Challenges on GST Annual report and GST audit – 9 & 9C

Challenges on GST Annual report and GST audit – 9 & 9C

K Baskaran, B.Com, STP, VPN, GSTPN

GST Practitioner | KSA Tax Advisory

Issues and challenges revolving around the GST Audit / Annual return / Reconciliation statement

PART – 1

Particulars	Issue	Solution
Turnover declared in GSTR 1 & GSTR 3B	No Action taken by any one at the time of annual return	Should match it during monthly return filing only
State wise reconciliation	Separate audit financials not prepared and consolidated.	This needs to be done for all companies having branches in different states
Reconciliation of Turnover	Other income, exempted income, sale of used assets, RCM applicable income, Reimbursement of expenses, discounts allowed, so on.	It must be prepared and uploaded during 9C filing
Different GST auditors for different state	As per the convenience of the company’s different auditors are appointed for every state	One GST auditor for entire company will be good for presentation
Major reconciliation problems with	Builders and developers – recognition of income based on percentage of completion or project completion methods. Ind AS 18 – it is not matching with time of supply as per GST. Financial TO vs GST turnover reconciliation is must for these business	This must be matched during statutory audit and proper reconciliation needs to be done.
Presumptive taxpayers	Like Second-hand car dealers, Life insurance industries, Air travel agent industry etc. wherein turnover in financial is different from a turnover on which GST is applicable.	Proper reconciliation to be done before finalizing the books of accounts
HSN Details	No one is having complete data for inputs and many do not have data for outputs also. Still many of the dealers not providing this information	HSN is a deciding factor for rate of tax and hence this needs to be followed and to be insisted during the audit
No Mechanism	No apparent mechanism to correct the discrepancies/mistakes made in the annual return	So GST auditors needs to be careful while filing the GSTR 9 & 9C
GSTR 2A with ITC claimed – recon	It is always a nightmare to any company irrespective of the size.	This needs to be done by the company / consultants on month on basis and to be followed up to September of next year

 

 

PART – 2

Accounting for Leases (AS 19 or Ind AS 17)	As per the Accounting Standard, in the case of a lessee, the number of lease rentals would be bifurcated into interest charges and liability, whereas under the GST, the entire amount would be treated as an expense	For GST purpose separate workings to be made for lease rentals.
AS 1/ Ind AS 1: Disclosure of Accounting Policies	AS 1 deal with the disclosure of significant accounting policies followed in the preparation and presentation of financial statements. Currently, the accounting for different indirect taxes is done on the basis of their nature and point of levy. Under IND AS, excise duty is included in revenue since it is a (manufacture) production-based tax. GST is not included in revenue, because it is levied at the time of sales. GST is levied at the point of supply as it is a destination-based tax. Hence, the revenue might not be presented including GST.	GST need not be shown in sales as it is not production linked levy
AS 2 / IND AS2 Valuation of Inventory	As per AS-2, the costs of purchase of inventories comprise the purchase price, import duties, and other taxes and transport, handling, and other costs directly attributable to the acquisition of finished goods, materials, and services. Trade discounts, rebates, etc are deducted in determining the costs of purchase. However, the CGST Act and the corresponding SGST / UTGST Act provides for the availment of input tax credit or refund of the input tax credit in specified situations. Thus, to the extent credit is availed or refund is claimed, it would not form part of the cost of inventory	With regard to refund purpose proper workings to me made as per invoice and to be kept separately
AS 9 / Ind AS 115: Revenue Reconciliations Revenue recognition	As per the AS, Revenue is to be recognized either at a point in time or over a period of time when the customer obtains control over the promised service. Under the GST, the time of supply is triggered when the invoice is raised, or payment is made whichever is earlier. This might lead to a situation wherein GST would be paid on the contract as per the date of invoice, but the revenue would not be recognized in the books because the customer may not have got the ownership or relevant benefits from the contract.	Advances – where GST liability discharged needs to be part of Revenue reconciliation
AS 10 / Ind AS 16: Accounting for Fixed Assets / Property, Plant and Equipment	The definition of Fixed Asset and the related accounting is relatively different under AS and Ind AS as well as GST	Claiming GST as cost or part value of asset needs to be clarified as per policy of management
AS-11 / Ind AS 21: Treatment of exchange differences	GST law in Rule 34 of CGST, specifically mentions the rate of exchange to be used to determine the value of taxable goods and services. It is interesting to note that the conversion rate to be applied is different for “goods” and “Services” as per the GST Law.  For the purpose of conversion of  Indian currency into foreign currency or foreign currency into Indian currency while computing value of “Goods”, rates notified by the Board needs to be considered. CBIC issues the notifications from time to time in this regard. The rate of exchange for determining the value of “taxable services” shall be the applicable rate of exchange determined as per the GAAP for the date of time of supply of such services. AS 11 on the other hand, allows different exchange rates or average rates for conversion of goods while computing turnover. For Balance sheet conversion, closing rates are applied. As a result, the exchange differences arising on translation are accounted either as income or expenses. There is no such impact in GST. Ind AS 21 mentions treatment for conversion of turnover, similar to AS 11. However, there are many complex provisions and treatments which are not addressed in GST Law. Hence, different exchange rates may be applied for the supply of goods for paying tax under the GST regime and in accounting valuation	Rate of exchange reconciliation to be supported with audit report
AS 12/Ind AS 20: Accounting for Government Grants	Government Grant Assistance can be considered as Revenue as per accounting standards. However, under the GST Laws, as per “the value of supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments”. (Refer Sec 15(2) (e) of the CGST Act ). Accordingly, Govt. grants are not considered as revenue as per GST law	Government grants needs to be shown separately as it is not considered as revenue in GST
AS-29 / Ind AS 37: Provisions, contingent liabilities, and assets	As per accounting standards, Contingent liabilities are recognized only if there are uncertainties about the outflows but not about the existence of an obligation. Else, contingent liabilities appear as notes to the financial statements. Contingent assets are not recognized in the balance sheet. For eg., A guarantee is given to the client, banker etc. A provision is a ‘best estimate’ of the expenditure to be incurred.  Provisions may be required to make in financials in terms of Ind AS 37 for Warranty and replacements. If a warranty is given with the supply of any goods or services, it shall be treated as a composite supply of the original supply.	However, GST would be applicable on the warranty amount if the same is recovered from the customer.

 

Precautions to be taken

·        Appointment of GST auditor well within the time so that they can start their work in advance and taxpayers can start compiling the details needed by the auditor.

·        To have a single auditor for all the registered premises.

·        Reconcile the Input tax credit available in GSTR-2A with books of accounts. This will ensure the taxpayer to claim the input tax credit before the expiry of the timeline and follow up with the vendor whose credit is not reflecting in GSTR-2A (Now to match with 8A also).

·        Reconciliation between audited financials and GST returns should be completed at the earliest.

·        Start compiling the relevant details required for Annual return, Reconciliation and GST audit report.

·        To ensure that GST audit, Financials, and the tax audit are completed simultaneously. It is important that the Income Tax returns filed, and the GST returns filed are on the same wavelength failing which may cause to issue a notice by the Government as they may match the details provided under both the taxes.