Introduction
As they rightly say “Prevention is better than cure”, a Professional can prevent the impact of serious errors or mistakes of an auditee which otherwise could lead to increased demand of Tax, Penalty and interest having impact on continuity of business as well. However, there are number of errors which are common and could be avoided by the Auditee if an Auditor brings them to their notice. A few avoidable common errors to ensure better GST compliance are discussed in this Article. The errors have been classified into Conceptual, System and Compliance errors.
Conceptual Errors
Conceptual Errors are those errors which occur due to wrong understanding of legal concepts. Such errors could lead to serious impact in the long run. Therefore, an Auditor must identify such errors and suggest the Auditee for corrective measures so that there is no impact or departmental intervention in the long run.
Some of the common conceptual errors are:
1. Incorrect classification of goods or services which could lead to incorrect GST rate/wrong exemption claim. Demand on multiple persons in supply chain possible without credit. This could further result in incorrect input credit availment. For e.g., classifying the service as ‘Rent a cab service’ instead of ‘Lease a car’.
2. Wrong type of tax paid on interstate supply of goods or services under reverse charge mechanism without ascertaining the place of supply.
3. Not computing the actual ITC reversal amount after the end of the financial year for inputs and input services (Rule 42).
4. Considering input tax credit balance to pay off liability under RCM. However, GST portal does not allow such adjustment while filing returns.
5. Non-payment of GST on transactions covered in Schedule-I of CGST Act. For Instance, GST not paid on taxable goods or services supplied to branch in other State without any consideration.
6. Availing ITC on supplies which are blocked for credit under Sec 17(5) of the CGST Act.
7. Non-reversal of ITC along with interest in cases where payment is not made to supplier within 180 days from invoice date.
8. Failure to distribute the common credits to other locations under ISD.
9. Not indicating the amount of GST being collected on the documents such as tax invoice from the customers.
10. Not maintaining the books of accounts/GST related records at principal place of business leading to demand of penalties.
System Errors
System errors are those errors which occur due to lack of internal control system in the organization. System errors could lead to repeated errors, cash flow issues and increased demand as well.
Some of the common system errors are:
1. Not performing reconciliations before filing GST returns.
2. Tax ledgers are not bifurcated into CGST/SGST/IGST/Cess (rate wise). This affects when there is unbalanced utilization of credit.
3. Not replying to departmental letters within due date.
4. Not accounting the inward invoices on regular basis.
5. Issue of invoice instead of bill of supply for GST exempted supply.
6. Absence of proper mechanism/checklist to determine eligibility of input tax credit for procurement.
7. No proper system to determine Place of Supply (POS), type of tax for various sales transactions.
8. Not implementing the concept of maker-checker to ensure accuracy of data.
9. Credit availment in books in case of reverse charge before making payment of tax.
10. Not keeping track of litigation issues pending with status including refund claim.
Compliance Errors
These errors are associated with GST compliance requirements such as return filing, payment of taxes, and filing replies etc. Ignoring such errors could have impact on GST Compliance ratings as well.
Some of the common compliance errors are:
1. Not maintaining the accounts/records for GST at each place of business.
2. Wrong disclosures in the returns being filed.
3. Not filing the ISD returns and failure to obtain ISD registration to distribute the credits.
4. Not displaying the registration number and registration certificate at the prominent place of business.
5. Not paying GST or not filing GST returns within due date leading to interest and penalty.
6. Not raising self-invoice, issue of payment voucher, receipt voucher, refund voucher as required under the GST Law.
7. Not filing intimation for goods sent to job work in for ITC-04.
8. Not updating the details of authorized signatory in the Registration Details.
9. Non-disclosure of exempted, nil rated, non GST supplies in Annual Return due to non-disclosure in Periodical Returns.
10. Non-reconciliation of incomes and expenses between annual return and financial statements to file proper Audit report.
FAQs
1. Can we use ITC balance for payment of reverse charge liability?
ANS- No, ITC balance cannot be used for payment of reverse charge. Reverse charge liability is always paid via debiting cash ledger.
2. Is Input Tax Credit allowed under Reverse Charge?
Ans- Yes, ITC in respect of reverse charge could be claimed by the taxpayer in GSTR 3B of the same month in which liability is being disclosed subject to payment of liability.
3. Can payment of IGST on reverse charge basis on import of goods/services be done through book entry or ITC?
Ans- No. GST payable on reverse charge basis is to be discharged through cash only.
4. What happens if the receiver of goods and/or services is required to pay tax under Reverse Charge but is not a registered dealer?
Ans- All taxpayers required to pay tax under reverse charge have to register for GST and the threshold of Rs 20 Lakhs is not applicable to them.
5. How to Show RCM sales in GSTR filing?
Ans- All tax payer can declare the inward or outward supplies under RCM currently in Forms GSTR-1 & GSTR-3B.
6. How do I claim reverse charge on GSTR 3b?
Ans-Reverse Charge is not something that you claim but it is something that you pay under the Reverse Charge Mechanism.
All tax payer can declare the supplies liable to RCM in GSTR-3B & claim ITC on it and all tax payer can declare the supplies under RCM in Table 3.1(d) of Form GSTR-3B.
7. Do we need to reverse ITC in cases where payment is not made to the supplier within 180 days from the date of invoice?
Ans-Yes, in accordance to the second proviso given in Section 16(2) of CGST Act, 2017; the recipient needs to reverse ITC so availed in respect of such purchases where payment is not made to the respective supplier within 180 days from the date of the invoice. Further, the ITC would be reversed by adding to his output tax liability along with the applicable interest.
8. Can we claim ITC merely on receipt of tax invoice without actual receipt of goods or services?
Ans-No, in accordance to clause (b) of Section 16(2) of CGST Act, 2017; a registered person can claim ITC only on actual receipt of goods or services or both. However, there is an exception in the case of Bill to- ship to sale where the bill to party would be eligible to claim ITC on consideration of deemed receipt of goods/services.
9. Can we claim full ITC in case of capital goods in one installment?
Ans-Yes, ITC in case of capital goods is available in full provided all the conditions mentioned in Section 16(2) of CGST Act, 2017 are fulfilled. Unlike in excise tax regime where only 50 % of ITC was allowed in first year of purchase and rest 50% was allowed in subsequent years.
10. Can we claim ITC on basis of photocopy of invoices without having original invoices?
Ans-It is not suggested to claim ITC on basis of photocopy of invoices since it may be disputable by the department
11. Can a person without GST registration claim ITC and collect tax?
Ans: No, a person without GST registration can neither collect GST from his customers nor can claim any input tax credit of GST paid by him.
12. What is the time limit for taking a Registration under GST?
Ans: A person should take a Registration, within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as is prescribed under the Registration Rules. A Casual Taxable person and a non-resident taxable person should however apply for registration at least 5 days prior to commencement of business.
13. If a person is operating in different states, with the same PAN number, whether he can operate with a single Registration?
Ans: No. Every person who is liable to take a Registration will have to get registered separately for each of the States where he has a business operation and is liable to pay GST in terms of Section 22(1) of the CGST/SGST Act.
14. Is there a provision for a person to get himself voluntarily registered though he may not be liable to pay GST?
Ans: Yes. In terms of Section 25(3), a person, though not liable to be registered under Section 22 or section 24 may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered taxable person, shall apply to such person.
The person, once registered, will have to pay GST irrespective of his aggregate turnover
15. Is possession of a Permanent Account Number (PAN) mandatory for obtaining a Registration?
Ans: Yes. As per Section 25(6) of the CGST/SGST Act every person shall have a Permanent Account Number issued under the Income Tax Act,1961(43 of 1961) in order to be eligible for grant of registration.
16. Will ISD be required to be separately registered other than the existing tax payer registration?
Ans: Yes, the ISD registration is for one office of the taxpayer which will be different from the normal registration.
17. Can a tax payer have multiple ISDs?
Ans: Yes. Different offices of a tax payer can apply for ISD registration.
18. Whether the job worker will have to be compulsorily registered?
Ans: No, a Job worker is a supplier of services and will be obliged to take registration only when his turnover crosses the prescribed threshold of 20/10 Lakhs.
19. Whether the goods will be permitted to be supplied from the place of business of a job worker?
Ans: Yes. But only in cases where the job worker is registered, or if not, the principal declares the place of business of the job worker as his additional place of business.
20. At the time of registration will the assessee have to declare all his places of business?
Ans: Yes. The principal place of business and place of business have been separately defined under section 2(89) & 2(85) of the CGST/SGST Act respectively. The taxpayer will have to declare the principal place of business as well as the details of additional places of business in the registration form.
21. Whether transfer of right to use goods will be treated as supply of goods or supply of service? Why?
Ans. Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies. Such transactions are specifically treated as supply of service in Schedule-II of CGST/SGST Act.
22. Whether goods supplied on hire purchase basis will be treated as supply of goods or supply of services? Why?
Ans. Supply of goods on hire purchase shall be treated as supply of goods as there is transfer of title, albeit at a future date.
23. Will import of services without consideration be taxable under GST?
Ans. As a general principle, import of services without consideration will not be considered as supply under GST in terms of Section 7. However, 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, even without consideration will be treated as supply in terms of Sl. No.4 of Schedule I.
Conclusion
The Tax Payers need to verify the said check points and also additional checks to ensure proper GST Compliance and have value addition in the overall GST Structure of the entity/organization. Further, it is important to have regular checks and reviews of the same to ensure that no problem arise at the eleventh hour.
Author Bio
good article