HANDBOOK TO G S T AUDIT. (with GSTR-9 and 9C) BY :- CA ATUL KUMAR GUPTA ASSISTED BY :- CA SMELLY KINRA CA MOHIT GUPTA

Transcription

1 HANDBOOK TO G S T AUDIT (with GSTR-9 and 9C) BY :- CA ATUL KUMAR GUPTA ASSISTED BY :- CA SMELLY KINRA CA MOHIT GUPTA

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3 HANDBOOK TO GST AUDIT (With GSTR 9 & GSTR 9C) By- CA Atul Kumar Gupta Assisted by- CA Smelly Kinra CA Mohit Gupta

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5 Contents Introduction:... 5 A. To whom GST Audit is applicable?... 6 B. How to conduct Audit?... 7 B.1 Levy & Collection of Tax:... 7 B.2 Non-taxable supplies B.3 Transactions covered under Schedule III or Not Covered by definition of Supply B.4 Composite and Mixed Supply B.5 Payment of tax under reverse charge mechanism B.6 Payment of tax in case of inward supply of taxable goods/services effected from unregistered dealers B.7 Compliance with the provisions of Time of Supply B.8 Change in rate of tax on the goods or services B.9 Supply ceased prior to completion of supply B.10 Goods sent on approval basis B.11 Place of Supply B.12 Value of taxable supply liable to tax B.13 Value of Supply Rule of CGST rules B.14 Value of supply- specified cases under rule 31A and 32 of CGST rules B.15 Concept of Pure Agent B.16 Tax liability on account of bad debts B.17 Input Tax Credit B.18 Ineligible Input Tax Credit Case Study 1: Case Study B.19 ITC in case of banking/financial/nbfc B.20 Transitional credits B.21 Exports B.22 Any exemption notifications or special orders applicable to the registered person B.23 Compliance of section 18 of CGST Act B.24 Job Work B.25 Returns and other forms B.26 Payments - Electronic cash ledger and Electronic credit ledger [Section 49 (1&2)]

6 B.27 Liability of Interest on Delayed Payment of Taxes and in case of undue or excess claim of Input Tax Credit B.28 Miscellaneous B.29 GSTR-9 and GSTR-9C FORM GSTR FORM GSTR-9C

7 Introduction: GST is one of India s largest tax reforms and it has been one year of implementation of GST. Various technical glitches along with other procedural issues have been faced by registered persons all over the country during this period. To ensure compliance of GST law various measures have been adopted by the government and audit is one of them. To cover up with the inaccuracies, it is time to adopt the final corrective measure for the year. Audit under GST is the process of examination of records, returns and other documents maintained by a registered person. The purpose is to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the provisions of GST. It is a way to analyse the compliance of taxpayer with the provisions of the GST Act. In order to ensure effective compliance with the various GST provisions and to ensure performance of audits systematically and to bring transparency, audit provisions have been incorporated under the GST Acts/Rules. Definition of the term Audit Section 2(13) of the CGST Act Audit means the examination of records, returns and other documents maintained or furnished by the registered person under the GST Acts or the rules made there under 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 the GST Acts or the rules made thereunder. The following 3 types of audits are prescribed under the GST laws: 1. 1 st type of audit is to be done by a chartered accountant or a cost accountant under section 35(5), section 44(2) of the CGST Act read with rule 80(3) of CGST rules; 2. 2 nd type of audit is to be done by tax authorities under section 65 of the CGST Act; and 3. 3 rd type of audit is called the Special Audit and is to be conducted under the mandate of Section 66 of CGST Act, We are going to discuss only about first type of audit viz. annual GST audit in terms of section 35(5), section 44(2) of the CGST Act read with rule 80(3) of CGST rules to be performed by chartered accountant or a cost accountant. 5

8 A. To whom GST Audit is applicable? Sub-section 5 of section 35 of the CGST Act, sub-section (2) of the CGST Act and sub-rule (3) of rule 80 are the applicable section is respect of GST annual audit, which prescribes the basic criteria such as: turnover limit to identify the person whose accounts are liable to get audited under GST; period for which audit is to be conducted; time limit by when audit report is to be furnished; documents or other information like reconciliation statement to be furnished along with audit report in desired format as will be notified soon etc. The relevant provisions in respect of GST Audit have been provided below: Section 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 subsection (2) of section 44 and such other documents in such form and manner as may be prescribed. Section 44(1): Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year. Section 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. Sec. 2(6) of the CGST Act: Aggregate Turnover Aggregate Turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. 6

9 In author s view aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. Let s assume, a Company is registered in three different states with same PAN, engaged in making taxable supplies, exempt supply, export and interstate supply. Total turnover of different registration is Rs.2 cr., 50 lakhs and 10 lakhs respectively. Here, aggregate turnover will be computed on all India basis and it shall be computed as Rs.2 cr. 60 Lakhs (viz. 2 cr lakhs + 10 lakhs). Thus, in accordance with above mentioned provisions, the company is required to comply with GST Audit in all three states. It is also to be noted here that registered person majorly affecting exempt supply and having turnover Rs.2.5 cr. (comprising exempt supply of Rs.2.4 cr. and taxable supply Rs.10 lakhs), is also required to comply with GST Audit, eg: school, hospitals etc. The matter of discussion here is whether first GST audit is to be conducted for FY April 2017 to March 2018 or July 2017 to March We are of the view that GST has been implemented from 1 st day of July, hence, audit under GST should be conducted for period covered under GST regime and aggregate turnover should also be computed for July 2017 to March In accordance with the above mentioned provisions, due date of furnishing of annual return and audit for a financial year is 31 st of December of succeeding financial year. Also, the maximum period for rectification of invoices and other relevant documents for the benefit of ITC is due date of furnishing of return of the month of September of succeeding financial year. Further, it is pertinent to mention here that in Income Tax Laws, due date of furnishing of tax audit and income tax return is 30 th September respectively and hence, period beyond this date has of no relevance after finalization of accounts. Therefore, GST audit should also be completed by that date only. Further, in respect of Annual Return under section 44(1), it is to be noted here that every registered person other than ISD, person taxable under section 51 (viz. TDS) or section 52 (viz. TCS) and a non-resident taxable person is required to file Annual Return under this section irrespective of the amount of turnover B. How to conduct Audit? B.1 Levy & Collection of Tax: Whether the supplies effected by the registered person have been considered in returns? Section 7: Scope of Supply (1) For the purposes of this Act, the expression supply includes 7

10 (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1), (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. SCHEDULE I: ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal 4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. 8

11 SCHEDULE II: ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 1. Transfer (a) Any transfer of the title in goods is a supply of goods; (b) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services; (c) Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. 2. Land and Building (a) any lease, tenancy, easement, license to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. 3. Treatment or process: Any treatment or process which is applied to another person's goods is a supply of services. 4. Transfer of business assets (a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those 9

12 assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person; (b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services; (c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person. 5. Supply of services The following shall be treated as supply of service, namely: (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Explanation. For the purposes of this clause (1) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of nonrequirement of such certificate from such authority, from any of the following, namely: (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. 10

13 6. Composite supply The following composite supplies shall be treated as a supply of services, namely: (a) works contract as defined in clause (119) of section 2; and (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. 7. Supply of Goods The following shall be treated as supply of goods, namely: Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. The auditor is required to check the nature of supply as provided in section 7 of the CGST Act i.e. sale, barter, transfer, exchange, license, rental, lease or disposal made and comment upon nature of supply under different heads, if not complied in returns. In respect of activities specified in Schedule I we need to examine carefully as such transactions are difficult to track from the books of the registered person. Relevant table number of GSTR-1 and 3B along with explanations has been tabulated below for quick reference, Details Outward Supplies of Relevant Table in GSTR-1 Relevant Table in GSTR- 3B Explanation in relation to GSTR-1 Taxable Supplies (Sale, Transfer, Barter, Exchange, License, Rental, Lease, Disposal etc.) 4A, 4B, 4C, 6B, 6C 3.1 B2B Invoices - Details of invoices of Taxable supplies made to other registered taxpayers Taxable Supplies (Sale, Transfer, Barter, Exchange, License, Rental, Lease, Disposal Etc.) 5A, 5B 3.1 B2C (Large) Invoices -Invoices for Taxable outward supplies to consumers where: a) The place of supply is outside the state where the supplier is registered and b) The total invoice value is more that Rs 2,50,000 11

14 Taxable Supplies (Sale, Transfer, Barter, Exchange, License, Rental, Lease, Disposal Etc.) B2C (Small) Invoices -Supplies made to consumers and unregistered persons of the following nature: a) Intra-State: any value b) Inter-State: Invoice value Rs 2.5 lakh or less Exports 6A 3.1 Exports supplies including supplies to SEZ/SEZ Developer or deemed exports B.2 Non-taxable supplies Whether generally non-taxable supplies have been reported in the return? Section 2(78) of the CGST Act: non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act; Examples of Non-taxable supply: petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel alcoholic liquor for human consumption Here, the auditor will be required to check and comment whether value of non-taxable supplies like liquor, petroleum, high speed diesel, natural gas, turbine fuel, motor spirit, (high sea sales) or any other non-taxable supplies have been reported in return. Details of Exempt/ Relevant Relevant Explanation in relation to GSTR-1 Nil - Rated Supplies Table in Table in GSTR-1 GSTR-3B Exempt/ Nil - Rated Supplies 8A, 8B, 8C, 8D 3.1 Details of Nil Rated, Exempted and Non-GST Supplies made during the tax period B.3 Transactions covered under Schedule III or Not Covered by definition of Supply. Whether it is ensured that transactions of the transactions covered under Schedule III of the Act & not covered by definition of supply have not been reported in the return? a) Schedule III to Section 7: 1. Services by an employee to the employer in the course of or in relation to his employment. 2. Services by any court or Tribunal established under any law for the time being in force. 3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities; 12

15 (c) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (d) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause. 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 6. Actionable claims, other than lottery, betting and gambling. Explanation. For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court. b) Transactions not covered by definition of supplies Transactions which are not in the course of business or commerce Transactions covered under Schedule III (mentioned above) and supply of goods or services not covered under the definition of supply (if any) like dividend, interest of fixed deposits, interest on saving account etc. are not required to be reported in periodical returns. The Auditor is required to review and report the fact, if any reported in respective returns. B.4 Composite and Mixed Supply Whether the tax liability has been determined in accordance with Section 8 of the CGST Act, 2017? Section 8: Tax liability on composite and mixed supplies The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Composite Supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Mixed Supply shall mean the full amount which a recipient of a supply is required to pay in order to obtain the goods or services or both of like kind and quality at or about the same time and at the same commercial level where the recipient and the supplier are not related. 13

16 Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; If a contract is entered for (i) supply of certain goods and erection and installation of the same thereto or (ii) supply of certain goods along with installation and warranty thereto, it is important to note that these are naturally bundled and therefore would qualify as composite supply. Accordingly, it would qualify as supply of the goods therein, which is essentially the principal supply in the contract. Thus, the value attributable to erection and installation or installation and warranty thereto will also be taxable as if they are supply of the goods therein. The purpose behind review of mixed or composite supply is to evaluate whether correct GST has been charged at correct rate i.e. rate of principal supply or highest rate of tax, as applicable. Where taxability of any supply comprising such supply, has not been determined in accordance with the provisions of section 8 of the CGST Act mentioned above, the auditor is required to give his views and to provide details of such supplies. 14

17 B.5 Payment of tax under reverse charge mechanism Whether tax under reverse charge has been remitted on inward supply of goods or services liable to tax under reverse charge mechanism under section 9(3) of the CGST Act read with section 5(3) of the IGST Act? Section 9(3) of the CGST Act: The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Section 5(3) of the IGST Act: The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.. The relevant sub-sections provided that on specific supply goods or services, recipient of supply is liable to pat tax under reverse charge mechanism. The auditor is required to check such inward supply of goods or services which are covered under reverse charge mechanism, whether tax has been remitted by the registered person in capacity of recipient of supply, where required. If tax under reverse charge mechanism has not been remitted, the same shall be reported in audit report. The auditor is also required to review where supplier has offered the tax instead of recipient in case of reverse charge mechanism. Relevant Notifications for RCM on services: NN 13/2017-CT(rate) dated , corrigendum dated read with NN 10/2017-IT(rate) dated , corrigendum dated , -NN 22/2017-CT(rate) dated & NN 22/2017-IT(rate) dated , NN 33/2017-CT(rate) dated & NN 34/2017-CT(rate) dated and NN 3/2018-CT(rate) dated & NN 3/2018-IT(rate) dated Services under RCM: 1. Supply of Services by a goods transport agency (GTA) (w.e.f GTA who has not paid central tax at the rate of 6%) in respect of transportation of goods by road toa. any factory registered under or governed by the Factories Act, 1948(63 of 1948);or b. any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or c. any co-operative society established by or under any law; or d. any person registered under the CGST Act or IGST Act or SGST Act or UTGST Act; or e. any body corporate established, by or under any law; or 15

18 f. any partnership firm whether registered or not under any law including association of persons; or g. any casual taxable person. 2. Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly. legal service means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority. 3. Services supplied by an arbitral tribunal to a business entity. 4. Services provided by way of sponsorship to any body corporate or partnership firm. 5. Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding,- (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. 5A. Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017). 6. Services supplied by a director of a company or a body corporate to the said company or the body corporate. 7. Services supplied by an insurance agent to any person carrying on insurance business. 8. Services supplied by a recovery agent to a banking company or a financial institution or a nonbanking financial company 9. Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of subsection (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like. 10. Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient. 11. Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. 16

19 12. Supply of services by the members of Overseeing Committee to Reserve Bank of India. (w.e.f ) 13. Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the CGST Act, (w.e.f ) Relevant Notifications for RCM on Goods: NN 04/2017-CT (rate) & IT (rate) dated read with NN 36/2017-CT (rate) & NN 37/2017-IT (rate) dated , NN 43/2017-CT (rate) & NN 45/2017-IT (rate) dated and NN 11/2018-CT (rate) & NN 12/2018-IT (rate) dated Goods under RCM: i. Cashew nuts, not shelled or peeled ii. Bidi wrapper leaves (tendu) iii. Tobacco leaves iv. Silk yarn v. Used vehicles, seized and confiscated goods, old and used goods, waste and scrap, supplied by Central Government, State Government, Union territory or a local authority to any registered person vi. Raw Cotton (w.e.f. 15th November 2017) vii. Priority Sector Lending Certificates B.6 Payment of tax in case of inward supply of taxable goods/services effected from unregistered dealers Whether tax has been remitted under reverse charge in case of goods or services purchased from unregistered dealers under section 9(4) of the CGST Act read with section 9(5) of the IGST Act? Section 9(4) of the CGST Act: The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Section 5(4) of the IGST Act: The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. GST law has been introduced with a new concept of reverse charge mechanism in case of procure of supply from unregistered dealer. The auditor is required to check the inward supply of goods or services which are procured from unregistered supplier and therefore, covered under 17

20 reverse charge mechanism in terms of section 9(4) of the CGST Act & section 5(4) of the IGST Act, and where tax is required to be remitted by the registered person. If tax under reverse charge mechanism has not been remitted, the same shall be reported in audit. However, for Financial Year , Section 9(4) of the CGST Act and Section 5(4) of the IGST Act is applicable till B.7 Compliance with the provisions of Time of Supply Whether tax has been paid in accordance with section 12 and 13 read with section 31 of the CGST Act? Section 12 Time of supply of Goods 1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section. 2) The time of supply of goods shall be the earlier of the following dates, namely: a) The date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or Clause 1 and 4 of Section 31 (Tax Invoice) 1) A registered person supplying taxable goods shall, before or at the time of, a) Removal of goods for supply to the recipient, where the supply involves movement of goods; or b) delivery of goods or making available thereof to the recipient, in any other case, issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed: Provided that the Government may, on the recommendations of the Council, by notification, specify the categories of goods or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed. Section 31(4) Says that in case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each such statement is issued or, as the case may be, each such payment is received. b) the date on which the supplier receives the payment with respect to the supply: Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount. However, vide Notification no. 40/2017 Central Tax dated 13 October 2017 read with Notification no. 66/2017 Central Tax dated 15 November 2017, the supplier of goods has to make payment of tax upon issuance of invoice only under Section 12(2)(a). 18

21 Explanation 1. For the purposes of clauses (a) and (b), supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. Explanation 2. For the purposes of clause (b), the date on which the supplier receives the payment shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier. 3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely: a) the date of the receipt of goods; or b) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or c) the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier: Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply. 4) In case of supply of vouchers by a supplier, the time of supply shall be a) the date of issue of voucher, if the supply is identifiable at that point; or b) the date of redemption of voucher, in all other cases. 5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or b) in any other case, be the date on which the tax is paid. 6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. 19

22 Section 13 Time of supply of Services 1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section: 2) The time of supply of services shall be the earliest of the following dates, namely: a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or 20

23 Clause 2 and 5 of Section 31 (Tax Invoice) (2) A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed: Provided that the Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which a) any other document issued in relation to the supply shall be deemed to be a tax invoice; or b) Tax invoice may not be issued. (5) Subject to the provisions of clause (d) of sub-section (3), in case of continuous supply of services, a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment; b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment; c) Where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event. c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply: Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount. Explanation. For the purposes of clauses (a) and (b) i. the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment; ii. The date of receipt of payment shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. 3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely: a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or 21

24 b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier: Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply: Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier. 4) In case of supply of vouchers by a supplier, the time of supply shall be a) The date of issue of voucher, if the supply is identifiable at that point; or b) The date of redemption of voucher, in all other cases. 5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or b) in any other case, be the date on which the tax is paid. 6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. 22

25 Section 12 and 13 of the CGST Act prescribe the provisions in respect of time of supply of goods and services to govern the time of arising taxability based on the issuance of invoice, date of payment or date of completion of service and due of issuance of invoice, if invoice not raised. Here, the auditor needs to check the time of supply whether correctly determined with respect to prescribed provisions, specifically in case where invoice has not been raised and also payment has not been made. If not determined in accordance with said provisions then registered person is liable to pay interest. B.8 Change in rate of tax on the goods or services Whether there was a change in rate of tax on the goods or services or both supplied during the year and whether effect of the change has been provided in all cases? Section 14 Change in rate of tax in respect of supply of goods or services Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely: a) in case the goods or services or both have been supplied before the change in rate of tax, (i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or (ii) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or (iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment; b) in case the goods or services or both have been supplied after the change in rate of tax. (i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or (ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or (iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice: Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax. Explanation. For the purposes of this section, the date of receipt of payment shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. After implementation of GST, certain changes have been made for rate of GST vide various notifications. A list of notifications has been provided hereunder. Here, the auditor will be 23

26 required to examine specifically such services or goods if there is any change in rate of tax and whether tax has been charged at amended rate of GST w.e.f. the effective date of amendment. If effect of the amendment has not been provided, the same is required to be reported. List of Notifications with respective dates in relation to changes in rates of goods & services Nature Original Notification No. Amendment Notification No. Dated 01/2017-CT(rate) Goods 18/2017-CT(rate) /2017-CT(rate) /2017-CT(rate) /2017-CT(rate) /2017-CT(rate) /2018-CT(rate) /2018-CT(rate) Nature Original Notification No. Amendment Notification No. Dated 11/2017-CT (rate) Services 20/2017-CT (rate) /2017-CT (rate) /2017-CT (rate) /2017-CT (rate) /2018-CT (rate) B.9 Supply ceased prior to completion of supply Whether in any case supply has been ceased prior to completion of supply, if any, whether invoice has been issued to the extent of supply made? 24

27 Section 31(6): In a case where the supply of services ceases under a contract before the completion of the supply, the invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the supply made before such cessation. In such scenario, the auditor is required to check where supply has been ceased prior to completion of supply and tax has not been charged and remitted the same, like in works contract service in respect of construction. If tax has not been remitted then the same shall be required to furnish n audit report. B.10 Goods sent on approval basis Whether supply of goods involves goods sent on approval basis exceeding the time limit of 6 months and not offered to tax? Section 142(12) Sale on approval basis Where any goods sent on approval basis, not earlier than six months before the appointed day, are rejected or not approved by the buyer and returned to the seller on or after the appointed day, no tax shall be payable thereon if such goods are returned within six months from the appointed day: Provided that the said period of six months may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding two months: Provided further that the tax shall be payable by the person returning the goods if such goods are liable to tax under this Act, and are returned after a period specified in this sub-section: Provided also that tax shall be payable by the person who has sent the goods on approval basis if such goods are liable to tax under this Act, and are not returned within a period specified in this sub-section. Here, the auditor needs to check where earlier goods sent on approval basis & a period of 6 months has been lapsed. If time period of 6 months has been completed and still the goods are not offered to tax, then the same is required to be reported by the auditor and shall be offered to tax along with interest. B.11 Place of Supply Whether the registered person has determined the place of supply of goods or services in terms of section of the IGST Act? Section 10: Place of supply of Goods other than imported into, or exported from India 1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under, 25

28 a) Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient; b) Where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person; c) Where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient; d) Where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly; e) Where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board. 2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in such manner as may be prescribed. Section 11: Place of supply of goods imported into, or exported from India The place of supply of goods, a) imported into India shall be the location of the importer; b) exported from India shall be the location outside India. Section 2 of the IGST Act: Import of Goods with its grammatical variations and cognate expressions means bringing goods into India from a place outside India. Export of Goods with its grammatical variations and cognate expressions means taking goods out of India to a place outside India. Section 12: Place of supply of services where location of supplier and recipient is in India 1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India. 2) The place of supply of services, except the services specified in sub-sections (3) to (14), a) made to a registered person shall be the location of such person; b) made to any person other than a registered person shall be, i. the location of the recipient where the address on record exists and; ii. the location of the supplier of services in other cases. 26

29 3) The place of supply of services, a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or c) by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or d) any services ancillary to the services referred to in clauses (a), (b) and (c), shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located: Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient. Explanation. Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. 4) The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed. 5) The place of supply of services in relation to training and performance appraisal to, (a) a registered person, shall be the location of such person; (b) a person other than a registered person, shall be the location where the services are actually performed. 6) The place of supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational, entertainment event or amusement park or any other place and services ancillary thereto, shall be the place where the event is actually held or where the park or such other place is located. 7) The place of supply of services provided by way of, a) organisation of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to a conference, fair, exhibition, celebration or similar events; or b) services ancillary to organisation of any of the events or services referred to in clause (a), or assigning of sponsorship to such events, 27