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The due date for filing the GSTR-9C is fast approaching for FY 2018-19. As on the day of writing this article, the due date is 30th September 2020 which is expected to get extended further due to the present pandemic situation. Many of the audit and auditee staff are yet to return to their offices who have opted to work from home due to safety concerns. This is causing a delay in the audit process as access to information without a visit to offices is a challenge for most. One positive of this pandemic is that we as auditor have learned new ways of doing the audit with much lesser travelling to client places and better & effective use of technology.

For the purpose of GSTR-9C, the auditor has to certify that the particulars of GSTR-9C are giving true and fair view in addition to a certification that the information in GSTR-9C form is true and correct. There would be few issues where one often as auditor get stuck to decide on whether to recommend the additional liability or not. Especially in those cases where there would be only procedural lapse which has not caused any loss to the exchequer. There would be a conflict between logic and the law. In this article, few such issues have been discussed with a possible solution for the auditors.

ISD Vs. Cross charge

GST has introduced the new concept of cross charge wherein the supplies between the own branches would be subject to GST even in absence of consideration. There can be actual support provided by one unit to another or there could be common expenditure incurred at head office or registered office where entire GST ITC is utilized at such office. When conducting audits, this is one of the common issues being observed.

It is important to note that the concept of input service distribution (ISD) can be utilized to distribute the credits on common input services between different GSTINs. In case of support provided by one unit to another, cross charges can be opted. For example, head office staff filing the GST returns for all branches in India. In such case, it may be wise to cross charge with GST. Due to Rule 28 of CGST Rules 2017, the valuation is also not much issue when the recipient location is able to take full credit. Even a nominal value can be considered for cross charging.

There may be instances where common services availed but ISD registration not obtained to distribute the credit Even in such cases, the auditee may be advised to cross charge for the values where credits can be distributed equally to amount which would have been distributed had the auditee opted for ISD. If this is opted, auditor can make an observation that the auditee has opted for cross charge option to distribute the credits without recommending for any liability or penalty for non-compliance.

Wrong type of tax paid on outward supplies

IGST to be paid in case of all supplies which are held to be inter-State supplies and in case of intra-State supplies, CGST + SGST to be paid. However, there would be few instances wherein the taxpayers have paid wrong type of tax. Broadly, the following could be the categories of errors in such cases:

1. Correct type of tax charged in invoice say IGST and collected from customers. However, while paying through GSTR-3B, Karnataka SGST and CGST paid wrongly.

2. Wrong type of tax charged in invoice say IGST instead of CGST and SGST and collected from customers. However, while paying correct type of taxes IGST paid.

3. Wrong type of tax charged and collected from customers. Such wrongly collected taxes paid.

In case of first category, where charge and collection are right but payment was wrong, the tax payers could take the shelter under the circular no. 26/26/2017 wherein it has been clarified that such errors could be rectified by paying correct type of tax and adjusting the extra paid tax from subsequent period liability. Alternatively, even refund could be opted.

In second category, the supplier has collected the wrong type of tax but paid correct type of tax, there should not be any issue. However, since the invoice would have been issued with wrong type of tax, the recipient may face challenge with respect to ITC. For example, for inter-State supply to Tamilnadu, the Karnataka supplier has charged CGST + SGST instead of IGST. The recipient in Tamilnadu would not be eligible to claim ITC of CGST + SGST. Such errors should have been rectified only through issue of credit note for wrong type of tax and then debit note with correct type of tax. The recipient would be eligible for ITC based on such debit note. It is important to note that such debit note would be an eligible document for ITC only if issued within the due date of filing GST return for September of the subsequent financial year. Wherever recipient voluntary changed the type of tax in books for ITC claim there could be a dispute on eligibility.

Third category is where issues could arise. The simple solution could be to suggest for paying correct type of tax and claim refund of wrongly paid tax. However, it would not be easy for most tax payers as immediate refund may not be received. In such cases, the auditee can take shelter under Section 77 of CGST or Section 19 of IGST Act 2017 wherein the supplies held wrongly as inter-State instead of intra-State or vice versa results in refund of wrongly paid tax and requires payment of correct GST without any interest. The auditor also need not recommend additional tax payment during GSTR-9C certification in such cases as it is for tax officers to take such views and action during assessment.

Wrong type of tax paid under RCM

It is important to note that Section 77 or Section 19 as discussed in previous point may not be applied as it is for taxes payable under RCM as these sections cover tax collections which happen in case of outward supplies though otherwise also can be argued. Payment of CGST & SGST instead of IGST or vice versa may not have much impact on revenue of the State as in both the cases, it is the recipient’s State which gets the revenue. Auditor can restrict his observation by providing comment and not recommend any additional liability in such cases.

Wrong type of ITC claimed

In below table, different types of errors and possible solutions with respect to GST ITC have been provided:

Sl. No. Type of error Possible solution
1 IGST amount in invoice claimed as CGST + SGST credit or CGST + SGST charged within State claimed as IGST Revenue neutral. There may not be need of reversal/ payback as it does not lead to an overall excess claim of ITC. However, the department could still dispute stating that SGST/ CGST cannot be cross utilised and credit claim by converting it as IGST to utilise for all types of payment is not right. Auditor can restrict his observation by providing comment and not recommend any additional liability.
2 Credit of CGST + SGST of other State claimed as CGST + SGST or as IGST credit within the State Credit would not be eligible and requires reversal. An argument could be taken that CGST credit should not be restricted. However, the same is subject to litigation as it is charged for intra-State supplies. Few advance rulings also disallowed it. Auditor can recommend for additional liability.
3 Invoice raised from Maharashtra with IGST to Branch A (bill to) Karnataka but shipped to Branch B in Kerala. ITC claimed in Branch B. Credit should be claimed in Branch A. Even GSTR-2A would support this claim as type of GST would be depending upon the bill to location. Branch B should be eligible to claim credit based on invoice from Branch A.
4 CGST + SGST paid on import supplies under RCM claimed as credit instead of IGST payment Type of tax paid could be questioned which however, may not have much impact due to revenue neutrality. Tax paid on import supplies eligible for credit based on self-invoice. Auditor can restrict his observation by providing comment and not recommend any additional liability.
6 GST wrongly paid and credit claimed on unspecified categories of expenses – Ex: Rent-a-Cab Revenue neutral. There may not be any dispute as it is paid and taken as credit. Auditor can restrict his observation by providing comment and not recommend any additional liability.

Interest payment on ITC availed but not utilised

In terms of Section 50 read with Section 73, there would be an interest liability for excess claim or availment of GST ITC. Many times it is observed that the ITC amount wrongly availed wouldn’t have been utilised by the auditee. In such cases, there is a dilemma as to whether the auditor should recommend payment of interest or not as the GST provisions provide for interest payment even for a claim without utilisation. In such cases, the auditor can consider the Patna high court decision in case of Commercial Steel Engineering – 2019 decision where it was held that interest is not payable when GST ITC is not utilised though availed. Auditor can restrict his observation by providing comment and not recommend any additional liability.

Rate of interest on wrong availment of ITC

In terms of Section 50 (3), a taxable person who makes an undue or excess claim of input tax credit under Section 42(10) or undue or excess reduction in output tax liability under Section 43(10) has to pay interest on such undue or excess claim or on such undue or excess reduction at the rate of 24% per annum. Based on this provision, there have been recommendations provided to the auditees to pay interest at the rate of 24% whereas auditee wishing to pay at the rate of 18%.

It is important to note that the above section 50(3) covers a scenario where filing of GSTR-2 and GSTR-3 would be required where there can be an undue or excess claim of credit possible. In absence of GSTR-2 and GSTR-3 returns presently, in my view, auditee can be recommended to pay interest at 18%. There is no other provision which provides for interest payment other than in form GSTR-2.

Conclusion: There are various other issues where the auditor and auditee could be under dilemma where the decision can be taken by the auditors to recommend additional liability only after considering the revenue neutrality, support of few advance rulings, high court rulings etc.

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April 2024