Accounting for GST on Expenses

Save Share

This query is : Open

Quick Summary

This discussion addresses how M/s BL Ltd should account for GST on partially completed work by a contractor as of the balance sheet date. The key question is whether to recognise GST on the work done as an input tax credit even without a formal invoice. The consensus is that input tax credit cannot be claimed based on estimates; it requires a valid invoice as per Section 16 of the CGST Act. Therefore, the GST component on the partially completed work should not be treated as an input receivable in the balance sheet until the invoice is received.

BCCL PB AREA

BCCL PB AREA (Querist)

17 April 2021 M/s BL Ltd,a Public Company, has given a contact on 01.02.2021 to M/s Smooth Paint Pvt Ltd for Rs. 60 Lakhs + 18 % GST total Rs. 70.80 Lakhs for overhauling & painting a various machines within time limit of 6 month from date of contact. The work is of Revenue nature. As per the terms of agreement payment shall be made after completion of works.

As on 31.03.2021 (i.e. on balance sheet date ) M/s BL has surveyed the work done till date and measure the work done by contactor and found that only 20% of work having value Rs. 14.16 lakhs (Rs. 12 lakhs + GST Rs. 2.16 lakhs) has been completed by to M/s Smooth Paint Pvt. Ltd. No payment has been made for this part work since as per the terms of agreement payment shall be made after completion of entire work.

What shall be entry in the books of accounts of M/s BL Ltd as on 31.03.2021 ( Balance sheet date )
Option1:
Overhauling & Painting Exp Dr. 12,00,000.00
To M/s Smooth Paint Pvt Ltd 12,00,000.00

Option2:
Overhauling & Painting Exp Dr. 12,00,000.00
CGST Receivable A/c Dr 108000.00
CGST Receivable A/c Dr 108000.00
To M/s Smooth Paint Pvt Ltd 14,16,000.00

In Nutshall DO we should show the GST on part value of work done( calculated on estimated basis ) as input receivable in Balance sheet EVEN if the bill is NOT received.

Kindly back your answer with relevant para of Accounting standard or guidance notes .

CMA Poornima Madhava

CMA Poornima Madhava (Expert)

17 April 2021 1) Provisional entry to the extent of the work completed can be made in the books of the company at the end of FY. TDS also to be considered for such provisional entry.
2) No ITC can be availed (on the basis of estimation) in respect of such provisions. Input tax credit can only be availed on receipt of invoice from the contractor.
Refer section 16 of CGST Act to know more on eligibility and conditions for taking ITC: https://taxguru.in/goods-and-service-tax/input-tax-credit-gst-section-16-18-cgst-act-2017.html

BCCL PB AREA

BCCL PB AREA (Querist)

17 April 2021 What will be the implications if full amount is paid in advance is paid to SMOOTH PAINT (Rs. 60 Lakhs + 18 % GST)

CMA Poornima Madhava

CMA Poornima Madhava (Expert)

17 April 2021 Account it as an advance to the vendor and the same can appear under Current Assets in the Balance Sheet

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now