CA Ruhi Kalra
Probable items for reconciliation of supply as per GSTR 9 and turnover as per GSTR 9C
Exactly 2 years ago, during this time each and every business was gearing up for the implementation of the most awaited tax reform named Goods and Service Tax. Now all of them are gearing up for filing of the annual return and audit under the GST Act which is supposedly the final compliance of the very first year of GST. In order to understand the gamut of the GST Audit and its requirement, it is relevant for us to understand the basic legal provisions related to it.
Brief about the GST Annual Return and GST Audit Report (Form GSTR9 and GSTR 9C)
Section 44(1) of the CGST Act (“Act”) read with Rule 80 of the CGST Rules (“Rules”) stipulates that every registered person shall furnish an annual return in Form GSTR 9.
Further as per section 35(5) of the Act, every registered person whose turnover during the financial year exceeds the limit of INR 2 Crore shall get his accounts audited by a Chartered Accountant or Cost Accountant and shall submit a copy of the audited annual accounts and a reconciliation statement which is called GSTR 9C.
GSTR 9 is basically a compilation of data filled in GSTR 3B and GSTR 1 filed for the relevant period. Further GSTR 9 also depicts the reconciliation of input as auto populated in GSTR 2A with the input availed as per GSTR 3B.
GSTR 9C is the statement to reconcile the GST as populated in GSTR 9 and the GST as per audited financial accounts. It’s a certification provided by the Chartered Accountant or a Cost Accountant that the GST as depicted in books of accounts are prepared in line with the GST returns.
Books of accounts are to be prepared according to the applicable Generally Accepted Accounting Principles (GAAP). However, GST returns are to be prepared according to the GST Acts enacted read with the rules applicable thereto. So, there may be many situations where the both (GSTR 9 and Books of accounts) won’t reconcile.
Following are the probable reasons that will be shown as a reconciliation of turnover as per books of accounts (Table 5A of GSTR 9C) and supply as per the annual return.
1) Free sample distribution by a pharmaceutical company to a physician: If it is established that due to this activity of free distribution, a monetary benefit/consideration is flowing to the pharmaceutical company, then the samples distributed would be liable to GST. Since the transaction would not be reported as turnover in the audited financial statements, this supply would tantamount as a reconciling item between turnover as per books of accounts and supply as per annual return. Source of Data: Marketing/sales promotion expense
2) Notice period recovery from employees: This issue gained momentum, especially after issuance of advance ruling in the case of M/s Caltech Polymers Pvt. Limited, wherein it was held that recovery of food expenses from the employees for the canteen services provided by the Company would come under the definition of ‘outward supply’ and taxable as a service under GST. It is pertinent to highlight the entry in Schedule II of the CGST Act, which provides that ‘agreeing to the obligation to refrain from an act, or to tolerate an act” is a supply of service. Basis the rationale given in the advance ruling and Schedule II, many companies like Apple, Google, Oracle, TCS etc. have received notices from the taxman and have been asked to treat the recovery from employees as a taxable supply. This particular supply of service might be shown as a supply under GST but not as a part of income in the audited financial statements. Hence this supply would tantamount as a reconciling item between turnover as per books of accounts and supply as per annual return. Source of data: Credits in the Salary Ledger
3) Sales promotion/advertisement reimbursement received and considered as supply: Taxable persons may receive a portion of the advertisement cost/sales promotion expense as reimbursement from the supplier. Such reimbursements received could be considered as taxable supply and accordingly could be liable to GST. Such reimbursements received are normally deducted from advertisement/sales promotion expenses in the Profit and Loss In such a situation, the amount of reimbursement received is to be added to gross turnover declared in the audited financial statements. Source of data: Sales promotion/marketing expense
4) Sale of capital goods: In respect of sale of capital goods, only the profit/loss arising on the sale of such capital goods is disclosed in the Profit and Loss account. However, the GST on the supply of capital goods is leviable on the ‘transaction value’ or input tax credit is reversed. In order to reconcile the difference, the profit/loss arising from sale of such capital goods has to be deducted from turnover of the audited financial statements and the value on which GST has been paid has to be added in order to reconcile the supply and turnover. Source of data: Fixed Asset Schedule
5) Income in Profit and Loss account recognized based on special circumstances: There may be circumstances where taxable persons are engaged in construction activities/continuous supply of services. Therefore, revenue in profit and loss account is recognized on the basis of percentage of completion method and the supply as per return would be based on the advances on which GST is liable to be paid according to the time of supply of continuous services. In such a situation, the turnover recognized in the profit and loss account should be reduced and advances on which GST is paid should be added to arrive at a correct figure pertaining to supply. Source of data: Amount of revenue disclosed in the Profit and Loss Account and Notes to Accounts forming part of the financial statements.
Concluding comments:
When GST Act was implemented the taxable event was decided on the basis of the scope of “supply” as explained in Section 7 of the GST Act read with Schedule I, II and III of the said act. Therefore, supply is the essence of the GST Act. All the definitions under the GST Act have been defined under section 2. However, the definition or the scope of supply has been specifically defined in Section 7 of the Act, which implies that whenever there is a reference of supply in the whole act, supply would gain the meaning from the section 7 of the act. Thus, supply is the deciding criteria for any taxable event in the GST act and to fulfill the compliances of GST audit one must appreciate these items of reconciliation that might hold
importance while finalizing the same. The above article has been written to highlight the items to be mentioned in Table 50 of the GSTR 9C.
