GST Update on Issues in Reconciliation Statement 9C- Annual return- Part 7

In our previous series, we have discussed the complexities to be ponder upon while filing annual return i.e. GSTR 9. The last date for filing of GSTR 9 and 9C is 31^st December 2018. Largely, the required data for filing of GSTR 9 can be sourced through the working of Form GSTR-1 and Form GSTR-3B. However, preparation of GSTR 9C requires analysis, reconciliation and elaboration of books of accounts with the returns.
Every registered person whose aggregate turnover during a financial year exceeds the prescribed limit of Rs. 2 Crore, shall get his accounts audited by a Chartered Accountant or a Cost Accountant. Now the question arises about the turnover that should be reckoned to determine the applicability of GST audit under as per law.
Section 35(5) of the CGST Act, 2017 states that -
“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 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.”
In Contrary to this, the relevant rule 80(3) of the CGST Rules, 2017 uses the expression “Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35……”
However, the term “turnover” has not been defined elsewhere in the act. In addition to this, terms “aggregrate turnover” and “turnover in a State or Union Territory” have been duly defined in Section 2(6) and Section 2(115) in CGST Act, 2017. The aggregate turnover is to be counted on Pan India Basis while the turnover in a state/union territory would be confined to a particular state. Aggregate turnover includes taxable supplies, exempt supplies excluding tax payable on reverses charge basis having same PAN computed on all India basis.
Apart from the definition, there is also conflict whether turnover for the whole financial year is to be taken for the year 2017-18 or the GST turnover from July 1, 2018 to March 2018 should be taken into consideration.

Linking altogether Section 35(5), Rule 80(3) and Section 2(6) and Section 2(115) supra, this can be interpreted that to invoke the eligibility for GST Audit, the aggregate turnover should be taken into account for the whole of financial year.
This is to be illustrated with the help of an example. Mr. X is running a company named XYZ having its branches all over India with its head office in Mumbai. The turnover of head office exceeds 2 crore rupees while the turnover of each branch located in other states don’t exceed 2 Crores. The logical reasoning lead to conclusion that the turnover has exceeded the prescribed limit on PAN India Basis, XYZ is liable for Audit.
If this is the case, as the complete turnover of the head office and all branches exceed 2 crore limit in totality but not on individual basis, then also they are liable for GST audit in the opinion of authors of this article.
If in the same case, the turnover of M/S XYZ for the period April to June 2017 was Rs. 1.9 crore and for the remaining 9 months, the turnover was 20 lacs. Though the GST era has started from July, 2017 but the turnover would be taken for the whole of financial year starting from April, 2017 to avoid any cases of default.
FAQs released by the government also confirm the same interpretation that the turnover of whole financial year should be taken. Though they don’t have any legal backing but the reasonable interpretation of above sections derives the same conclusion.
This is solely for the educational purpose.
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GST Update on Issues in Reconciliation Statement 9C- Annual return- Part 7

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