INTRODUCTION

1. What is the real scope of FORM GSTR–9C ? This is a million dollar question. This is because the views on the issue are clearly divided amongst the professionals. On one side the said Form is viewed as a mere number crunching exercise. On the other side it is viewed as a full-fledged audit. In the present article we attempt to compare the provisions and the structure of the Form under the GST law vis-à-vis the Income Tax law to get some idea about the scope of GSTR–9C. The idea behind the said comparison stems from the fact that the Government never reinvents the wheel. The underlying logic behind the Forms under GST as well as Income Tax have lots of similarities. Let us see the same.

STATUTORY PROVISIONS

Income Tax GST
Sec. 44AB Every person,—
(a) ———
(b) ———
(c) ———
(d) ———
(e) ———
shall get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
Provided [also] that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.
Rule 6G (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall,—
(a) in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;
(b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB.
(2) The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD
Sec. 35(5) 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 and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.
Sec. 44(2) Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed.
Rule 80(3) Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

AUDIT OF ACCOUNTS

2. Now let us examine the differences in the above language under different statute in detail. As per Sec. 44AB of the Income Tax Act, 1961 read with Rule 6G, a person (who crosses certain threshold in terms of receipts or income) shall get his accounts audited. Hence the first requirement is to audit the accounts. Proviso further provides that where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance if such person furnishes the audit report under such law as well as a further report in the prescribed form. Accordingly following forms have been prescribed:

a. FORM 3CA/CB – Form 3CA is to be submitted in cases where accounts have already been audited under any other law. It is a Form whereby an auditor under Income Tax can record his observations on the accounts (which have already been audited). Form 3CB is to be submitted in cases where the audit is conducted for the first time (since such person is not liable for audit under any other laws). Both these Forms deal with the audit of the accounts. It is for this reason that the Form seeks a confirmation as to whether the financial statements are in line with the books and whether such financial statements give a “true & fair view”. Since the said Forms deal with accounts, purposefully the words “true & fair” have been used since accounting at many instances requires some assumptions and estimates. Hence it is the truthfulness and fairness which is to be examined and not correctness. Said Forms also seeks confirmation of whether the particulars given under FORM 3CD are correct. Said aspect is discussed below.

b. FORM 3CD – Sec. 44AB also requires furnishing of a prescribed form setting forth such particulars as may be prescribed. Hence a statement of particulars in the Form 3CD is also to be submitted. It may be noted that Form 3CD is a “statement of particulars”. Hence what is sought through such Form are certain details. Since facts are sought, the verification clause in Form 3CA/CB in connection with the particulars stated in Form 3CD provides that such details must be “true & correct”. The presumption is that since only facts are sought in Form 3CD, the details of the same have to be necessarily “true & correct”. Said presumption might have hold well when the Form was introduced way back in 1985. With the passing years, Form 3CD has been amended and at lot of places now an opinion of the auditor is sought which goes beyond the facts. However the confirmation sought in Form 3CA/3CD with respect to Form 3CD still retains the words “true & correct”.

3. With the above background, we must now consider the provisions under GST. Sec. 35(5) of the CGST Act, 2017 provides that a 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 and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed.

4. A careful reading of the above provision will show that unlike Income Tax, it is silent on whether the audit of accounts have to be done again under the GST law even if the same has already been done under any other law ? Will it suffice if the audit report (of audit of accounts done under any other law) is submitted ?

5. Part B of Form GSTR – 9C which deals with the certification is important to resolve the issue. Said part is further divided into two sub-parts viz. Part I (for cases where 9C is drawn by person who has conducted the audit) & Part II (for cases where 9C is drawn by person other than the person who had conducted the audit of accounts). Hence the intent is similar to Income Tax. If the accounts have already been audited under other laws, there is no need to audit the accounts again under GST. Audit report already furnished under such other law shall be sufficient. At the same time, at paragraph no. 3(b) of Part I (similar to Form 3CA), an auditor has to record his observations on the audited accounts as regards its truthfulness & fairness (even if audit has been done by an another auditor). However if the accounts have not been audited under any other law, it shall be required to be audited for the first time and accordingly the reconciliation statement in Form GSTR – 9C is to be drawn.

SCOPE OF GSTR – 9C

6. Form 3CD is a statement of particulars. It may be noted that Sec. 44AB of the Income Tax Act, 1961 is silent on the scope of the said Form. It only provides that a prescribed form having prescribed particulars is to be filed. On the other hand Sec. 44(2) of the CGST Act, 2017 provides that the scope of reconciliation statement is to reconcile the values of supplies declared in the return furnished for the financial year with the audited annual financial statement. Hence unlike Income Tax law, GST law provides for the purpose of the Form GSTR – 9C in the Act itself.

7. In view of the above light, can it still be said that the scope of GSTR – 9C is beyond reconciliation ?

8. One view can be that a Form cannot dictate the interpretation of the provisions of the Act. A leading case on the point is of Life Insurance Corporation of India vs. Escorts Ltd.  1986 AIR 1370 (SC) wherein Apex Court observed that the Form cannot control the Act, the Rules or the directions. As one learned judge of the Madras High Court was fond of saying ‘it is the dog that wags the tail and not the tail that wags the dog.’ Hence the scope of GSTR – 9C as prescribed u/s 44(2) must be to only reconcile the values and nothing else.

9. Even if the above view is accepted, one needs to answer as to what is a “reconciliation” which is sought to be certified ?

10. Let us take a case wherein a registered supplier has recorded a taxable supply as an exempt supply in the records (accounts or records maintained u/s 35(1)). Now as part of the reconciliation exercise, is the auditor required to report the same as an exempt supply so as to reconcile the values of turnover declared in books vis-à-vis supplies declared under GST ?

11. The answer is a clear no. This is because of the following verification clause appended to Form GSTR – 9C:

“Verification:

I hereby solemnly affirm and declare that the information given herein above is true and correct to the best of my knowledge and belief and nothing has been concealed there from.”

12. The above clause thus provides that the auditor is required to certify whether the details furnished in GSTR – 9C are “true & correct”. Will reporting a taxable supply as an exempt supply be “true & correct” ? The answer will certainly be clear no.

13. Attention is also invited to table no. 9 of GSTR – 9C which provides for reconciliation of tax paid rate-wise. It intends to compare the tax payable with the tax paid. Hence the determination of the payable amount to be “true & correct” will necessarily involve verification of the legal stand taken by the supplier.

14. Seen in the light of the verification clause, we can reach an unquestionable conclusion that the figures which shall form part of GSTR – 9C have to be “true & correct”. Hence an auditor is required to check the legality of the stand taken by the registered supplier in such cases.

15. On the other hand let us take one more example. Suppose the registered supplier has not made an invoice for cross charge of services to its own branches (deemed supply). Is auditor required to report the same in GSTR – 9C ?

16. Our answer seems to be no. This is because the said transaction is not a part of the reconciliation statement. Hence we are of the view that something which is not part of GSTR – 9C is not required to be verified. In the same breath we do say that it will be in the interest of trade as well as Government that even aspects not forming part of the reconciliation statement must be verified. Perhaps for FY 2017-18, being the first year of GST, such full fledge audit is not intended.

17. Before we conclude we must also address the role of the definition of “audit” as given u/s 2(13) of the CGST Act, 2017. Said definition is reproduced below:

“(13) “audit” means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder;”

18. Bare reading of the above definition will show that it is exhaustive in nature. It goes beyond the scope of reconciliation. Can the said definition be applied for the reconciliation covered u/s 35(5) ?

19. Answer seems to be no. This is because Sec. 35(5) read with Sec. 44(2) clearly brings out the scope of reconciliation statement. The word “audit” used in said provisions is with respect to the books of accounts and not the reconciliation statement. This is also clear from the fact that the heading of Part II of GSTR – 9C also provides for furnishing the statement in cases where audit of books has been conducted by an another auditor. Hence we are of the view that the definition of “audit” need not be read while interpreting the scope of reconciliation statement.

CONCLUSION

20. From the above discussion one will observe that the verification clause appended in GSTR – 9C does expand the responsibility of an auditor as far as the reconciliation is concerned. Auditor cannot just mechanically plug the numbers and certify. The same will not be “true & correct”.

21. Now how much importance one can place on the verification clause is also a matter of perception? We believe that unless the same is not modified (or ‘modi’fied) by the Government the scope of GSTR – 9C is wider than a mere number crunching exercise. At the same time it is also not a full-fledged audit as envisaged by the definition of “audit”.

22. It is therefore urged to the Government that a suitable clarification as to the scope of GSTR – 9C be issued at the earliest. Whether the definition of “audit” has to be read into it or not is to be clarified. This shall go a long way in diffusing the current confusion. It is better if an approach similar to Form 3CD (wherein lots of questions are asked) be adopted for GSTR – 9C as well wherein in addition to pure reconciliation, certain pertinent questions are asked. At present the only question asked apart from the reconciliation is whether the supplier is maintaining the records as per GST law (see paragraph no. 2 of Part B). It seems that as Form 3CD has evolved over more than three decades from mere reporting of factual aspects to reporting of opinion, Form 9C may also evolve from the reconciliation to full-fledged audit.

(views are strictly personal)

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