GST Update on Issues in Reconciliation Statement- Part 8

In our today’s update we are discussing on the adjustment pertaining to trade discounts that do not impact GST. Serial no. 5F of the reconciliation statement prescribes adjustment by way of addition of “Trade Discounts accounted for in the audited Annual Financial Statement but are not permissible under GST” while reconciling the turnover declared in the audited Annual Financial Statement with the turnover declared in the annual return. Another adjustment that is worth noting is that pertaining to credit notes under serial no. 5J of the reconciliation statement. The adjustment at serial no. 5J prescribes deduction of “Credit notes accounted for in the audited annual financial statement but are not permissible under GST.”
Now, as per accounting standard, sale price does not permit the inclusion of trade discount in sale price. Wherever any credit notes are to be issued for discount after issuing tax invoice, the registered person shall issue a credit note without disturbing the tax component on the price mentioned in the original tax invoice, so as to retain the quantum of input tax credit already claimed by the buyer as well as not to disturb the tax already paid by the seller.
Trade discounts can be issued in various ways and manners like special discounts, rebates, remissions, compensations, bonus etc. It is common for the assessee to issue credit notes even for trade discounts extended after issuance of invoice without effecting GST. For example, discount given on purchase of certain quantity of goods, compensation given to dealers for selling goods below market price which is not linked to any particular invoices. Practically, there is no difference in trade discounts accounted for in audited financial statement but not permissible under GST and credit notes accounted for in the audited financial statement but are not permissible under GST. However, the adjustment for trade discount is addition (+) whereas adjustment for credit note is deduction (-) which is opposite and contradictory. Although, the justification for the adjustment of credit note as deduction is being foreseen by many experts as correct on the grounds that the figure of credit notes should be negative and two negatives makes positive adjustment. However, the interpretation does not hold good for trade discounts. It is pertinent to mention that even discounts are negative figure that is to be deducted from sales but still positive adjustment is mentioned for the same in the reconciliation statement. Therefore, suitable clarification should be issued in this respect.
Moreover, the adjustment of trade discount in 5F and credit notes in 5J are overlapping as trade discount is also given by way of issuing credit notes. Consequently, the separate adjustment, that too, having contradictory effect (one being addition and other being negative) is not at all understandable.
Another point for discussion in this regard is that normally trade discounts, rebates are shown in debit side of Profit and loss account. This implies that it is not deducted from the turnover appearing in Annual financial statements. It is also not deducted from GST turnover in GSTR returns as GST is not effected on the same. Hence, it should not be shown in reconciliation of Annual financial statement turnover and GST turnover.
However, if the trade discounts are deducted from the turnover in Annual financial statement then the same should be adjusted in reconciliation statement.
This is solely for the educational purpose.
You can reach us at www.capradeepjain.com, at our facebook page on
https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21
This is solely for the educational purpose.
You can reach us at www.capradeepjain.com, at our facebook page on
https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21

Comments

GST Update on Issues in Reconciliation Statement- Part 8

Post a Comment

Query