Indirect tax being a transaction-based impost, it relies heavily on
transaction-level documentation for its implementation. The new millennium has
already completed a ‘graduation’ in statutory record maintenance – from preset
formats to content-based requirements. GST is a step in the same direction with
the added advantage of digitisation. This article lists some of the
documentation requirements under GST.
Persons liable to maintain records:
(a) A person who is
registered (or liable to register) is required to maintain books of accounts
and records; distinct persons (such as branches, regional offices, etc.) of
such registered entities are required to maintain separate books of accounts
pertaining to their operations;
(b) Certain designated
persons seeking registration for specific transactions (such as a deductor of
tax u/s 51; an e-commerce operator operating as a collector u/s 52; an input
service distributor) are required to maintain records for the purposes for
which they are designated;
(c) The owner of a place of
storage of goods (such as a warehouse, godown, etc.) and transporters / C&F
agents are also required to maintain records of consignor, consignee and
specified details of goods. This requirement is placed even though the person
concerned does not have any ownership over the goods and their movement.
Independent enrolment forms have been prescribed (in Form ENR-01/02) for this
purpose. It is perceived that this provision is applicable only to person/s who
have possessory rights over the goods and should not be made applicable in
cases where the owner of the place of storage has merely leased out the
premises for storage without any control over the storage of goods.
(d) Casual taxable person /
non-resident taxable person doing business temporarily in a state / country is
required to maintain books of accounts for its operational period in that state
/ country;
(e) Agent (typically,
representative agent) is required to maintain accounts in respect of the
movement, inventory and tax paid on goods of each principal with the statement
of accounts of the principal;
(f) Reporting agencies (such as
state governments, registrars / sub-registrars, stock exchanges, the Goods and
Services Tax Network, electricity boards, etc.) are required to maintain and
report details of information specifically required to be reported in the
information return under GST;
(g) A GST practitioner is
required to maintain records of the statements / returns being filed on behalf
of the registered persons.
List of records (section 35):
Section 35 of the CGST / SGST Acts provides for the maintenance of the
following records by registered persons at each place of business, e.g. each
stockyard would need to maintain a separate stock account of goods:
(i) Production or manufacture
of goods,
(ii) Inward and outward supply
of goods / services,
(iii) Stock of goods,
(iv) Input tax credit availed,
(v) Output tax payable and paid,
(vi) Any other requirement
specified.
In special circumstances, the Commissioner may on application prescribe
waiver over maintenance of specific documents, where the trade practice
warrants such waiver on account of difficulty in maintenance. Since this is a
discretionary power, the Commissioner can prescribe a conditional waiver (such
as subject to alternative document, etc.), too. Such records are required to be
audited by a chartered / cost accountant and submitted with the annual return
for the relevant year.
Specified Contents (Rule 56):
In addition to the above, the rules prescribe maintenance of the
following details:
(1) Stock registers should contain
quantitative details of:
(a) raw
material consumption,
(b) details
of goods imported and exported,
(c) production,
scrap / wastage, generation of by-products, loss / pilferage, gift / samples,
etc.
Costing
records with standard conversion ratios can be maintained, especially in case
of standardised goods;
(2) Transactions attracting
reverse charge with details of the inward supplies;
(3) Register of prescribed
documents, i.e., tax invoice, debit / credit notes, receipts / payment / refund
vouchers, bills of supply and delivery challans;
(4) Details of advance receipts,
payments and their adjustments.
Statutorily prescribed documents:
Tax invoices / debit notes / credit notes / e-way bills / receipt
vouchers etc. have been prescribed with their contents. These documents are not
permitted to be revised except where specified in the statute (such as issuance
of a revised invoice with attestation of the GSTIN number for a new registrant).
Tax invoices – These are required to be issued for
any taxable supply in accordance with the timings specified in section 31. It
not only proves supply of goods or services, but is also an essential document
for the recipient to avail Input Tax Credit. There are approximately 17
requirements and the said document is required to be issued in triplicate for
supply of goods and in duplicate for supply of services. Banking and insurance
companies have special instructions / waivers. An invoice document can be
signed with a digital signature of the supplier or its authorised
representative. An electronic invoice issued in terms of the Information
Technology Act, 2000 does not require a signature or digital signature. Persons
with a turnover above Rs. 1.5 crores and up to Rs. 5 crores and those above Rs.
5 crores should quote four-digit HSNs as against the eight-digit HSN in the
customs tariff.
Receipt / refund vouchers and payment
vouchers – These
documents are issued when there is flow of funds between the contracting
parties. This is a new prescription in comparison to the erstwhile laws and
aimed at documenting events occurring before the time of supply. Receipt
voucher is issued for any advance, refund vouchers are issued on refund of any
advance prior to issuance of tax invoice. Payment vouchers are issued by
recipients of supplies who are liable to tax under reverse charge provisions
signifying the date of payment and an affirmation to the supplier that he / she
would be making the payment under reverse charge provisions.
Debit / credit notes – Any upward / downward adjustment in
valuation after issuance of tax invoices can be undertaken only through debit /
credit notes. In the context of GST, these can only be issued in specific cases
u/s 34. But the section does not preclude any entity to issue debit / credit
notes in other circumstances in order to settle or adjust inter-party accounts.
In addition to the details specified in the tax invoice, the debit note and
credit note will also contain reference to the original invoice against which
it is being issued.
Bill of supply – This document is issued in case of an
exempt supply. In case where a taxpayer is making taxable and exempted supplies
(such as retailers), an invoice-cum-bill of supply can be issued containing the
required details.
Delivery challan – This document is required where
movement of goods takes place other than by way of supply, for job work, the
supply of liquid gas and other prescribed scenarios. It is also issued in case
of supply where the movement of goods takes place under completely /
semi-knocked-down condition in batches or lots. This should also be issued in
triplicate with the original document moving along with the goods in movement.
Business specific requirements:
(a) Works contractors are
required to maintain details of receipt of goods / services and their
utilisation in respect of each works contract separately along with the other
details specified above. With effect from 1st April, 2019,
developers are required to maintain project-wise details of inputs, RCM and
books of accounts under the recently-issued real estate scheme;
(b) While the principal is
principally liable to maintain records of its goods at job worker location, the
job worker is also required to maintain specific records in respect of each
principal’s goods, their consumption / output and their inward / outward
movement; and
(c) Persons under the
composition scheme are required to maintain books of accounts and records with
specific waivers on the input tax credit front.
Electronic records – Rule 57:
Section 4 of the Information Technology Act, 2000 states that
maintenance of records in electronic form would meet statutory requirements
provided that the records should not be capable of being erased, effaced or
over-written and equipped with an audit trail, i.e., any amendment or deletion
of an incorrect entry should be under due authorisation and traceable with a
log of details. The electronic records [section 2(t) states that any data,
record or image or sound stored, received or sent in electronic form is an
electronic record] should be authenticated by means of digital signatures by
authorised agents of the registered person. The GST law also contains
provisions to this effect. Many accounting packages may not meet the
requirement of having an audit trail of data captured in the software and may
be staring at an unintended violation. Section 65B of the Indian Evidence Act,
1872 prescribed that an electronic record duly authenticated as per the IT Act
would serve as a documentary evidence in any proceeding and shall be admissible
in any proceedings without any further proof or production of the original
document.
Not only should the registered person maintain records of the respective
principal place and additional places, but should also take necessary steps for
recovery in case of data corruption or disaster recovery by maintaining
suitable back-ups of such records. In view of this specific prescription,
officers may be empowered to perform best judgement assessments even in cases
where records are irretrievable due to natural causes / accidents, etc., on
ground of non-maintenance of appropriate data recovery mechanisms.
Rule 56(15) requires electronic records to be authenticated with an
electronic signature. Interestingly, the IT Act considers an ‘electronic
signature’ secure and reliable only if the signature was created under the
exclusive control of the signatory and no other person. MSME managements
habitually handing over signatures to others for operational convenience are
finding this requirement to be an uphill task and an unknown risk.
Location / accessibility:
Records are required to be maintained at the principal place of business
specified for each state in which the registered person operates. In case of
additional places of business, location-specific records are required to be
maintained at the respective locations. In peculiar cases of un-manned
structures such as IT infrastructure, windmills, etc., constituting the place
of business, identification / sufficiency and accessibility of records would
become challenging. The documents should be readily accessible to the proper
officer and the taxpayer is duty-bound to assist the officer with all the
security systems in order to facilitate their verification.
Sufficiency in documentation:
GST places the onus on the taxpayer / Revenue to establish the presence
of a fact while invoking the provisions. The Indian Evidence Act, 1872 lays
down principles when evidence is sufficient to prove a fact, its probable
existence or non-existence. Under the Act, documentary evidences are segregated
into primary and secondary evidences and their implications as evidence have
been set out. In tax laws, the first resort to establish a fact is usually the
documentation maintained by the person. Normal accounting set-ups do not meet
all requirements prescribed in GST and information has to be sourced from the
operational set-up of the organisation. Some instances in the context of GST
are explained below:
(i) Time of
supply / raising tax invoice – One of the parameters used to ascertain the time of supply of
services is provision / completion of the service. Services are intangible in
nature and contracting parties usually do not document their start and end
point. An assessee operating under long-duration / phased contracts should
document milestones either with counter party (such as service completion
certificate, warranty certificates, etc.) or external certificates. This would
also assist the taxpayer to claim refund in case of excess payment arising on
cessation of contracts. The tax invoice should, apart from the mere description
of the service, also report the start and end date of the assignment with the
end deliverable in this time frame.
(ii) Input
tax credit claim –
Section 16(1)/(2) requires that the taxpayer establish use / intent to use and
receipt of services for establishing its right of input tax. The primary onus
is on the taxpayer for establishing this fact and once this is established it
would be the Revenue’s turn to establish this fact from records. Rule 57(13)
requires even service providers to establish utilisation of input services.
This becomes challenging and the authors’ view is that mere payment or debit in
the accounts of the assessee may not be sufficient to discharge the primary
onus. While there is no prescriptive list and it is highly fact-specific, the
taxpayer would have to establish the delivery of a service by the service
provider and its acceptance by the recipient, e.g. a company can furnish the
copy of the signed auditor’s report as proof of receipt of an audit service, an
IT company can furnish the repair and service report, etc. The recipient should
stamp the vendor tax invoice (electronic / physical) and map the same with
service completion report of the vendor’s counter signature to establish this
fact at a later date.
(iii) Possession of invoice vs. GTR-2A matching – Input tax credits are permissible on
the basis of invoices of the supplier. Vendors are also mandated to upload the
details of the invoices on the GST portal which can be matched by the recipient
at his / her end. Can this facility in the portal which has been designed to
act as a self-policing system for the Revenue also assist the taxpayer to
contend that the presence of the details on the portal is itself a recognised
invoice and a sufficient substitute to the requirement of possessing of the
original invoices? While one may argue that 2A reports do not capture all
details of an invoice (for testing eligibility, etc.), this is certainly a
plausible defence which taxpayers can resort to. Taxpayers can certainly
establish receipt of service by other collateral documents (such as contracts,
email trails, etc.) and these should ideally meet the requirements of officers
insisting on production of original invoices. The CBEC circular in the context
of refund has waived the requirement of submission of input invoices for
invoices appearing in the GTR-2A statement on the portal (No. 59/33/2018-GST,
dated 4th September, 2018).
(iv) Inventory in manufacturing and service
set-ups –
Manufacturers and service providers are required to maintain the stock of
consumption of goods. While the prescription is to maintain details of
consumption, it is advisable to map this with the costing records (standard
consumption ratios, etc.), bill of materials, shop floor registers, etc., in
order to produce the same before authorities in case of any allegation of
excessive wastage / clandestine removal, etc. The factory records should
contain the entire trail of consumption of raw materials right from the store
inwards up to the finished goods section. Batch records of inputs and their
journey to the particular batch of final products would be essential where raw
materials and finished goods do not have stable pricing. This also assists in computation
of any input tax reversal in case of ascertaining the input tax credit
component on destruction of goods such as by fire, etc. Service sector (without
a strong ERP) would face the challenge of establishing the consumption of
goods, especially where the unit of measurement of billing is different from
the UOM of the materials indented into the stock. In ‘Bill to Ship to
Movement’, the intermediate supplier should prove that the goods have been
received by the ‘end buyer’ in the transaction chain.
(v) Valuation
under prescriptive rules, i.e., fair market value, rejection, cost plus, etc. – Valuation rules require to first
ascertain fair market value / open market value, non-monetary components, etc.
in case of fixing the taxable value. These values can be documented from market
databases, stock exchange details, regulatory publications, etc. Pricing of
like comparable transactions can be sought from third-party quotations;
purchase orders may be obtained and documented as a justification of the
valuation. In case cost-plus pricing is sought to be resorted to, documentation
of the rejections of other methodology and computation of costs through costing
records becomes essential.
(vi) Identification of inputs / input services /
capital and their usage in exclusive / common category – Rules 42/43 require tax credits to be
categorised in three baskets. The classification is driven by the end use of
the particular input. While the inventory records may record the issuance of
inputs to the particular goods / services, the end use of input services and
their exclusiveness to a particular class of supply (taxable, exempt,
zero-rated) should be documented through cost centres, project costing
documentations, etc.
(vii) Proving against unjust enrichment /
profiteering – Section
49(9) presumes that taxes paid by a person have been passed on to the recipient
of goods / services. Any claim of refund by such person would have to overcome
this burden of proof. As per the learning from erstwhile laws, one should
maintain affidavits, declarations from counter parties, price comparisons for
pre- and post the change in tax rates, costing / accounting records,
identification of end consumer, certifications, etc. for establishing against
unjust enrichment / profiteering.
(viii) Change in rate of goods / services and
cut-off date records: exemption to taxable vice-versa – In case of change in tax status for
goods / services, documentation over the criteria of supply of goods /
services, payment and invoicing should be maintained for all open transactions
on the said cut-off date. Apart from this, input tax credits of inputs in stock
or contained in unfinished / finished goods for availment / reversal should
also be maintained.
(ix) Maintenance of pre-GST documentation – Transitional provisions specify
certain conditions to be prevalent on 1st July, 2017 for availing benefits under the GST law. Moreover,
the status of certain unfinished transactions on this date (incomplete
services, partially billed services, advances, etc.) should have been
documented. For example, a dealer availing transition credit of stock available
from purchase prior to 1st July, 2017 should be in a position to map
the stock in hand to the invoice which should be within one year from the date
of introduction of GST.
(x) Presence
/ absence of an intra-branch / registration activates – This is certainly a problem whose
solution is ‘elusive’ for all taxpayers having multi-locational presence. No
one, including the government administration, has a clue about this Pandora’s
Box. In a de-clustered environment, companies have started documenting internal
roles and responsibilities of offices and sharing of resources through
time-sheets and building invisible walls within the organisations. These are
passed at board meetings and maintained as per company records for future
production before officers. In clustered environments where the entire set-up
works so cohesively and partitions are impossible to be even envisioned and
documented, companies need to take a conservative approach and discharge the
taxes to protect themselves against any future cash loss.
(xi) Refund provisions require specific details – Refund procedures require certain
endorsements and proofs such as FIRCs / BIRCs for meeting the sanction
conditions. Currently, banks have refused to issue FIRCs on receipt of foreign
inward remittances citing a FEDAI circular. Some banks are issuing the same
only if a specific application has been made by the account holder. Being a
statutory requirement, as a last resort one should pursue this matter with the
banker and obtain alternative declarations which contain all the requirements
of the FIRC and make necessary submissions.
Other regulatory laws:
The Companies Act,
the Income-tax Act, banking / insurance regulation laws, etc. are also
governing organisations in record maintenance and GST requirements can be met
with the assistance of reports under other laws. Entities would of course have
to apply the more stringent provision in order to harmonise requirements across
laws. For example, the Companies Act requires that the books of accounts of the
company should be kept at the registered office except where the Board of
Directors adopts an alternative location with due information to the Registrar
of Companies. This conflict between GST and the Companies Act can be resolved
by the Board adopting a resolution to maintain accounts at distinct locations
to comply with GST laws. In any case, mere access to electronic records at a
particular location is also sufficient compliance with GST requirements in
terms of section 35 of the Act. The Companies Act also requires reporting the
Internet Service Provider credentials where details are maintained on a cloud
platform. The Income-tax Act requires maintenance of transfer pricing
documentation and this could serve as a ground for corroborating the valuation
approach of the taxpayer. Labour laws may require an establishment level
reporting of employees which may serve as deciding the salary costs of a
distinct person under GST. One would have to approach documentation with an
open mind to extract as much information as possible from available statutory reports rather than reinventing the
wheel and duplication of records.
Time limit for retention of records (section 36):
The prescribed records are required to be maintained for a minimum
period of six years from the due date of furnishing the annual return for the
relevant year. In case of any pending legal proceedings as at the end of six
years, the relevant documents pertaining to the subject-matter of dispute are
to be maintained for one year after the final disposal of the proceedings. With
the annual return due dates being extended to 31st December, 2019,
the due date of assessments and retention of records are also being extended
for the taxpayers concerned.
Implications for non-maintenance of records:
Non-maintenance of
records invites penalty u/s 122 to the extent of Rs. 10,000 or 100% of the tax
evasion, apart from the penalty imposable for non-payment of tax dues. Such
failure would invite best judgement assessment based on other data such as
electricity records, 2A reports, e-way bills, paper slips, past history, etc.
For the first time, the statute has introduced a fiction that non-accountal of
goods or services from records (shortage of goods on physical verification,
numerical variances, storage at unregistered places [rule 56(60)] etc.), would
invite show cause proceedings for recovery of tax on such goods. However, this
presumption is rebuttable with credible evidence, including the fact of
destruction, loss or otherwise of goods.
As one implements the
requirements, the trichotomy of materiality, practicality and technicality
would stare the taxpayer in the face. The dividing line of segregating
documents which are mandatory and those which are ancillary is very thin and
difficult for a taxpayer to decide upon. Law has prescribed the minimum
criteria and it is in the taxpayer’s own interest to implement the law and
maintain additional documents to substantiate his claims under the Act. It
takes less time to do things right than explain why you did it wrong – Henry
Wadsworth.
With
increased self-reporting over digital formats, there is also a high expectation
for the government to gear up its Information Technology capabilities. In a
bi-polar administration, it is very essential that the administration
streamline its documentation demands by avoiding parallel requests consuming
unnecessary time and economic resources. Governments should appreciate that
‘Compliance’ is just a subset of ‘Governance’ and not the other way round.
