Finalisation of Accounts from GST...

Finalisation of Accounts from GST perspective

SIRC OF ICAI PROGRAMME – AUGUST 25, 2018

Scope

GST Audit

Statutory Audit

Income tax Audit

© Srinivasan V, FCA | (+91) – 9003254848 | vsrca.in | Aug. 25, 2018

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Finalisation

of Accounts

Review of Trade Payables


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Beta Ltd.’s (GST regd.) trade payables included amount due to a local authority for over 75 days towards building rent

Attracts reverse charge (only from 25-Jan-2018)

Time of Supply triggered 60 days after invoice date

Similarly, watch out for dues to GTA / advocate / import of services,

etc. triggering reverse charge liability, in “Trade Payables”!

Review of Trade Payables / Other Liab. 4

If recipient fails to pay Value + Tax to supplier within 180 days from invoice date:

ITC availed by recipient added to his output tax liability;

with interest @ 18% p.a.;

in the month immediately following 180 days from invoice date.

Check for such instances at year-end.

Recipient can re-avail ITC subsequently on payment of Value + Tax to supplier,

without any time-limit.

Applicable only in case of forward charge mechanism.

Should ITC be reversed in case of retention money?


Review of Advances (Current Liability)


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October 1, 2017

Time of supply triggere

d on receipt

October 20, 2017

Time of supply not triggered on receipt only:

▪ w.e.f. 13-Oct-2017;

▪ if PY aggregate turnover < Rs.1.5 crore;

▪ for non-composition assessee.

November 20, 2017

Time of supply not triggered on receipt:

▪ w.e.f. 15-Nov-2017;

▪ irrespective of turnover;

▪ for non-composition assessee.

Gamma Ltd. received advance (towards supply of goods) on:

Watch out for mid-year regulatory amendments!

Review of Fixed Assets


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Will the answer differ if windmill consumables/spares were transferred/disposed of at nil consideration?

Will the answer differ if the transferee is an unrelated party?

What will be the impact?

Sigma Ltd. transferred a windmill (on which ITC was claimed) at nil consideration to Upsilon Ltd. (a related party) .

Watch out for such transfer / disposal of business assets!

Review of Fixed Assets


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Gamma Ltd. sold an used vehicle at WDV on Jan.1, 2018. Is it exigible to GST? If so, what is the value of supply?

Will the answers differ if the vehicle was sold on Jan.30, 2018 at WDV and assessee had claimed income-tax depreciation?

Will the answer further differ if the vehicle was sold on Feb.01, 2018 at purchase price and assessee had not claimed income-tax depreciation?

Will the answer further differ if the vehicle was sold on Feb.28, 2018 and assessee had claimed ITC of GST/CENVAT/VAT/any other tax?

Simple review of P&L account alone may not bring out sale of fixed assets!

Review of Fixed Assets from ITC view point


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Exceptions when ITC is available:

▪ works contract service used for further supply of works contract services

▪ works contract service used for construction of plant & machinery

▪ goods/services used for construction of plant & machinery – on own account

ITC not available (to be reversed, if availed) in respect of:

▪ works contract service used for construction of immovable property

▪ goods/services used for construction of immovable property– on own account

Is ITC eligible

on “works

contract service”

used for

“construction of

residential

complex”

intended for

sale?

“Construction” includes

re-construction,

renovation, addition,

alteration / repairs, to the

extent of capitalisation!

Review of Fixed Assets / Notes to Accounts –

Related Party Transactions


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Alpha Limited, India (subsidiary) imported

software from Alpha Inc., US (holding co.)

Amounts to “import of service”

Attracts reverse charge

Triggers Valuation rules; Transaction price not

acceptable

Time of Supply = Earlier of: (a) date of entry in

recipient’s books; (b) date of payment

De-linked from invoice date

Exercise caution on related party transactions!

Review of Current Assets

– Disputed (transitioned) credit


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Circ.33/2018: If CENVAT credit is held inadmissible vide Order prior to 01-Jul-2017, such disputed (transitioned) credit cannot be utilized till the Order is in existence. Else, it is recoverable with interest & penalty.

No power under GST law (or even erstwhile law) to impose such restriction on disputed (transitioned) CENVATcredit.

No provision in GST law to impose such restriction even on disputed GST ITC.

Illogical to invoke general power u/s.168when s.140ibid (specific provision) itself is silent.

Even if such power existed (hypothetically), isn’t the Executive taking over the power of Judiciary & unfairly prejudicing the assessee (who has already paid pre-deposit)?

If disputed credit > Rs.10 lakh, undertaking of non-utilization to be given

Review of Current Asset

– Refund Receivable


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• Epsilon Ltd. (a hotel located outside the SEZ) supplied banquet services to Zeta Ltd (an SEZ unit).

• Supplies made with payment of IGST & recognized as “Refund Receivable”.

• Is the above transaction a “zero rated supply”?

• Is Epsilon Ltd. unconditionally allowed to claim refund of IGST paid?

Not all zero rated supplies eligible for refund – Reverse ineligible refund receivables!

Review of Inventory


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Goods lost Goods stolen Goods destroyed Goods written off

Partial vs. full

write-off!

Is ITC available

on loss of goods

during

manufacture?

Review of Income


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Revenue reconciliation to be done between general ledger and GST returns.

Reconciliation with ST-3 necessary till 30-Jun-2017;

Discrepancies, if any, for FY 2017-18 to be incorporated in Sep. 2018 GST return.

Watch out!

Taxable transactions with nil

consideration:

Permanent transfer / disposal of business assets on which ITC

claimed

Transactions between distinct persons:

Supply of food (canteen service) / cab facility to

employees

Gift to employee(s) exceeding Rs.50,000

p.a.

Non-supplies (distinct from

reportablenon-taxable

supplies)

Review of Income / Year-end Credit Notes


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Year-end Credit Notes typically represent turnover discount – can be deducted from

value of supply only if:

Such discount is established by an agreement entered at or before the time of supply;

Such discount is specifically linked to relevant invoices;

ITC attributable to discount is reversed by recipient.

ITC reversal in case of

unregistered recipient?

Watch out!

Rampant changes in GST rates

during FY18 –Implication on

‘Time of Supply’

Exports without LUT, assuming it

is exempt!

Export of services to match with

Forex Income (in Notes to

Accounts)!

Prior period items to be reviewed cautiously from

the view point of ‘Time of supply’.

Review of Expenditure – Purchase from URPs


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Delta Ltd. purchased goods/services from unregistered persons (Rs.10,000) on 01-Oct-2017. Does reverse charge liability arise?

Will the answer differ if such purchases were made on 31-Oct-2017?

Exercise caution while selecting tax rate for discharging the liability!

Also, review forex outgo (in Notes to Accounts) to check reverse charge liability arising from import of services.

Perform a reconciliation of all purchases till 13-Oct-2017 and incorporate discrepancies, if any, in Sep. 2018 GST return.

Review of Expenditure


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Goods disposed of as gift

Is ITC available on gifts to dealers (customers) for achieving target? On

festive gifts?

On gift to employee uptoRs.50,000 p.a.? On gift >

Rs.50,000 p.a.?

Goods disposed of as free samples

100 gm. free with 1 kg. pack – should ITC be

reversed?

Similarly, exercise due diligence while assessing ITC eligibility on employee welfare expenses (canteen / rent-a-cab expenses).

Are directors’ remuneration subject to GST?

Review of Expenditure


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Iota Ltd. (Tamil Nadu) purchased inputs from Kappa Ltd. (Tamil Nadu)

The supplier missed out “Place of Supply” in the invoice.

Violation of R.36(2) of CGST Rules (viz., contents of invoice, etc.) –Loss of ITC!

Check compliance with Rule 46 / Chapter VI of CGST Rules for all invoices / debit notes.

Determination of final ITC reversal for inputs

/ input services


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Calculate “Ineligible Common Credit attributed to exempt supplies & non-business purposes (viz., D1 and D2) for the entire financial year (e.g., 2017-18)

If Annual (D1+D2) > Monthly aggregate (D1+D2):

Shortfall in reversal should be added to

output tax liability (max. by Sep.2018 return)

Interest payable on the excess from April 1,

2018 till date of payment

If Monthly aggregate (D1+D2) > Annual

(D1+D2):

Excess reversal can be claimed as credit (max.

by Sep.2018 return)

Practical issue in construction industry


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Construction of residential complex spans 2–3 years, with

significant ITC inflow through such period;

Assuming:

A realtor commenced construction of a residential complex on July 1,

2017;

completion certificate (CC) is received on Mar. 31, 2020;

1/3rd flats are unsold on that date;

all such remaining flats are sold in the year 2020-21;

It is known that flats sold after receipt of CC is not a ‘supply’

at all;

Should 1/3rd ITC (availed during construction period) be

reversed in 2020-21 for such sale of flats after receipt of CC?

Interest liability on belated payment


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Eta Ltd. had Rs.1 crore in e-cash ledger and Rs.1crore in e-credit ledger as on Jul. 31, 2017

It filed GSTR-3B for July 2017 (with output tax liability of Rs.2 crore) on Dec. 31, 2017

Is the co. liable to pay any interest? If so, on gross or net liability?

Rule 85(3) of CGST Rules: “Subject to the provisions of sec. 49, payment of every liability … shall be made by debiting the electronic credit ledger … or the electronic cash ledger … and the electronic liability register shall be credited accordingly”.

CARO related aspects


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Discrepancies in fixed assets /

inventory [Cl.3(i)/(ii)]

Will trigger ITC reversal

Extension of guarantee to related

party without consideration

[Cl.3(iv)]

Can it be treated as

“service” & taxed?

Valuation?

Non-payment of interest (on belated payment of GST)

[Cl.3(vii)]

Undisputed statutory dues? Interest payable

on gross liability!

Disputed statutory dues – CENVAT

[Cl.3(vii)]

Cannot be utilised (vide

Circ.33/2018). Undertaking

reqd. if > Rs.10lakh

Form 3CD related aspects


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Capital receipts [Cl.16] –

All price related subsidies (except Govt. subsidies) are taxable

Personal / club expenses [Cl.21] –

Will trigger ITC reversal, including common credit

ITC availed / utilized [Cl.27] –

Summarizes e-credit ledger

Prior period income / expenditure [Cl.27] –

Focus on Time of Supply & related interest

Shortage of inventory [Cl.35] –

Will trigger ITC reversal

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Thank YouSrinivasan V, FCA

(+91) – 900 325 4848 | vsrca.in

[email protected] | [email protected]

Disclaimer / Copyright: The author of this Presentation makes no warranty, and expressly disclaims any obligation, that: (a) the information

contained herein will be complete, accurate or up-to-date; (b) the results obtained from the use of such information will be accurate or reliable;

or (c) the quality of such information will meet the user’s expectations. The author is not responsible or liable for any loss, claim, delay, or

damages of any kind (including without limitation loss of profits or loss of savings), that may arise out of, or is connected with, any use of the

such information. The author expressly disclaims and will not be liable for any act or omission, or any consequence of any act or omission, by

any user relying on the information provided in this document or any interpretation thereof. © Srinivasan V, FCA

Finalisation of Accounts from GST...

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