Accounts Maintenance Under GST

Introduction

Every registered person under GST must maintain all records at his principal place of business as prescribed under Section 35 of the Central Goods and Service Tax Act, 2017 read with Rule 56 of the Central Goods and Service Tax Rule, 2017. ‘Principal Place of Business’ has been defined under Section 2(89) of the CGST Act, 2017 as “the place of business specified as the principal place of business in the certificate of registration”[1]

Chapter VIII, titled Accounts and Records provides, vide section 35(1), that the following accounts must be maintained:

(a) production or manufacture of goods; (b) inward and outward supply of goods or services or both; (c) stock of goods; (d) input tax credit availed; (e) output tax payable and paid; and (f) such other particulars as may be prescribed:

Records related to tax payable under GST

The records required to be maintained by a registered person are provided for in Section 35 of the CGST Act, 2017, read with Chapter VII, Rule 56 of the CGST Rules, 2017. The accounts required to be maintained are to be kept at the registered person’s principal place of business. [2] Any entry in registers, accounts and documents shall not be erased, effaced or overwritten, and where the log has been maintained electronically, a log of every entry edited or deleted shall be maintained. [3] Every volume of books of account maintained manually should be serially numbered. [4]

As per Rule 56 (5) of CGST Rules, 2017, every registered person must keep 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.”[5]

As such, every registered person is required to maintain the following accounts:

• Register of goods produced: This account relates to the production and manufacture of goods. The account should contain details of any goods manufactured in a factory or production house, enumerated vide HSN code. This is required to be maintained by assessees carrying out manufacturing activities. Furthermore, every such person manufacturing goods is required to maintain monthly production accounts showing quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof. [6]
• Purchase Register: This account reflects all purchases made for the purpose of manufacturing goods and services. It must contain details of suppliers, GSTIN, Name of State, Category of purchases (Inputs, Input Service & Capital Goods), Tax Rate and Tax Amount with bifurcation into CGST, SGST and IGST.
• Sales Register:This is an account of all the sales made, within a tax period, and must be maintained. This account must contain details of Customers, GSTIN, Invoice No./Date, Place of Supplier, Name of State, Category of Sales (Domestic and Export), Tax Rate and Tax Amount with bifurcation of CGST, SGST and IGST. Every registered person is required to maintain 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. [7]
• Stock Register:This register should contain a correct stock of inventory available on daily basis or at any given point of time and such register must 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. [8] This is required to be maintained by all assesses, other than a person paying tax under Section 10.
• Taxes Payable and ITC availed: This register should maintain the details of Input Tax Credit availed for a given tax period having bifurcation of Tax Rate and Tax amount along with category of inward (Inputs, Input Service and Capital Goods). This register should maintain the details of GST liability outstanding to be adjusted against input tax credit or cash. This register should maintain the details of GST paid for a particular tax period, and should contain invoices, credit notes, and debit notes issued or received during any tax period. [9]
• Advance Paid/ Received Register: This register should maintain details of advances received, paid, adjustments made and tax paid/adjusted thereto. [10]
• Services Supplied:Every registered person supplying services must maintain an account enumerating a qualitative description of goods used in the provision of services, which must detail the input services utilised and services supplied. [11]
• Electronic Ledgers and Records: Electronic back-up of records must be maintained and preserved in such manner that, in the event of destruction of such records due to accidents or natural causes, the information can be restored within a reasonable period of time [12]. On demand, such person must provide the details of such files, passwords of such files and explanation for codes used, where necessary, for access and any other information which is required for such access along with a sample copy in print form of the information stored in such files. [13]Every registered person will have three ledgers under GST which will be generated automatically at the time of registration and will be maintained electronically:

1. Electronic Cash Ledger-This ledger will serve as an electronic wallet. The taxpayer will have to deposit money into his cash ledger (add money to the wallet). The money will be utilized to make the payment.

2. Electronic Credit Ledger- The input tax credit on purchases will be reflected here under three categories i.e. IGST, CGST & SGST. The taxpayer will be able to utilize the balance shown in this account only for payment of tax (not for interest, penalty etc.)

3. Electronic Liability Ledger- This ledger will show the total tax liability of a taxpayer after netting off for the particular month. This ledger will be auto-populated.

Additional requirements for specific classes of Individuals

The CGST ACT and rules also provide additional requirements for the maintenance of accounts by specific classes of individuals. These are enumerated and analysed as follows:

1. Additional Requirements for an Agent

Agent has been defined in Clause 5 of Section 2 of the CGST Act, 2017 as “a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another” [14]The following additional information is also required to be maintained by an agent:

• Particulars of authorization received by him from each principal to receive or supply goods or services on behalf of such principal separately;
• Particulars including description, value and quantity (wherever applicable) of goods or services received on behalf of every principal;
• Particulars including description, value and quantity (wherever applicable) of goods or services supplied on behalf of every principal;
• Details of accounts furnished to every principal; and
• Tax paid on receipts or on supply of goods or services effected on behalf of every principal. [15]

2. Additional Requirements for Work Contractor

Every registered person executing works contract shall keep separate accounts for each works contract showing:

• Names and addresses of the persons on whose behalf the works contract is executed;
• Description, value and quantity (wherever applicable) of goods or services received for the execution of works contract;
• Description, value and quantity (wherever applicable) of goods or services utilized in the execution of each works contract;
• Details of payment received in respect of each works contract; and
• Names and addresses of suppliers from whom he has received goods or services.

3. Records to be maintained by the owner or operator of warehouse or godown

As per section 35(2) of the CGST Act, 2017, 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. [16] As per Rule 58 of the CGST Rules, 2017, every person required to maintain records as per Section 35(2) of the CGST Act, 2017, if not registered, is required to submit Form GST ENR-01, after which a unique enrolment number shall be generated and communicated to the said person. [17]. A common enrolment number is to be given to a transporter who is registered in more than one state or union territory. [18]

Furthermore, subject to the provisions of rule 56, any person engaged in the business of transporting goods shall maintain records of goods transported, delivered and goods stored in transit by him along with the Goods and Services  [19]Tax Identification Number of the registered consigner and consignee for each of his branches. Every owner or operator of a warehouse or godown shall maintain books of accounts with respect to the period for which particular goods remain in the warehouse, including the particulars relating to dispatch, movement, receipt and disposal of such goods. The owner or the operator of the godown shall store the goods in such manner that they can be identified item-wise and owner-wise and shall facilitate any physical verification or inspection by the proper officer on demand. [20]

Period for retention of accounts

As per Section 36 of the CGST Act, 2017, every registered person must keep and maintain the accounts books and records for at least 72 months (6 years) from the due date of furnishing of annual return for the year pertaining to such accounts and records. A registered person, who is party to an appeal or revision or any other proceedings before any Appellant Authority or Revision Authority or Appellate Tribunal or court, whether filed by him or by the Commissioner, or is under investigation for an offence under Chapter XIX, shall retain the books of account and other records pertaining such proceedings for a period of one year after final disposal of such appeal or revision or proceedings or investigation, or for the period specified above, whichever is later. [21]

Furthermore, as per Rule 56(16), Accounts maintained by the registered person together with all the invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for the period as provided in section 36 and shall, where such accounts and documents are maintained manually, be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally. [22]

Penalties for Failure

As per Section 35(6) of the CGST Act, 2017, where the registered person fails to account for the goods or services or both 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. [23] Furthermore, this must also be seen to be read with section 36(5), wherein 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 Accounts and other records and shall submit a copy of the audited annual accounts. [24]Furthermore, as per Rule 56(18) of the CGST Rules, 2017, every registered person shall, on demand, produce the books of accounts which he is required to maintain under any law for the time being in force

In case, the taxpayer does not maintain accurate and proper records related to goods and/or services, then s/he will have to face its consequences. The proper officer will treat the unaccounted goods and services as if they were supplied by the taxpayer. The tax liability will then be applied and determined by the officer on such unaccounted goods and services. This tax liability will have to be paid by the taxpayer along with its penalty fee. To this effect, as per section 122(1), where a taxable person fails to keep, maintain or retain books of account and other documents as per the act and rules, or fails to furnish information or documents called for by an officer in accordance with the act or furnishes false information is liable to pay a penalty of Rs. 10,000 or an amount equivalent to the tax evaded, whichever is higher. As per Section 130(1) of the CGST Act, 2017, if any person:

• does not account for any goods on which he is liable to pay tax under this Act; or
• supplies any goods liable to tax under this Act without having applied for registration; or
• contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
• uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance,

All such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.

To this effect, in Metenere Ltd. v. Union of India [25], the primary dispute pertained to the non-maintenance of records under GST. In this case, in consideration of the allegations held against the petitioner, the HC held that there had been no fraud, and as such, the maximum penalty that were imposable was Rs 10,000., holding the Petitioner’s conduct in violation of Section 122(1)(xvi) and (xvii) of CGST Act.

Conclusion

Under the GST regime, businesses are required to maintain various accounts and records for ready verification by an authorised GST Authority either in electronic or physical format. The taxable persons are allowed to maintain records in electronic form authenticated by a digital signature. Accounts maintained by a taxable person under GST together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply should be maintained for a period of 6 years from the date of furnishing GST annual return. Further, GST accounts and records must be kept at every related place of business mentioned in the certificate of registration. Failure to maintain accounts, or alternatively, furnishing false accounts results in penalties.

[1] Central Goods and Services Tax Act 2017, s 2(89)

[2] Central Goods and Services Tax Rules 2017, r 56(7)

[3] Central Goods and Services Tax Rules 2017, r 56(8)

[4] Central Goods and Services Tax Rules 2017, r 56(9)

[5] Central Goods and Services Tax Rules 2017, r 56(5)

[6] Central Goods and Services Tax Rules 2017, r 56(12)

[7] Central Goods and Services Tax Rules 2017, r 56(1)

[8] Central Goods and Services Tax Rules 2017, r 56(2)

[9] Central Goods and Services Tax Rules 2017, r 56(4)

[10] Central Goods and Services Tax Rules 2017, r 56(3)

[11] Central Goods and Services Tax Rules 2017, r 56(13)

[12] Central Goods and Services Tax Rules 2017, r 57(1)

[13] Central Goods and Services Tax Rules 2017, r 57(3)

[14] Central Goods and Services Tax Act 2017, s 2(5)

[15] Central Goods and Services Tax Rules 2017, r 56(11)

[16] Central Goods and Services Tax Act 2017, s 35(2)

[17] Central Goods and Services Tax Rules 2017, r 58 (1)

[18] Notf no. 28/2018-CT dt. 19.06.2018

[19] Central Goods and Services Tax Rules 2017, r 58 (4)

[20] Central Goods and Services Tax Rules 2017, r 58 (5)

[21] Central Goods and Services Tax Act 2017, s 36

[22] Central Goods and Services Tax Rules 2017, r 56(16)

[23] Central Goods and Services Tax Act 2017, s 35(6)

[24] Central Goods and Services Tax Act 2017, s 35(5)

[25] Metenere Ltd. v Union of India [2020] ALLHC 56