Dr. Sanjiv Agarwal, FCA, FCS

 Dr. Sanjiv Agarwal

GST is now one month old and Government as well as other stakeholders face a testing and challenging timings ahead. While implementation issues will be there which are bound to be, and will also be sorted out at last, the Government including the all powered GST Council, Ministry of Corporate Affairs (MCA), Central Board of Direct Taxes (CBDT) and the Institute of Chartered Accountants of India (ICAI) ought to address the following issues, sooner the better:

(1) Scope of turnover in laws / enactments, viz, Companies Act, Income Tax Act and GST legislations.

(2) While up till now turnover comprised of sales turnover, GST now talk about turnover of ‘supplies’.

(3) ‘Supply’ of goods and services is not recognized in other laws and as such, there is bound to be difference in value of supply and sale.

(4) While all ‘sales’ would constitute a ‘supply’, all ‘supplies’ may not be a ‘sale’ and this will create disparity for accounting and different taxation purposes.

(5) The Institute of Chartered Accountants of India (ICAI) has a Accounting Standard (AS-9) on revenue recognition which is also a mandatory standard under the Companies Act, 2013. All Companies are required to prepare the financial statements in compliance with the accounting standards.

(6) Disclosure requirements will also undergo a change from SEBI’s view point.

(7) Moreover, treatment of excise duty as a tax on production or manufacture of goods will be no longer be there and it would no longer be a tax on sale or supply. This would make the figures non-comparable and result in reduction of top line of companies dealing in goods.

The questions thus emerge for providing a solution are:

(a) Will the ICAI / MCA make necessary amends in the Standards / Companies Act to recognize ‘supply’ as revenue.

(b) How will companies account for and disclose supplies in books of accounts and financial statements? Will ‘supplies’ be considered as sales?

(c) How ‘supplies not being sale’ will be disclosed in financial statements

(d) Returns under Income Tax will be based on ‘sales’ where as returns under GST will be based on ‘supplies’. These will never match as such. Will the business entities be burdened with one more statement or reconciliation between figures as per financial statements, as per Income Tax returns and as per GST returns ?

(e) How will auditors comply with the various tax / corporate laws

It appears that accounting and tax returns may end up with more confusions and need for new reconciliation statements. It is desirable that the GST Council and Government should immediately address this very important issue to avoid any confusion, likely non-compliance and making the present accounting and disclosures even more  complicated.

It could be therefore, suggested that:

(i) ICAI’s accounting standard should be suitably amended to capture supply and to bring out clearly distinction between ‘sale’ and ‘supply’

(ii) Schedule III of the Companies Act, 2013 be amended to prescribe appropriate disclosure of ‘supply which is not a sale’, such supplies being an off balance sheet item

(iii) Converge the definitions of turnover in all enactments

(iv) GST may be levied only on ‘sales’ and not ‘supplies’.

The law of GST is already too complex to comprehend for all stakeholders including professionals and if this is not sorted out, it will create further complications for all including investors and breed litigation arising out of different interpretation by different tax collectors and regulators.

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November 2020