The need to keep and maintain proper and correct accounts is of fundamental importance in taxation laws and so with GST laws. The substantive law of GST has spread over so many enactments and rules like CGST, IGST and SGST etc. It is proposed to deal with the provisions of accounts as contained in CGST Act 2017 for the purpose of this article. The law relating to keeping and maintaining accounts can be found in Sections 35 and 36 of the CGST Act (For short The Act). The draft rules connected with accounts are ready and published but final rules are yet to be notified. Thus the topic for discussion in this article shall be restricted to provisions contained in sections 35 and 36 of CGST Act and the draft rules relating to accounts. The discussion, however, is not exhaustive.
THE STATUTORY PROVISIONS
The substantive provisions relating to accounts are provided in section 35 of the Act and are reproduced below for ease of reference.
Section 35. (1) Every registered person shall keep and maintain , at his principal place of business , as mentioned in the certificate of registration, a true and correct account of -
(a) production or manufacture of goods;
(b) inward and outward supply of goods or services or both;
(c) stock of goods;
(d) input tax credit availed;
(e) output tax payable and paid; and
(f) such other particulars as may be prescribed:
Provided that where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business:
Provided further that the registered person may keep and maintain such accounts and other particulars in electronic form in such manner as may be prescribed.
(2) Every owner or operator of warehouse or godown or any other place used for storage of goods and every transporter, irrespective of whether he is a registered person or not, shall maintain records of the consignor, consignee and other relevant details of the goods in such manner as may be prescribed.
(3) The Commissioner may notify a class of taxable persons to maintain additional accounts or documents for such purpose as may be specified therein.
(4) Where the Commissioner considers that any class of taxable person is not in a position to keep and maintain accounts in accordance with the provisions of this section, he may, for reasons to be recorded in writing, permit such class of taxable persons to maintain accounts in such manner as may be prescribed.
(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 Accounts and other records 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.
(6) Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.
ANALYSIS OF SECTION 35
A cursory look at the provisions would reveal to the reader the following. Subsection (1) mandates every registered person to maintain compulsorily true and correct accounts of five specified categories of records of information/particulars and the sixth category may require keeping of additional records to be prescribed in rules made by the government. We shall deal with the draft rules later.
The accounts shall be kept and maintained at the principal place of business of the registered person. Every person should compulsorily furnish the address of the principal place of business while submitting application for registration in GST Reg-01. According to section 2(89) principal place of business" means the place of business specified as the principal place of business in the certificate of registration. Therefore the accounts are to be kept and maintained at that place.
Accounts are required to be kept at any other place business specified in the certificate of registration also. As per section 2(85) “place of business” includes any place where business is ordinarily carried on or where he stores the goods, or godown or where he receives services or where he keeps accounts or where he carries on business through an agent etc.
Accounts should disclose details of production or manufacture, inward and outward supply of goods and services, stock, ITC availed, output tax paid and payable etc. It may be noted that details of “processing” is not mentioned and one can envisage borderline cases where a particular activity does not amount either to "production" or "manufacture".
Accounts should be kept by persons who need not be registered persons under GST. They are godown owners/operators and transport operators. They have to keep particulars of the consignor, consignee and such other details prescribed by rules.
Commissioner is vested with the powers under subsection (3) to notify those classes of taxable persons who are required to maintain additional accounts or documents provided the purpose of such additional requirements is specified in the notification. This is obviously to introduce transparency in the exercise of powers by the Commissioner.
There are provisions under subsection (4) to take care of genuine difficulties faced by dealers who may not be in a position to comply with the strict requirements of law. In such cases, the Commissioner is vested with the power to dilute the law and provide alternative methods of keeping accounts. But it appears that he cannot totally dispense with the requirement to keep accounts.
Subsection (5) provides for getting the accounts audited by a CA or Cost accountant if the turnover exceeds the limit to be prescribed. In case audit is required then the person will have to submit audit report and other prescribed documents. As per section 44(2) every registered person shall furnish electronically an annual return along with a copy of the audited annual accounts and also a reconciliation statement of value of supplies declared in the return with the annual financial statements.
If a registered person fails to account goods or services or both in the accounts there is a power to determine the tax payable thereon as if the same is at par with escapement of assessment due to willful suppression or otherwise as provided in section 73 and 74 of the CGST Act. But this provision is subject section 17(5)(h) which provides that no input tax credit shall be allowed in case goods are lost, stolen, destroyed, written off, etc or supplied as samples or free goods.
RETENTION OF ACCOUNTS
The provisions relating to retention of accounts or records are contained in section 36 of the Act and the normal period of retention is seventy-two months (6 years) from the expiry of the due date for furnishing the annual return for the year concerned. Please note that the annual return has to be filed before the 31st day of December immediately following the expiry of the financial year concerned. Thus the computation of 72 months will have to be made from 31st December onwards. But if an appeal or revision or some investigation for an offence under Chapter XIX of the Act then the relevant accounts and records will have to be kept till the expiry of one year from the date of final disposal of such appeal/revision or investigation.
The draft rules published contains provisions making it obligatory to maintain accounts of imports, exports and supplies attracting the reverse charge. Every registered person should also maintain particulars of stock of each commodity received and supplied with details such as opening stock, receipts, supply, goods lost/stolen, destroyed, written off, free supplies etc and closing stock. Details of advance received, paid and adjustments made thereon are also required to be maintained.
The account or records specified above shall be maintained separately for each activity including manufacturing, trading and provision of services, etc. Registered person (with the exception of compounding dealers) shall be required to maintain stock records. It may be noted that separate accounts need to be maintained for advances received and paid with all details relating to its adjustment etc.
The registered person will have to maintain records showing complete name and address of his suppliers and to whom he supplies goods or services.
Any entry in registers, accounts and documents shall not be erased, effaced or overwritten and all incorrect entries shall be scored out under attestation and thereafter correct entry shall be recorded, and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained.
Unless proved otherwise, if any documents, registers, or any books of account belonging to a registered person are found at any premises other than those mentioned in the certificate of registration, they shall be presumed to be maintained by the said registered person.
Every registered person manufacturing goods shall maintain monthly production accounts, showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by-products thereof. Every registered person supplying services shall maintain the accounts showing the quantitative details of goods used in the provision of each service, details of input services utilized and the services supplied. There are provisions for maintaining accounts by works contractors, agents and clearing and forwarding agents etc.
Proper electronic back-up of records shall be maintained and preserved in such manner that, in the event of destruction of such records due to accidents or natural causes, the information can be restored within a reasonable period of time.
Every registered person shall, on demand, produce the books of accounts which he is required to maintain under any law in force.
The above discussion touches only upon some of the important provisions relating to accounts and hence readers are requested to go through the legal provisions in detail. Except the provisions relating to accounts maintained electronically all other provisions are more or less the same as under the current tax regime. Anyway, let us wait for the final rules which may be notified shortly.
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