Accounts and other Records Under GST

 

Accounts and other Records Under GST

Section 35 of Central Goods and Services Tax Act 2017 - Accounts and Other Records

(1) Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of-

·       production or manufacture of goods.

·       inward and outward supply of goods or services or both.

·       stock of goods.

·       input tax credit availed.

·       output tax payable and paid; and

·       such other particulars as may be prescribed:

Provided that where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business:

Provided further that the registered person may keep and maintain such accounts and other particulars in electronic form in such manner as may be prescribed.

(2) Every owner or operator of warehouse or godown or any other place used for storage of goods and every transporter, irrespective of whether he is a registered person or not, shall maintain records of the consigner, consignee and other relevant details of the goods in such manner as may be prescribed.

(3) The Commissioner may notify a class of taxable persons to maintain additional accounts or documents for such purpose as may be specified therein.

(4) Where the Commissioner considers that any class of taxable person is not in a position to keep and maintain accounts in accordance with the provisions of this section, he may, for reasons to be recorded in writing, permit such class of taxable persons to maintain accounts in such manner as may be prescribed.

(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.

(6) Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.

Section 36 – Retention of accounts – 72 months from furnishing annual return.

Rule 56

Maintenance of accounts by registered persons.

(1) Every registered person shall keep and maintain, in addition to the particulars mentioned in sub-section (1) of section 35, a true and correct account of the goods or services imported or exported or of supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers and refund vouchers.

(2) Every registered person, other than a person paying tax under section 10, shall maintain the accounts of stock in respect of goods received and supplied by him, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods, scrap and wastage thereof.

(3) Every registered person shall keep and maintain a separate account of advances received, paid and adjustments made thereto.

(4) Every registered person, other than a person paying tax under section 10, shall keep and maintain an account, containing the details of tax payable (including tax payable in accordance with the provisions of sub-section (3) and sub-section (4) of section 9), tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.

(5) Every registered person shall keep the particulars of –

(a) names and complete addresses of suppliers from whom he has received the goods or services chargeable to tax under the Act;

(b) names and complete addresses of the persons to whom he has supplied goods or services, where required under the provisions of this Chapter;

(c) the complete address of the premises where goods are stored by him, including goods stored during transit along with the particulars of the stock stored therein.

(6) If any taxable goods are found to be stored at any place(s) other than those declared under sub-rule (5) without the cover of any valid documents, the proper officer shall determine the amount of tax payable on such goods as if such goods have been supplied by the registered person.

 

 

TDS under GST

 TDS under GST

TDS under GST is applicable since 1st October 2018

Sec 51 of CGST Act deals with TDS on GST

Applicability

If the contract value is more than Rs 2.50 Lakhs, the following class of persons who are registered under GST Law are required to deduct TDS on GST

1. A Department of Establishment of the Central Government or State Government.

2. Local Authority

3. Government Agencies

4. Such persons or Category of persons notified by Government.

The following category of persons have been notified by the Govt on which the provisions of TDS on GST would be applicable.

An authority or board or any other body with 51% or more participation by way of equity or control

1. Set up by an Act of Parliament or a State Legislature; or

2. Established by any Govt., Society established by the Central Govt. or State Govt. or a Local Authority under the Society Regulation Act 1860

Public Sector Undertakings

The above persons “As per provisions of section 24(vi) (Who are required to deduct TDS under Section 51, Shall take registration in the Form GST REG-07

 

Registration

A person who is liable to deduct TDS has to compulsorily register under Section 24(vi) and there is no basic exemption limit. Registration under GST can be obtained without PAN and by using the existing tax deduction and collection account number (TAN) issued by Income Tax Act.

A person liable to deduct tax is required to register as a diductor even if he is registered separately as supplier.

 

Applicability and Rate

 on payment made to supplier of taxable Goods or Services, where the total value of such supply or services under individual contract in excess of Rs 2.50 lakhs.

 

Deposit of TDS on GST

The amount of TDS deducted should be deposited with Government by the deductor by the 10th of next month. In FORM GSTR 7, through the online portal gst.gov.in.

Late filing of GSTR-7 results in a late fee of Rs 100 per day under CGST and Rs 100/- under SGST, hence, a total of Rs 200/- per day is levied. Maximum penalty cap is Rs 5000/= under CGST and Rs 5000/- under SGST.

Apart from Late fee- Interest @ 18% PA, applicable from next day of the due date of filing of return to the day of making actual payment.

Any excess or erroneous amount deductible and paid to the Government shall be dealt for refund under section 54. However, if the deduction amount is already credited to the Electronic Cash Ledger of the Supplier, the same shall not be refunded.

 

TDS Certificate

TDS certificate would also to be issued by the deductor in GSTR 7A to the deductee, within 5 days of depositing the TDS with the Government. Non- Compliance of the above will attract late of Rs 100/- per day subject to maximum of Rs 5000/-

 

Tax deduction is not required in following situations:

a) Total value of taxable supply? Rs. 2.5 Lakh under a contract.

b) Contract value > Rs. 2.5 Lakh for both taxable supply and exempted supply, but the value of taxable supply under the said contract? Rs. 2.5 Lakh.

c) Receipt of services which are exempted. For example, services exempted under notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.

d) Receipt of goods which are exempted. For example, goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.

e) Goods on which GST is not leviable. For example, petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.

f) Where a supplier had issued an invoice for any sale of goods in respect of which tax was required to be deducted at source under the VAT Law before 01.07.2017, but where payment for such sale is made on or after 01.07.2017 [Section 142(13) refers].

g) Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered.

h) All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value

i) Where the payment relates to a tax invoice that has been issued before 01.10.2018.

j) Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.201

k) Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.

l) Where the payment is made to an unregistered supplier.

m) Where the payment relates to “Cess” component.

Taxability of Liquidated Damages under GST

 Taxability of Liquidated Damages under GST

Liquidated damages refer to the pre-determined amount of compensation that a party agrees to pay in the event of a breach of contract or default by one of the parties. Under GST (Goods and Services Tax), liquidated damages may be subject to tax depending on the circumstances of the case.

If liquidated damages are part of the contract price and are paid for the supply of goods or services, they are treated as consideration for the supply and are subject to GST at the same rate as the supply. This means that if the supply is subject to GST, the liquidated damages will also be subject to GST at the same rate.

However, if the liquidated damages are paid for reasons other than the supply of goods or services, such as compensation for breach of contract or default, they may not be subject to GST. In such cases, the payment of liquidated damages will be treated as a penalty or fine, and penalties and fines are not subject to GST.

It is important to note that the tax treatment of liquidated damages under GST will depend on the specific facts and circumstances of each case.

 

As and when there is any breach of contract, the suffering party would be paid the amount in the form of liquidated damage or compensation, penalty, or cancellation charges, etc.

Notably, there prevailed a lot of confusion in the trade and industry concerning the applicability of GST on such liquidated damage or compensation or penalty or cancellation charges vis-à-vis entry at para 5(e) of Schedule II of the Central Goods and Services Tax Act, 2017.

In a view to providing clarification on the above issue, the Ministry of Finance issued a circular no. 178/10/2022-GST dated 3^rd August 2022.

Understanding the scope of entry at para 5(e) of Schedule II –

As per para 5(e) of Schedule II, the following supply is specifically declared as a supply of service –

1.    Agreeing to the obligation to refrain from an act – Some of the relevant examples are –

• Non-compete agreement,
• An industry refraining from carrying out the manufacturing activity per certain specified hours.

2.    Agreeing to the obligation to tolerate an act/a situation – One of the relevant examples is –

• A hawker can operate in front of the shop on payment of a monthly amount to the shopkeeper.

3.    You are agreeing to the obligation to do an act.

Going through the above examples, it would be somewhat clear that the intention was to cover such services within the ambit of para 5(e) of Schedule II. However, taking the recourse of para 5(e) of Schedule II, demands were being raised on –

• Amount of charges i.e., fine/ penalty levied on dishonor of the Cheque,
• Liquidated damages paid on account of breach of contract,
• Late payment charges collected by the service provider on account of late payment of bills,
• The penalty levied for violation of any law,
• Notice pay recovery, etc.

Clarification provided on the taxability of liquidated damages and liked charges under GST –

General clarification was given vide circular no. 178/10/2022-GST dated 3^rd August 2022, is that –

• An agreement to do/ refrain from an act/ situation should not be imagined/ presumed to exist.
• In order to bring the payment within the ambit of GST, there should be an express/ implied promise done on the part of the recipient of the money to either agree to do or abstain from doing something against the money so paid to him.
• It is specifically clarified that the following payments are not a consideration for tolerating an act/ situation –
• Liquidation damages for breach of contract.
• Penalty for the dishonor of Cheque.
• Forfeiture of salary/ payment of the amount on the basis of the employment bond for leaving employment before the minimum agreed period.
• The penalty levied under the mining act on account of excess stock found with the mining company; etc.
• Importantly, such payment will not be considered as ‘consideration’ and accordingly will not be considered as ‘supply’ unless –
• Payment is made for an independent activity of tolerating an act; and
• Payment is made under an independent agreement entered for such activity of tolerating act.

Free Samples

 Free Samples

Free Samples are products given to consumers to try before purchasing. Providing free or sample products is a tried and tested marketing method used by various industries in India such as pharmaceuticals, FMCG, etc.

For example, buy 3 and get 1 Soap free or 1 Garment free on purchase of 3 Garments or distribution of free samples to distributors, agents, customers, doctors, etc.

When does a product qualify as a free sample?

To qualify as a free sample, a product normally possesses the following features:

a) Distributed free of cost i.e., without any consideration.

b) Are marked NOT FOR SALE and normally no MRP is printed.

GST is applicable when a transaction involves the supply of goods/services for consideration. Goods or services that are supplied free of cost (without any consideration) cannot be treated as ‘supply’ as per Schedule I of the CGST Act, 2017 except on activities specifically mentioned on which GST needs to be charged even when supplied without consideration. Section 17(5)(h) of the CGST Act, 2017 restricts ITC on goods disposed of by way of gift or free samples. Thus, ITC has to be reversed on goods distributed as free samples.

Output Tax Payment and availment of credit to a certain extent depend on the taxability at the time of supply of such free samples / free supplies. The same has been summarized below:

CONDITION	OUTPUT TAX TREATMENT	ITC TREATMENT
Goods manufactured as free samples and then distributed	No output tax payable	ITC to be reversed
Goods manufactured as normal goods and then transferred as free samples	No output tax payable	ITC to be reversed
Goods manufactured as free samples and then distributed to RELATED PARTY	Output tax payable	ITC allowed
Free supply i.e., without any consideration	No output tax payable	ITC to be reversed
Buy one get one free offer	Output tax payable on assessable value	ITC allowed

 

Which Activities are Treated as Supply Even If Made Without Consideration?

Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. This is not applicable when ITC was not availed on such assets.

Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.

By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or.

If the agent is working on a commission basis and does not undertake goods, then there is no need to pay GST on goods, but the agent needs to discharge GST on the commission earned.

Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Further, as per Circular No. 92/11/2019 – GST issued by the CBIC released on 07th March 2019, states that any goods or gifts provided under the category of gifts, samples, and other related categories without consideration, it shall not become categorized as ‘supply’ as per the Act. Hence, the input tax credit shall also not apply to those said goods.

From Schedule I reproduced above, it can be noted that the supply of free samples does not fall under the category of activities to be treated as supply even if made without consideration.

How to disclose free Samples supplies in the returns?

Since the free Samples are not supplies, there is no requirement of disclosing the same as outward supplies in the returns. The credit relating to the same can be disclosed in Table 4 of Form GSTR 3B as Ineligible ITC under Section 17(5) or Credit Reversal under “Others” if credit was already availed.

Export of Service

 Export of Service

Export of Services:

• Section 16 of the IGST Act places export of goods and services on the same footing; Export of services shall be treated as zero rated supply.

• The supplier can either export services after paying IGST and claim refund or can export services without payment of IGST under bond or under letter of undertaking.

“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means the supply of any service, when –

• the supplier of service is located in India;

• the recipient of service is located outside India;

• the place of supply of service is outside India;

• the payment for such service has been received by the supplier of service in convertible foreign exchange; and

• the supplier of service and the recipient of service are not merely establishments of a distinct person.

Anomaly in definition of export of services: Two conditions have been imposed in the definition of export of services which shall create unnecessary hardship to the service exporters.

1. The receipt of payment in convertible foreign exchange. No such conditions are there in case of export of goods.

2. It says that supplier of service and recipient of service must not be merely distinct persons. It is like saying that if a development centre of TCS in India is supplying services to TCS in some foreign countries, it shall not be treated as export. No such condition is there in case of goods. If Suzuki export goods to Suzuki outside India, it is very well an export.

Place of Supply for Export of services

• The default rule for place of supply (export of service) is the location of the service recipient if the address of the recipient is available.

• exporters must ensure that the address of service recipient can be presented before the authorities on request.

• Information Technology software, software development, BPO operations, software consultancy, etc. has been declared as service, Place of supply of software shall always be the location of the recipient.

• Apart from these, this rule will also apply to other services like software support/ maintenance and intermediary services as there are no exceptions under GST.

Authority on advanced ruling

 Authority on advanced ruling

Section 97: Application for advance ruling

1. An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.

2. The question on which the advance ruling is sought under this Act, shall be in respect of,––

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Section 98: Procedure on receipt of application

1. On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the concerned officer and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the said concerned officer.

2. The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application:

Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act:

Provided further that no application shall be rejected under this sub-section

unless an opportunity of hearing has been given to the applicant:

Provided also that where the application is rejected, the reasons for such

rejection shall be specified in the order.

3. A copy of every order made under sub-section (2) shall be sent to the applicant and to the concerned officer.

4. Where an application is admitted under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority and after providing an opportunity of being heard to the applicant or his authorised representative as well as to the concerned officer or his authorised representative, pronounce its advance ruling on the question specified in the application.

5. Where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.

6. The Authority shall pronounce its advance ruling in writing within ninety days from the date of receipt of application.

7. A copy of the advance ruling pronounced by the Authority duly signed by the members and certified in such manner as may be prescribed shall be sent to the applicant, the concerned officer and the jurisdictional officer after such pronouncement.