GST Annual Return
The annual return Form 9 is essentially consolidation of information that taxpayers have been filing via summary return *Form 3B and outward supplies Form GSTR 1. It requires consolidation* of outward and inward supplies, input tax credit, tax paid, GST demands and refunds.
There are two key areas of concerns in Form 9: requirement of *HSN Code for input side and bifurcation of input tax credit or ITC.
The HSN Code Problem: HSN codes are prescribed by the government to classify goods and services. So far, a buyer while filing Form 3B and GSTR 1 didn’t have to mention the HSN codes of the inputs—i.e. goods bought from a vendor. But the annual return form requires them to do this classification. This is new information altogether that needs to be given and companies’ ERP systems are not geared to give input classifications,
The liability for a taxpayer arises only on account of HSN of goods and services he sells and their rate of tax. The HSN of the vendor is not his liability. He merely takes credit for what he has paid for the inputs. He is not going to get into the debate of what is the HSN of the inputs, the rate of tax on them, etc.
So there is no need for him to get into the HSN for inputs and many companies won’t even have this data,
ITC Bifurcation Problem: The annual return requires a three-way split of ITC availed into inputs, input services, and capital goods credits,. But in the reporting so far, there was no concept of ITC bifurcation, He explained the issue by way of an illustration—let’s say, we purchase some machinery. That is a* fixed asset. So the credit has been taken as capital goods. If I purchase some inputs, credit has been taken as that and similarly for input services. What has been reported in *Form 3B so far is the total figure.
This data is not appearing anywhere else. Credit is available to me, I can consume that credit. Capital goods—I can understand—because there are certain rules around capital goods. But why do I need this bifurcation for input and input service?
That's another layer of complication which has been added in the annual return form,
GST Audit: Complexities
The complexities in the annual return form pale in comparison to what the audit process entails,
Divided in two parts, the GST Audit Form 9C needs to be filed by a taxpayer who has an aggregate annual turnover exceeding Rs 2 crore. It requires companies to reconcile turnover declared in the financial statement and annual return, tax liability and tax paid, input tax credit availed and reported. Any liability arising out of non-reconciliation also needs to be specified.
This form is trying to dissect the entire financial statement—P&L and balance sheet— and compare the numbers on the outward-inward side and the tax-paid side with the annual return numbers which have been disclosed,
The objective is to assess whether you’ve paid GST on transactions recorded in the books of accounts and, if not, then the explanation for it needs to be provided,. “Similarly, on the credit side, whatever credits you have taken, there is entry in the books of accounts. That needs to be reconciled with the annual return. So, reconciling rupee to rupee with the books of account is the objective of this exercise,”
And the complexities are many:
Unclear Time Period: The filing threshold is based on gross turnover in a financial year, Kanodia said, but GST came in July. “You have lot of adjustments which happen in any financial accounting—for instance, unbilled revenue. Do considering beginning of financial year or beginning of July? There are lot of adjustments which need to be seen,”
State-Wise Audit: Doshi explained that GST Identification Number is the basis for the audit. If a taxpayer has branches in five states and each has a separate GSTIN, then five audits need to be done. This would require GSTIN-level bifurcation of audited financial statements which most companies do not maintain, he said.
Reconciliation Issues: GSTR 1, which is filed at the state level, will need to be reconciled with the income and sales ledger at the company P&L level which is not available state-wise and it’s likely that the consolidated figure of different states’ GSTR 1 may not match with the annual P&L This could be due to accrual entries, IND-AS, out-of-scope GST supplies, etc, he added.
This may entail a line-item level analysis to find out unreconciled line items and ascertain reasons of such mismatch, which is time consuming. Availability of data in the right format is critical to carry out such reconciliations.
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Recent Resignations of auditors: Implementation Guide issue
More than 32 auditors of listed companies have resigned since January, 2018 in the mid-way of their tenure. Major resignations include resignation of Price Waterhouse & Co. from Vakrangee Ltd., Atlanta Ltd. and Edelweiss Financial Services, resignation of Deloitte Haskins and Sells from Manpasand Beverages. The reasons for such resignations are not clear but as per the form filed with Registrar of Companies (ROC) they ranged from lack of adequate information on the company's business, revenues, tax observations to health concerns and pre-occupations.
These incidents forced the Institute of Chartered Accountants of India (ICAI) to come out with an appropriate guidance on resignation of auditors from the companies. Recently, ICAI has issued "Implementation Guide on Resignation/Withdrawal from an Engagement to Perform Audit of Financial Statements"(hereinafter referred to as "the Guide"). The Guide provides following guidance to the auditors:
1. It is the responsibility of management and, where applicable, those charged with governance (hereinafter referred to as "TCWG") to prepare & present financial statements of their companies and to provide information & documents that are relevant to audit of financial statements to the auditor. Further, section 143 of the Companies Act, 2013 empowers an auditor to have access all times to the books of account and vouchers of the company and to require such information and explanation of the management or TCWG as he/she may consider necessary for the performance of audit. Using these provisions and rights, an auditor should perform his duties in the best possible manner.
2. An auditor has the option to accept or to reject an engagement to audit financial statements. But if once accepted, the auditor should discharge his/her duties in accordance with the engagement. However, he/she may resign after acceptance by adopting following procedures:
a) The auditor should consider the circumstances leading to resignation and determine whether they are those as mentioned in the relevant Standard on Auditing (SA), Standard on Quality Control, the Code of Ethics and other professional pronouncements of ICAI;
b) If the answer to the above procedure is in affirmative, then requirements of SAs must be checked and complied with;
c) The auditor, then, shall communicate the circumstances, considerations thereof and conclusion reached by him/her with the management and TCWG, where applicable, and seek a written response.
d) After receiving the written response, the auditor should evaluate the response and determine whether it has any effect on the decision of resignation. If the auditor finds that he/she may continue the audit, he/she is required to do the same.
e) The auditor should also consider the provision of other law or regulation. If such law or regulation requires an auditor to continue with the audit engagement, he/she has to continue with the audit even if any circumstances leading to his/her resignation exist.
3. The auditor should determine the practicability of resignation. It depends on stage of completion of the engagement at the time when the circumstances arises leading to resignation. If the auditor has completed the audit substantially, he/she may decide to continue the audit to the extent possible and disclaim his/her opinion in the auditors report by explaining the circumstances in the Basis of Disclaimer of Opinion para.
4. Where the company is listed, if the auditor has signed all the quarterly report of a financial year, except the 4th quarter, then before resignation he/she should finalize the audit report for the said financial year. In other cases, the auditor should resign after issuing his/her report for the quarter previous to the date of resignation.
5. The auditor is advised to include following facts in the resignation letter:
a) the reasons of resignations;
If the reason of resignation is inability to collect sufficient appropriate evidence, the auditor should include the reason of inability also.
b) if the circumstances that led the auditor to resign relate to a material misstatement of the financial statements, then a description and quantification of effects of the misstatement;
c) the possible effects of any undetected material misstatements;
d) fact that the auditor has communicated the circumstances leading to his/her resignation to the management and TCWG, where applicable, and the written response thereon has been received by the auditor;
6. The auditor should maintain the documents related to compliance with this Implementation Guide, SAs, Standards on Quality Control, Code of Ethics and other professional pronouncements of ICAI for a period of 7 years from the date of resignation.
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# NIRC of ICAI election : KNOW YOUR POLLING BOOTH Click here - https://casango.org/booth-search/
# Elections date
Delhi/Gurgoan - 7 & 8th Dec 2018
Other Cities - 8th December
Timing : 8am to 8pm
# CBIC releases FAQs on TCS under GST
http://www.cbic.gov.in/htdocs-cbec/gst/FAQs_as_on_30.11.2018.pdf
# ICAI: Implementation Guide on Resignation/ Withdrawal from an Engagement to Perform Audit of Financial Statements issued by the Auditing and Assurance Standards Board - (30-11-2018)
Gujarat HC In terms of section 276C(1), compounding fee has to be computed on basis of 100 per cent of tax sought to be evaded by assessee and not amount of income sought to be evaded.
# ITAT, Jaipur Trust exemption rightly withdrawn as it collected capitation fee from students for admission to medical colleges.
# Upcoming Due Dates - 07-12-2018- Deposit of TDS/TCS for the month of November 2018
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Banks to charge 18% GST on Freebies
Read more at: http://www.taxscan.in/banks-18-gst-freebies/31178/
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👉🏻GST Amnesty scheme likely for Nil, Non-Filers
(A scheme for exit will bring relief to the tax payers as it will bring down their compliance cost and at the same time there will be less pressure on the GST Network)
👇🏻 👇🏻 👇🏻
https://goo.gl/AQT5qz
👉🏻Bank of Maharashtra appoints CA Rajeev as MD and CEO
(Bank of Maharashtra announced on Sunday that CA Rajeev has joined the lender as its managing director and chief executive officer)
👇🏻 👇🏻 👇🏻
https://goo.gl/7Lx279
👉🏻Seminar on Opportunities for Chartered Accountants in Abroad - Your Ticket to Abroad
(4th December 2018, 06.00 Pm onwards, Hindi Bhawan, Near Bal Bhawan, *New Delhi*)
👇🏻 👇🏻 👇🏻
https://goo.gl/2GbSw1
👉🏻Seminar on Opportunities for Chartered Accountants in Abroad - Your Ticket to Abroad
(5th December 2018, 06.00 Pm onwards, CASABELA, Sector 48, *Gurgaon*)
👇🏻 👇🏻 👇🏻
https://goo.gl/HEkjj2
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GST UPDATE:
Top picks for the Day
-GST is applicable on long term lease: (AAR GOA)
-No GST on supply of goods by dealer through its UK based principal directly to vessel at Singapore: (AAR MAHARASHTRA)
-No GST on security services rendered to PCMC in relation to functions entrusted to municipality: (AAR MAHARASHTRA)
Resent Circulars & Notifications
62/2018-Central Tax, dt.29-11-2018 Seeks to extend the last date for filing of FORM GSTR-3B for taxpayers in Srikakulam district of Andhra Pradesh and 11 districts of Tamil Nadu.
http://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-62-central-tax-english-2018.pdf;jsessionid=50A70842DEEE33F48F8D1448ADB83941
03/2018-Integrated Tax,dt. 22-10-2018 Seeks to supersede Notification No.8/2017 – Integrated Tax, dated 14.09.2017
http://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-3-2018-igst-english.pdf;jsessionid=E89E37441CE64663263CDDA2BCB3DF69
15/2018-Union Territory Tax,dt. 08-10-2018 seeks to notify the constitution of the Appellate Authority for Advance Ruling in the Union Territories (without legislature).
http://www.cbic.gov.in/resources//htdocs-cbec/gst/Notification-15-2018-Union-Territory-Tax-English.pdf;jsessionid=E078A5A61F052C3F8D1A5408F45E033E
CIRCULARS: 74/2018 05-11-2018 Circular clarifying collection of tax at source by Tea Board of India.
http://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular-No-74.pdf;jsessionid=2E0772167EEE369EF13C860D21791354
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Sun Pharma shares crash after whistleblower email to Sebi -
The whistleblower email claims Sun Pharma promoter Dilip Shanghvi and his brother-in-law Sudhir Valia engaged in financial irregularities with stock market scam accused Dharmesh Doshi (Dharmesh Doshi is a former associate of Ketan Parekh, who were banned after the 2001 stock market scam.)
Mumbai: Sun Pharmaceutical Industries Ltd founder and managing director Dilip Shanghvi and his brother-in-law Sudhir Valia engaged in financial irregularities with Dharmesh Doshi, a key figure from the 2001 Ketan Parekh scam, a whistleblower alleged. The whistleblower made the allegations in a 150-page letter sent to the Securities and Exchange Board of India (Sebi), which had banned Doshi and Parekh following the 2001 scam, India’s second biggest stock exchange scandal. Doshi is a former associate of Parekh.
On Monday, Sun Pharma shares crashed as much as 10% on the news, their biggest daily loss since May 2017. The stock hit an over six-month low and is the top decliner on NSE. More than 10.3 million shares traded in the first 15 minutes, 1.5 times their 30-day moving average. The stock also dragged Nifty Pharma index lower by 2.8%.
A whistleblower has also written to Mint with a similar set of allegations. It could, however, not be ascertained whether it was the same person who wrote to Sebi. Mint also couldn’t independently verify the allegations and is reproducing the whistleblower’s account. Moneylife, on its part, on Saturday published excerpts of the 150-page complaint to Sebi.
According to the person who wrote to Mint, the irregularities involved two or three major rounds of foreign currency convertible bonds (FCCBs) issues by Sun Pharma during 2002-2007, which was managed by Jermyn Capital LLC.
According to Sebi’s order in 2001 on the Ketan Parekh scam, “There are linkages between Jermyn Capital LLC, Jermyn Capital Partners Plc (hereinafter referred to as ‘Jermyn Plc’) and Dharmesh Doshi/Ketan Parekh.”
“These FCCBs were primarily subscribed by Bomin Finance Ltd, First International Group PLC, Orbit Investments PLC and Sun Global Investments Ltd, and through layered transactions, were allotted to Orange Mauritius Investments Ltd and Hypnos Fund Ltd,” the whistleblower added.
In 2016, Mint had raised questions on whether First International Group PLC was allegedly a front for Doshi, based on another whistleblower complaint.
At the time, Mint had also submitted all the documents to Sebi to investigate the allegations. The status of the probe could not be ascertained.
“Starting with huge funds created from the initial FCCB of Sun Pharma, the group (Doshi, Valia, Sanghvi and Sun Pharma) started to acquire larger stakes in different companies by FCCB conversion, or money obtained from FCCB conversions,” the whistleblower wrote.
According to the whistleblower, acquisitions by Sun Pharma Group of overseas pharmaceutical companies and many Indian brokerage firms were carried out in a “totally illegal way”. The group used the infrastructure of brokerage firms to identify target companies and then started manipulating stock prices in direct or indirect ways, he alleged.
Separately, the market regulator has taken cognizance of Australia-based investment banking and securities firm Macquarie’s note on Sun Pharma circulated on 27 November which alleged irregularities in the issue of FCCBs.
In response to an email sent to a Sun Pharma spokesperson, the company said: “We have not been contacted by Sebi in this regard.”
Responding to the Macquarie note, Sun Pharma informed the stock exchanges on Thursday: “The points raised in this note pertain to historic events, some of which are dated as far back as 10-15 years. Certain points raised in the said note are incomplete and have been presented in a negative manner. The supporting information to the points raised in the note has been sourced from the public domain and hence this information/data is already available in the public domain. Further, there is no material impact of the said news article on the company.”
“The modus operandi is to get a good chunk of shares, preferably through the FCCB route since the investor face is not visible. Use stock market controllers and investors base to reduce the price of the stocks,” the whistleblower wrote.
One such case of alleged irregularity involved the Ranbaxy acquisition, during which the whistleblower alleged, the trio made unlawful gains of Rs 8,000 crore.
“Silverstreet Developers LLP, a Sudhir Valia entity, booked Rs 275 crore of notional loss by cancelling the investment made by insider trading to save huge tax payment. Dharmesh Doshi alone, through Orange Mauritius Investment Ltd, made Rs. 500 crore profit on stock investments in Ranbaxy by strategically investing in advance before the merger announcement,” he further alleged.
In 2017, Sun Pharma, Shanghvi, and nine others had settled the insider trading probe for Rs 18 lakh. According to norms, Sebi can reopen a case ‘if the terms of settlement have been violated’. The whistleblower has also detailed the connection of the three entities via Investment Trust of India.
Investment Trust of India, formerly Fortune Financial, is owned by Sudhir Valia and lists Orange Mauritius as a shareholder. Orange is an FII sub-account of First International Group, which has links with Doshi and Jermyn Capital, the whistleblower alleged.
Another allegation is that a promoter group company of Sun Pharma, Virtuous Finance Pvt. Ltd, which holds a 4.04% stake, had lent to Ketan Parekh.
As per the Income Tax Appellant Tribunal (ITAT) of 2011, Virtuous had lent to Oxford 21st Century Services Pvt. Ltd. Oxford is a Parekh company, according to the ITAT order.
“A sum of Rs 324,483 is due from Oxford 21st Century. The amount has been advanced in the earlier year. There is no transaction with this party in the current year. Copy of account filed by the appellant shows that the appellant has written off this amount in the AY 2004-05. The appellant is claiming that the funds were lent to this party during 1997-98 and 1998-99 at an interest of 26-27%. This company belongs to the Ketan Parekh Group (stock broker) of companies. Later this party turned out to be defaulter,” said the ITAT order.
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Govt has extended the due date of filing TDS returns under GST laws for the Oct-Dec period till Jan 31, 2019. The TDS provisions under the GST were brought into effect from October 1, 2018. According to the CGST Act, the notified entities are required to collect TDS at 1% on payments to goods or services suppliers in excess of Rs 2.5 lakh. Also, states levy 1% TDS under state laws.
Karnataka State CA Association requested Finance Minister to Extend due date for Filing of Annual Return In Form GSTR-9 and Audit Report in Form GSTR-9C.
Sebi has decided to increase the trading time in the commodity segment by an hour to deepen the commodity derivatives market as well as enhance the participation of stakeholders, including farmer produce organisation and foreign entities
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Govt to launch One-Time Amnesty Scheme for GST Defaulters
Read more at: http://www.taxscan.in/launch-one-time-amnesty-scheme-gst-defaulters/31198/
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Registration for GST Practitioners Exam started
Read more at: http://www.taxscan.in/registration-gst-practitioners-exam/31210/
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Govt sanctioned Rs 91,149 crores of GST Refund So far
Read more at: http://www.taxscan.in/govt-rs-91149-crores-gst-refund/31213/