stored in a manner in which they can be identified item-wise and owner-wise.