GST Update on Issues in Reconciliation Statement- Part 11

In our today’s update we are discussing on the serial no. 5M of the Reconciliation Statement pertaining to adjustments in turnover under section 15 and rules thereunder. Section 15 of the CGST Act, 2017 pertains to valuation of goods under GST and it specifies lot of inclusions and exclusions from the value of supply. Say for example, if we talk of inclusions, it is stated that any amount that supplier is liable to pay in relation to supply but which has been incurred by the recipeint of supply and not included in the price actually paid or payable for the goods is to be included in the value of supply. To illustrate, if cost of moulds was to be incurred by the supplier but if the same is supplied by the recipeint, the same needs to be included in the value of supply. This will be a point of difference in the turnover recorded in the annual financial statements and that reflected in GSTR-1 and GSTR-3B. The turnover in the GST returns would be higher as it includes cost of moulds supplied by the recipient and so while preparing reconciliation statement, the cost of moulds needs to be added to the turnover of audited annual financial statements so as to arrive at the turnover as per GST returns filed by the assessee. Likewise, GST is also required to be paid on interest or penalty recovered for delayed payment of consideration for supply by the supplier but the said amount is not included in the turnover of annual audited financial statements. Therefore, while preparing the reconciliation statement, the amount of interest on delayed payment of consideration needs to be added so that the turnover as per GST returns is arrived at.

Similarly, the section 15 of the CGST Act, 2017 also specifies that the value of supply shall not include any discount which is mentioned on the invoice and is given as per agreement before or at the time of making supply. In nutshell, only the discounts known at the time of entering into agreement to supply goods or services are allowed as deduction from the value of supply. However, the discounts allowed by way of issuance of credit notes but not known at the time of making supply would not be included in the adjustment under this serial 5M and rather would be part of 5E/5J of reconciliation. Furthermore, discounts that are permissible under GST Law and given by way of issuance of credit notes will also be reflected under this serial 5M as adjustment by way of deduction in the value of supply under section 15 of the CGST Act, 2017.

It is pertinent to mention here that the adjustment under serial no. 5M would also include various goods/services valued as per Rule 27 to 35 of the CGST Rules, 2017 wherein an altogether different mechanism for valuation has been adopted. Say for example, as per Rule 32(3) of the CGST Rules, 2017, the value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent shall be deemed to be amount calculated at the rate of five per cent of the basic fare in case of domestic bookings, and at the rate of ten per cent of the basic fare in case of international bookings of passage for travel by air. In such a situation, suitable adjustment needs to be done to arrive at value of supply as per GST returns. To illustrate, if the commission income booked by a travel agent in his audited annual financial statements is Rs. 7,00,000/- but the value of basic fare of tickets booked for domestic flights is Rs. 30,00,000/- and the value of basic fare of tickets booked for international flights is 50,00,000/-. The value of supply as per GST returns is Rs. 6,50,000/- (30,00,000* 5% + 50,00,000 * 10%). Hence, a deduction of Rs. 50,000/- would be made under serial no. 5M to arrive at the figure of annual audited financial statements. The adjustment in such scenario will definitely be a tedious task for the auditor.
It is also worth discussing that as per Rule 32(5) of the CGST Rules, value of supply in case of person dealing in buying and selling of second hand goods shall be difference between the selling price and purchase price and where such supply is negative, it shall be ignored. Consequently, in GST regime, the valuation is dependent on profit earned whereas the audited financial statements will include the turnover on sale of second hand goods as a whole. The adjustment to be made under serial no. 5M would really be difficult for the auditor.
This is solely for the educational purpose.

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GST Update on Issues in Reconciliation Statement- Part 11

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