GST Update on Issues in Reconciliation Statement- Part 10

In our today’s update we are discussing on the serial no. 5N pertaining to adjustments in turnover due to foreign exchange fluctuations. We submit that it is possible that there are differences due to foreign exchange fluctuations in the turnover recorded in the books of accounts and that reflected in the return filed by the assessee. This is for the reason that while recording export sales in the annual financial statements, the guidelines prescribed in AS-11 are followed and the rate of exchange prescribed by RBI is considered whereas while issuing GST invoice and in the export documents like shipping bill, the exchange rate prescribed by the CBIC from time to time is being considered. Consequently, for recording export sales, there are two invoices maintained by assessees, one issued under GST laws being GST invoice wherein CBIC exchange rate is used and the other issued for accounting purpose which considers the rate of exchange prescribed by RBI on the date of bill of lading. Consequently, there is difference in the turnover of export sales as per annual financial statements and as per GST returns due to difference in the rate of exchange used for recording the transaction. It is also worth noting that certain assessees use only one rate of exchange for booking export sales being the rate prescribed by CBIC and in such cases, this difference may not be there.
Continuing further, since the export sales are booked at a different rate than the date of realisation of export proceeds, there will again be a difference on account of foreign exchange fluctuation on the date of realisation of export proceeds. The gain or loss arising on account of realisation of export proceeds will be transferred to Profit and Loss Account. Now, additional adjustment on account of profit or loss on account of foreign exchange fluctuation will be required to be done if the Turnover as per audited financial statements as stated in 5A of the Reconciliation includes gain on account of foreign exchange fluctuation. In this regard, it is worth mentioning that there are two opinions as regards turnover to be taken in 5A of the Reconciliation Statement. One view (also suggested by Technical Guide issued by ICAI) is that turnover of 5A will include all indirect incomes such as gain on account of foreign exchange, gain on sale of asset etc. Consequently, if the turnover of 5A includes forex gain, adjustment on account of profit on foreign exchange fluctuation will be additionally done in 5N. However, if the another view is followed, which says that the turnover of 5A should be taken as stated in audited financial statements without adjusting indirect incomes, then no additional adjustment would be required to be made in 5N by the assessee. The complete analysis of adjustment on account of foreign exchange fluctuation is explained as follows:-
Exchange rate of CBIC on date of booking sales = 65
Exchange rate of RBI on date of booking sales = 68
Exchange rate of RBI on date of realisation of sales = 70
Sales made to US= 1,00,000 US $
Turnover of annual audited financial statements= Rs. 5,00,00,000/-
Gain on account of foreign exchange fluctuation= Rs. 10,00,000/-
If the assessee uses two types of exchange rates i.e. custom exchange rate for GST and other RBI rate for accounting as discussed above, then in that case, the adjustment on account of foreign exchange fluctuation in 5M would be Rs. 3,00,000/- [1,00,000* (68-65)] to be reduced from the turnover of audited financial statements on the assumption that the turnover of annual audited financial statements without adding gain has been taken under 5A. However, if the turnover of annual audited financial taken as base is including the gain on account of foreign exchange, then the total adjustment of the transaction on account of foreign exchange fluctuation shall be Rs. 5,00,000/- reduction in serial no. 5M. [3,00,000 + {1,00,000 *(70-68)}].
In our opinion, the turnover without any adjustment of indirect income should be taken in 5A so that less adjustments are to be done for arriving at the turnover of GSTR-9.
This is solely for the educational purpose.

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GST Update on Issues in Reconciliation Statement- Part 10

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