Accounting for Import Transactions of Goods – GST viz a viz AS 11

Accounting for Import Transactions of Goods – GST viz a viz Accounting Standard AS 11

This Article deals with the nuances of the GST framework for Import Trade viz a viz the challenges laid down while adhering to the Accounting Standard AS 11 – The  Effects of Changes in Foreign Exchange Rates

Lets understand a typical Import illustration –

Under CIF the risk in the goods passes from the seller to the buyer at the time the goods are loaded and stowed on board the vessel. – Assumed

If you thought all you questions were answered satisfactorily, then lets come to the confusing part.

Confusion 1 – If the date of recording is finalised, lets finalise which conversion rate we shall apply.

Confusion 2 – While the customs bill of entry suggests a very conclusive proof for a conversion rate which is acceptable and also be easily explained to the GST Department or for that matter Income Tax department however, the date of recording of the Import Purchase would again have a different conversion rate.

Confusion 3 –

The Import Purchase price on the date of accounting i.e 28.03.2021 is INR 7,30,000 ( RBI Rate – preferred by Auditors )

Hence the actual cost of my goods on the day the bill of entry was file would be INR 7,40,000 ( as per Customs rate )

Further, if the purchase is converted at the SBI rate which is closest rate at which the actual remittance would take place, the stock would value at INR 7,35,000. 

MANAGEMENT WORRIES

1. So the Management is now worried to the fact if the language of business is the language of accounts ?

2. Whether the costing of the stock provided by the Accountant is correct or they are actually making lesser margins based on incorrect costing details provided by the Accountant ?

3. And if recording the transactions in line with the Accounting standards but not in ease of the GST and Income Tax Law , where they would end up paying more administrative costs ?

4. And if the recording of transactions in line with accounting standards only would lead to a material misstatement while the financial statements are drawn up ?

REMARKS

1. Whatever conversion rate you choose i.e RBI / SBI / Customs / XE.com / OANDA.com – apply consistently year on year basis.

2. If you felt that the difference in purchase amounts above from 7.3 Lakhs to 7.4 Lakhs to 7.5 lakhs is not something material, imagine that if it’s a contract worth USD 10 lakh or the changes in exchange rate is atleast 3 to 5 Rupees which is very much possible or if you are an Importer having atleast 10 consignments which are in Transit as on the year end 31^st March

3. The below opinion shall not apply in case of a Import Transaction which is ultimately sold on High seas sales basis

IN MY OPINION – emphasis supplied

There is only one straight jacket formula or opinion in this case –

It is advisable to record an Import Purchase on the date mentioned on the Bill of Entry with the applicable conversion rate mentioned thereon along with the customs duty and IGST amount which would also be converted on the same conversion rate.

This would achieve

1. Costing Aspects of the Stock would be more appropriate

2. Clarity during GST as well as Income Tax Assessments

3. Will not be a Material Misstatement of the Financial Statements

4. Ease of Recording – to the Accountant

5. Administrative Convenience – No reconciliations

6. Mismatch possibilities reduced between the Customs and the Income Tax Data

Let me know your feedbacks and questions on this. Also, if you want a similar article on the Export Leg of Goods, mention in the comment below.

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Author Details: CA Raj Doshi, Prop. R C  D & Co., Chartered Accountants Email : raj@rcdco.in, Mobile : 9820803593

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.