The largest tax reform of the nation yet, the Goods and Service Tax (GST) aims to bring the entire Indirect Tax market under one umbrella. With such a major reform introduced, some vital aspects of the transition into the new system, such as large-scale implementation methodologies, strict compliance and audit mechanisms are immensely important in ensuring a successful transition and implementation.
GST Compliance can be branched into two – Procedural Compliance and Records Compliance.
The Procedural Compliance of the GST Ecosystem can be further divided into Audit and Assessment.
- Audit under GST is the examination of records maintained by the taxable person to verify the correctness of information declared, taxes paid and to assess the compliance with the provisions of GST.
- Every registered taxable person turnover during a financial year exceeds the prescribed limit [as per the draft rules turnover limit is above Rs 1 crore] must get his accounts audited by a CA or a CMA.
- Audit can be done by the taxpayer himself or by the tax authorities (authorised by the Commissioner of CGST/SGST) or Special audit can be initiated based on the opinion of the tax authorities that the value has not been correctly declared or the wrong credit has been availed.
Assessment means determination of how much tax that is mandated to be paid according to the transactions performed by the taxpayer. In accounting terminology, it is the determination of the tax liability under GST. It covers-
- Provisional assessment
- Scrutiny of returns
- Summary assessment
- Best judgment assessment
Under GST, every registered taxable person shall assess the taxes payable by them on their own, and furnish a return for each tax period.
An assessee can request the officer for provisional assessment if he is unable to determine value or rate of tax. The proper officer can allow the assessee to pay tax on a provisional basis at a rate or a value specified by him.
Scrutiny of Returns
The proper officer can scrutinize the return to verify its correctness. It is a pre-adjudication process. The officer will ask for explanations on any discrepancies noticed in the returns.
When the proper officer has evidence that there might be additional tax liability, he can assess the tax liability on a summarily with the prior permission of Additional / Joint Commissioner to protect the interest of the revenue.
Best Judgement Assessment
In the following two situations, Best Judgement Assessment is possible –
- Assessment of non-filers of returns
- Assessment of unregistered persons
The Goods and Service Tax Law asks for the following Records/Accounts to be maintained –
|Records||Information Required||By Whom?|
|Register of Goods Manufactured||Account should contain detail of goods manufactured in a factory or production house||Every assessee carrying out manufacturing activity|
|Purchase Register||All the purchases made within a tax period for manufacturing of goods or provision of services||All Assessee|
|Sales Register||Account of all the sales made within a tax period must be maintained||All Assessee|
|Stock Register||This register should contain a correct stock of inventory available at any given point of time||All Assessee|
|Input Tax Credit Availed||This register should maintain the details of Input Tax Credit availed for a given tax period||All Assessee|
|Output Tax Liability||This register should maintain the details of GST liability outstanding to be adjusted against input credit or paid out directly||All Assessee|
|Output Tax Paid||This register should maintain the details of GST paid for a particular tax period||All Assessee|
|Other Records Specified||Government can further specify by way of a notification, additional records and accounts to be maintained||Specific Businesses as notified by the govern|
In simpler terms, for taxation accounting, these accounts are to be mandatorily maintained(apart from regular records like sales, stock, purchases etc) –
- Electronic Credit Ledger
- Electronic Liability Ledger
- Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)
Demand And Recovery
Since GST is absolutely new and it is payable on self-assessment basis, it is possible that the taxable person may have made some errors. He might not have paid the tax correctly or may not have paid the tax at all. He might have got the wrong refund of tax or input tax credit. In these cases, demand and recovery provisions become applicable.
The proper officer will issue a show cause notice along with a demand for payment of tax (also penalty for fraud cases).
Demands can arise in the following cases-
- Demands for unpaid/short paid tax or wrong refund (without any fraud)
- Demands for unpaid/short paid tax or wrong refund (for fraud cases)
- Tax collected but not deposited with the Central or a State Government
- CGST/SGST paid when IGST was payable and vice versa.
Recovery Of Tax
If demand is not paid, the State Tax Departments and the Central Board of Excise and Customs can initiate drastic recovery measures, some of which are –
- Deducting any amount due to the defaulter by the Government
- Seizing and selling of goods of the defaulter
- Seize movable and immovable property belonging to the defaulter