NEWSLETTER- AUG 2018baroda-icai.org/media/branch_news_letter/4ba305372...TDS Return filing Updation of DIR 3 (KYC of Directors) RERA Filing CA. Prabhat Doshi ... violation of the anti-profiteering

Volume - VII | August 2018

Baroda Branch of Western India Regional Council ofThe Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India(Setup by an Act of Parliament)

EditorialTeam

Contents

CA. Dhiren Parikh 93762 11099Chairman

CA. Hitesh Agrawal 99980 28737

CA. Krunal Bhrambhatt 78748 11551

CA. Vin d Pahilwani 98980 78176

CA. Pradeep Agrawal 98985 60967

CA. Arpan Dodia 98983 83530

CA. Abhijit J Kotecha 98254 83173

CA. Manoj Sahu 90990 94500

CA. Rikin Patel 88667 09509

Vice-Chairman

Secretary

Treasurer

Ex-officio

IP - Chairman

Committee Member

Committee Member

Committee Member

o

CA. Dhiren Parikh CA. Manoj Sahu

CA. Rahul Parikh CA. Nayan R Kothari

CA. Neena Patel CA. Gunjan Agrawal

CA. Jigita Shah CA. Dhruti Vaidya

CA. Parth Patel CA. Chintan Popat

Forthcoming Events ... 3

Judicial Decisions on Indirect Taxes ... 3

...

Ind AS 115 - Revenue fromContracts with Customers Part 2

Book - Reimagining India

Snap Gallery ... 11

GST Update 4

Is There Really A “MandatoryAudit” Under GST ??

... 10

... 6

... 7

Pg. No.

ManagingCommittee

Chairman Communication

Dear Members,

Knowledge is the essence of the collective wisdom of individuals withgreat understanding of their subjects; the selfless gift of their insightsand judgements to succeeding generations for shared benefit isknowledge.

As part of the CA Day Celebrations, Baroda Branch has organisednumber of programmes like Blood Donation Camp, Honouringmembers attaining 70 years of age, Cultural Evening etc. Recognisingand honouring our responsibilities to Nation Building, we alsoorganised environment drives via Tree Plantation programmes andfocused on spreading awareness of 'Swachh Bharat Abhiyan.Programme for girls’students on GST is also organised at Girls College.

In the month of July, apart from CA Day Celebration on 1st July, wehave organised various program like Workshop on Unlocking valuesthrough Mergers and Acquisitions, Unique event for CA final Studentsand Young CA members named Talk show on Work Profile,Opportunities and Career prospects for a CAs, National seminar onAccounting and Auditing in the Digital Age, Interactive CFO Meet,National seminar on GST jointly organised with ASSOCHEM. BarodaBranch has successfully hosted the Certificate Course on ForensicAccounting and Fraud Detection organised by Digital Accounting andAssurance Board of ICAI.

Return filing date is extended till 31st August will give temporary relief

but it will double our work load in the month ofAugust as now TaxAuditseason has already started and Members will be also busy in completingTax Audit of their clients in time. I would like to remind them of thesaying, “Do not wait to strike till the iron is hot; but make it hot bystriking.” In short, members should encourage and remind their clientsto file their returns and complete Tax Audit in advance and not wait tillthe last possible moment.

In the month of August, we have planned to organise 3 days works ondifferent topics, Full day seminar on Tax Audit, Certificate Course onIND AS, Celebration of 15th August and Lecture meeting onascertaining impact of ICDS and Disclosure in TaxAudit.

Hard work and determination are the keys to success in any field and thebest way to capture moments is to pay attention. I congratulate allstudents who have come out with flying colours by passing exam andbetter luck next time for those who couldn’t make it. Wishing all thesuccessful Students the best for their future careers. Those students whocleared CA final Examination and became Chartered Accountants, Iwelcome all of them in our noble profession.

The month of August has ushered in the festive season. This month wecelebrate the bond that exists between brothers and sisters with RakshaBandhan. The celebration of Independence Day is also a time forretrospection. Let us go beyond words and work to uplift our countryand people in whichever small way we can.

I wish all members and students a very Happy Raksha Bandhan andIndependence Day.

With warm regards,

Chairman

CA. Dhiren Parikh

e-Newsletter(Circulated by Email)

Baroda Branch of WIRC of ICAI2


Hrs

Hrs

CPE

CPE

9

6

Organised by :

Hosted by :

Young Members Skill and InnovationDevelopment Committee (YMS & IDC)

Baroda Branch of WIRC of ICAI

Organised by :

Hosted Jointly by :

Direct Taxes Committee of WIRC

Baroda and Anand Branch of WIRC of ICAI

Day & Date : | Time :Friday, 03.08.2018 05.30 to 08.30 pm

Full Day Seminar on Tax Audit

72nd Independence Day Celebration

Ascertaining impact of ICDS &Disclosure in Tax Audit

Practical Training Series forArticle Students & Employees

HrsCPE 2

Branch Events3 days Workshop

Fees : Rs. 250 /- including GST for 3 days till 02.08.18afterwards Rs. 350/-

ICAI Bhawan, VadodaraVenue :

Day & Date :

Time :

Fees : For Members:

For Students:

Saturday, 11.08.2018

9.00 am to 5.30 pm (Registration & Networking08.00 am to 09.00 am)

Rs. 700/- till 9th August afterwardsRs. 850/- including 18% GST

Rs. 350/- for students till 9th Augustafterwards Rs. 500/-


Day & Date :

Time :

Wednesday, 15.08.2018

09.00 to 09.30 am

ICAI Bhawan, VadodaraVenue :Topics Speakers

Wealth Creation & Chartered Accountants , CCM &Chairman YMS & IDCCA. Jay Chhaira

Practical Issues in CARO & Upgradationof Existing Accounting Standard

CA. Yagnesh Desai,Mumbai

Visual Credibility of CAVadodara

LatestAmendments in GSTVadodara

Ms. Diya Khurana,

Mr. Sanjay Saraswat,

Topics Speakers

Applicability and overall reporting issues CCMand issues w.r.t. recent notification on & Chairman Direct Taxestax audit Committee of ICAI

Documentation for Tax Audit andPeer Review

CA. Tarun Ghia,

CA. Abhay Arolkar,Mumbai

Topics Speakers

Applications:- CA. Rahul AgrawalOnline PAN & TAN,Registrar of Firms Import Export Code,Shop & Establishment, Udyog Aadhar

Day & Date :

Time :

Speaker : CA. Vishal Doshi,

Fees :

Wednesday, 15.08.2018

10:00 am to 12:00 noon

Past Chairman, Baroda

Nil


Contributed by :can be reached at [email protected]

CA. Anirudh Sonpal

Judicial Decisions onIndirect Taxes

I. REVERSE CHARGE

II. VALUATION

The assessee had incurred expenses towards inwardfreight charges but has not paid service tax underreverse charge on such transport services; however, thetransporters had discharged service tax liabilities on thetransport services provided to the assessee. TheHonourable Cestat observed that ‘the issue isnonstarter, as liability of service tax was withtransporters, but a deeming fiction was created duringrelevant period wherein one of the person required todischarge service tax liability under category goodstransport agency, service tax liability was fastened onrecipient of GTA services, and in case in hand saiddischarge of service tax liability is done by transportersthemselves, seems to have been accepted by revenueauthorities as nothing is on record to show that anySCN is issued to transporters, if that be so, againdemanding service tax from assessee seems to betotally wrong proposition of law; it seems that therevenue has mis-construed tax liability under reversecharge mechanism’.

[Andhra Pradesh Paper Mills vs CCE – HyderabadCestat]

2.1 The assessee was engaged in manufacture ofCompressed Natural Gas (CNG) and it sold CNG to OilMarketing Companies (OMCs) for resale to ultimatebuyers and allowed certain discount to them from retailsales price, which was termed as commission/trademargin, etc. in agreements. The Honourable Tribunalhas held that the assessee was liable to pay duty only onnet sales price charged to OMCs. The HonourableSupreme Court dismissed the appeal filed against theorder of the Tribunal in favour of the assessee.

[CCE, Mumbai vs Mahanagar Gas Ltd – SC]

Day & Date : | Time :Saturday, 04.08.2018 03.00 to 06.00 pm

Day & Date : | Time :Sunday, 05.08.2018 10.00 to 01.00 pm

WICASA Events

Date : | Time :06.08.2018 6.00 pm to 8.00 pm

GST Registration & Filing CA. Dhruvank Parikh

Reporting Requisites under NewTax Audit Report

CA. Nirav Shah

E Filing of Tax Audit Report CA. Parvez Mansuri

Excel - Your Power pack Companion CA. Arpan Dodia

Tax Audit vis a vis GST AuditBanglore

Brain Trust Session on issues in tax auditVadodara

Vadodara

Anand

CA. Jatin Christopher,

CA. Vishal Doshi,

CA. Rahul Parikh,

CA. Kamlesh Parikh,

TDS Return filing Updation of DIR 3(KYC of Directors) RERA Filing

CA. Prabhat Doshi

Date : | Time :07.08.2018 6.00 pm to 8.00 pm

Date : | Time :08.08.2018 6.00 pm to 7.30 pm

Date : | Time :08.08.2018 7.30 pm to 8.00 pm

Date : | Time :09.08.2018 6.00 pm to 8.00 pm

Date : | Time :10.08.2018 6.00 pm to 8.00 pm


2.2 The Head Office of the applicant was situated at WestBengal from where the goods were supplied tobranches in other states. The Honourable AARobserved that such supplies were supplies to ‘distinctpersons’ and the applicant had option not to value suchbranch transfers under first proviso of Rule 28 ofCG&ST Rules, 2017 but to value them under secondproviso of the said rules. It was further held that theterm ‘where the recipient is eligible for full input taxcredit’ would mean that the branches were eligible totake credit of the GST charged in the invoices in respectof such branch transfer.

[GKB Lens Pvt Ltd –AAR, West Bengal]

The non-taxable goods of the assessee were detainedduring transportation due to certain infraction ofprocedural rules for movement of goods. TheHonourable High Court, while directing release of thegoods subject to penalty for infraction of law, observedthat detention of the goods merely for infraction of theprocedural rules is without jurisdiction, as detentionand confiscation are the consequences of suchmovement of goods where there is an intention to evadepayment of taxes; the goods during its movement canbe detained and confiscated only if the proper officerhas reason to believe that such movement is with anintention to evade payment of taxes; detention of goodson the grounds that the e-way bill is not accompaniedwithout questioning the other documents during themovement would not be lawful.

[Devi Chemicals vs TheAsst STO, GST – Kerala HC]

The applicant had filed an application wrt section 171,CGST Act,2017 complaining that the manufacturer ofbranded basmati rice was engaged in profiteering byincreasing the MRP of the said item and not passing thebenefit of ITC availed by them post-GST.Investigations by DG(SG) indicated that the aforesaidproduct was not taxable prior to GST and the productwas leviable to 5% GST up to a specified time; the ITCintake during the relevant time was about 3% whereas

III. DETENTION & CONFISCATION

IV. ANTI PROFITEERING

the liability was 5% and the manufacturer had paid thebalance GST liability by cash. The National Anti-Profiteering Authority observed that there was noviolation of the anti-profiteering provisions and nomerit in complaint.

Kumar Gandharv vs KRBLLtd – NAPA]

5.1 Cold Storage services provided by the applicant areclassifiable under SAC Code 9986 and not 9967; SACCode 9967 deals with support service for transportationonly whereas 9986 specifically deals with agriculture,fishing, forestry, animal husbandry etc; all supportservices from cultivation to marketing in respect ofagriculture produce, as defined in CBIC Circular16/16/2017-GST dated 15-11-2017, meri tclassification under 9986.

[SSSVK Cold Storage Pvt Ltd – AAR, AndhraPradesh]

5.2 In case of Power Solution device where there is supplytogether of UPS and batteries, the Honourable AARdistinguished the facts between batteries inbuilt in theUPS from batteries supplied separately under aseparate contract and price. The former was a case ofcomposite supply wherein UPS and built-in batteriesare inseparable and thus naturally bundled andaccordingly, the machine would merit classification asUPS. In the second case, wherein the batteries aresupplied separately and under a separate price contract,both the products would merit separate classifications.

[Switching Avo Electro Power Ltd – AAR, WestBengal]

5.3 The Applicant was awarded package for supply ofhardware fittings and accessories at different projectsunder two contracts – one for supply of materials Ex-work and another for delivery of materials to the site,which included services like transportation, insurance,loading/unloading etc. The HonourableAAR held boththese activities as a Composite Supply wherein thesupply of goods was the principal supply and theservices were ancillary to the principal supply of goods.

[IAC Electricals Pvt Ltd –AAR, West Bengal]

V. CLASSIFICATION

VI. JOB WORK

The principal was supplying coal to the job worker forconversion into electrical energy; job-work chargeswere paid by the principal to the job-worker forreceiving electricity. The Honourable AAR observedthat conversion of coal into electricity was not jo-workas contemplated under GST provisions in as much asjob-work was limited to ‘treatment or process’ andwould not cover activities that amount to manufacturewherein a separate product emerges.

[JSW Energy Ltd –AAR, Maharashtra]


CA. Manilal Parsiya

GST Update

CBIC vide Circular No. 47/21/2018-GST (F. No.

CBEC/20/16/03/2017-GST) dated 8th June, 2018

clarifies issues related to SEZ and refund of unutilized ITCfor job workers as under:

1. Whether moulds and dies owned by OriginalEquipment Manufacturers (OEM) that are sent free of cost(FOC) to a component manufacturer is leviable to tax andwhether OEMs are required to reverse input tax credit inthis case?

Moulds and dies owned by the originalequipment manufacturer (OEM) which are provided to acomponent manufacturer (the two not being relatedpersons or distinct persons) on FOC basis does notconstitute a supply as there is no consideration involved.Further, since the moulds and dies are provided on FOCbasis by the OEM to the component manufacturer in thecourse or furtherance of his business, there is norequirement for reversal of input tax credit availed on suchmoulds and dies by the OEM. It is further clarified thatwhile calculating the value of the supply made by thecomponent manufacturer, the value of moulds and dies

Clarification:


provided by the OEM to the component manufacturer onFOC basis shall not be added to the value of such supplybecause the cost of moulds/dies was not to be incurred bythe component manufacturer and thus, does not meritinclusion in the value of supply in terms of section 15(2)(b)of CGST Act. However, if the contract between OEM andcomponent manufacturer was for supply of componentsmade by using the moulds/dies belonging to the componentmanufacturer, but the same have been supplied by the OEMto the component manufacturer on FOC basis, theamortised cost of such moulds/dies shall be added to thevalue of the components. In such cases, the OEM will berequired to reverse the credit availed on such moulds/dies,as the same will not be considered to be provided by OEMto the component manufacturer in the course or furtheranceof the former’s business.

2. How is servicing of cars involving both supply ofgoods (spare parts) and services (labour), where the valueof goods and services are shown separately, to be treatedunder GST?

The taxability of supply would have to bedetermined on a case to case basis looking at the facts andcircumstances of each case. Where a supply involvessupply of both goods and services and the value of suchgoods and services supplied are shown separately, thegoods and services would be liable to tax at the rates asapplicable to such goods and services separately.

3. In case of auction of tea, coffee, rubber etc., whetherthe books of accounts are required to be maintained at everyplace of business by the principal and the auctioneer, andwhether they are eligible to avail input tax credit?

The requirement of maintaining the booksof accounts at the principal place of business and additionalplace(s) of business is clarified as below: (a) For thepurpose of auction of tea, coffee, rubber, etc, the principaland the auctioneer may declare the warehouses, where suchgoods are stored, as their additional place of business. Thebuyer is also required to disclose such warehouse as hisadditional place of business if he wants to store the goodspurchased through auction in such warehouses. For the

Clarification:

Clarification:

purpose of supply of tea through a private treaty, theprincipal and an auctioneer may also comply with the saidprovisions. (b) The principal and the auctioneer for thepurpose of auction of tea, coffee, rubber etc., or theprincipal and the auctioneer for the purpose of supply of teathrough a private treaty, are required to maintain the booksof accounts relating to each and every place of business inthat place itself in terms of the first proviso to sub-section(1) of section 35 of the CGST Act. However, in casedifficulties are faced in maintaining the books of accounts,it is clarified that they may maintain the books of accountsrelating to the additional place(s) of business at theirprincipal place of business instead of such additionalplace(s). (c) The principal and the auctioneer for thepurpose of auction of tea, coffee, rubber etc., or theprincipal and the auctioneer for the purpose of supply of teathrough a private treaty, shall intimate their jurisdictionalofficer in writing about the maintenance of books ofaccounts relating to the additional place(s) of business attheir principal place of business. It is further clarified thatthe principal and the auctioneer for the purpose of auctionof tea, coffee, rubber etc., or the principal and theauctioneer for the purpose of supply of tea through a privatetreaty, shall be eligible to avail input tax credit subject to thefulfillment of other provisions of the CGST Act read withthe rules made there under.

4. In case of transportation of goods by railways,whether goods can be delivered even if the e-way bill is notproduced at the time of delivery?

As per proviso to rule 138(2A) of CGSTRules, the railways shall not deliver the goods unless the e-way bill is produced at the time of delivery.

5. Whether e-way bill is required in the following cases-(i) Where goods transit through another State while movingfrom one area in a State to another area in the same State.(ii) Where goods move from a DTA unit to a SEZ unit orvice versa located in the same State.

(i) It may be noted that e-way bill generationis not dependent on whether a supply is inter state or not,but on whether the movement of goods is inter-State or not.

Clarification:

Clarification:

Therefore, if the goods transit through a second State whilemoving from one place in a State to another place in thesame State, an e-way bill is required to be generated. (ii)Where goods move from a DTA unit to a SEZ unit or viceversa located in the same State, there is no requirement togenerate an eway bill, if the same has been exempted underrule 138(14)(d) of the CGST Rules.

clarifies issues related to SEZ and refund of unutilized ITCfor job workers as under:

1. Whether services of short-term accommodation,conferencing, banqueting etc. provided to a SpecialEconomic Zone (SEZ) developer or a SEZ unit should betreated as an inter state supply or an intra-State supply?

As per section 7(5) (b) of IGSTAct in short),the supply of goods or services or both to a SEZ developeror a SEZ unit shall be treated to be a supply of goods orservices or both in the course of inter-State trade orcommerce. Whereas, as per section 12(3)(c) of the IGSTAct, the place of supply of services by way ofaccommodation in any immovable property for organisingany functions shall be the location at which the immovableproperty is located. Thus, in such cases, if the location ofthe supplier and the place of supply is in the same State/Union territory, it would be treated as an intra-State supply.It is an established principle of interpretation of statutesthat in case of an apparent conflict between two provisions,the specific provision shall prevail over the generalprovision. In the instant case, section 7(5)(b) of the IGSTAct is a specific provision relating to supplies of goods orservices or both made to a SEZ developer or a SEZ unit,which states that such supplies shall be treated as inter-State supplies. It is therefore, clarified that services of shortterm accommodation, conferencing, banqueting etc.,provided to a SEZ developer or a SEZ unit shall be treatedas an inter-State supply.

2. Whether the benefit of zero rated supply can beallowed to all procurements by a SEZ developer or a SEZunit such as event management services, hotel and

CBIC vide Circular No. 48/22/2018-GST (F. No.

CBEC/20/16/03/2017-GST) dated 14th June, 2018

Clarification:


accommodation services, consumables etc?

As per section 16(1) of the IGST Act, “zerorated supplies” means supplies of goods or services or bothto a SEZ developer or a SEZ unit. Whereas, section 16(3) ofthe IGST Act provides for refund to a registered personmaking zero rated supplies under bond/LUT or on paymentof integrated tax, subject to such conditions, safeguards andprocedure as may be prescribed. Further, as per the secondproviso to rule 89(1) of CGST Rules, in respect of suppliesto a SEZ developer or a SEZ unit, the application for refundshall be filed by the: (a) supplier of goods after such goodshave been admitted in full in the SEZ for authorisedoperations, as endorsed by the specified officer of the Zone;(b) supplier of services along with such evidencesregarding receipt of services for authorised operations asendorsed by the specified officer of the Zone. A conjointreading of the above legal provisions reveals that thesupplies to a SEZ developer or a SEZ unit shall be zerorated and the supplier shall be eligible for refund ofunutilized input tax credit or integrated tax paid, as thecasemay be, only if such supplies have been received by theSEZ developer or SEZ unit for authorized operations. Anendorsement to this effect shall have to be issued by thespecified officer of the Zone. Therefore, subject to theprovisions of section 17(5) of the CGST Act, if eventmanagement services, hotel, accommodation services,consumables etc. are received by a SEZ developer or a SEZunit for authorised operations, as endorsed by the specifiedofficer of the Zone, the benefit of zero rated supply shall beavailable in such cases to the supplier.

3. Whether independent fabric processors (job workers)in the textile sector supplying job work services are eligiblefor refund of unutilized input tax credit on account ofinverted duty structure under section 54(3) of the CGSTAct, even if the goods (fabrics) supplied are covered undernotification No. 5/2017-Central Tax (Rate) dated28.06.2017?

Notification No. 5/2017-Central Tax (Rate)dated 28.06.2017 specifies the goods in respect of whichrefund of unutilized input tax credit (ITC) on account of

Clarification:

Clarification:


CA. Abhay Desai

Is There Really A“Mandatory Audit”

Under GST ??

1. Lot of confusion presently prevails as to whetherregistered persons under GST are required to undergoan audit by a Chartered Accountant or a CostAccountant if the turnover of such persons exceedINR 2 crores. Let us look at the current legalprovisions with regard to the said subject. Sec. 35(5)of the CGSTAct, 2017 reads as under:

“(5) Every registered person whose turnover during afinancial year exceeds the prescribed limit shall gethis accounts by a chartered accountant or acost accountant and shall submit a copy of the

the reconciliation statement undersub-section (2) of section 44 and such otherdocuments in such form and manner as may beprescribed.”

2. A bare reading of the above provision entails thatevery registered person whose turnover exceeds thespecified limit (presently INR 2 crores) shall get hisaccounts “audited” and shall submit a copy of

auditedaudited

annual accounts,

“audited annual accounts” along with a certifiedreconciliation statement as well as other documentswhich may be prescribed.

3. Definition of audit as contained u/s 2(13) of the saidAct provides as under:

“(13) “audit” means the examination of records,returns and other documents maintained or furnishedby the registered person under this Act or the rulesmade thereunder or under any other law for the timebeing in force

4. Hence what is required to be ascertained is the trueimport of the word “audit” in the context of Sec. 35(5)?

5. If the definition u/s 2(13) is applied to Sec. 35(5), theconclusion seems to be that a CharteredAccountant ora Cost Accountant is indeed required to “audit” the“accounts” maintained by a registered person, whoseturnover exceeds INR 2 crores despite the fact thatsuch person has already undergone audit under theprovisions of other laws (e.g. Companies Act, 2013).Said conclusion seems to be misplaced.

6. Sec. 35(5) also provides that the registered personneeds to submit the copy of “audited annualaccounts”. An audit conducted in light of thedefinition u/s 2(13) will not lead to any “auditedannual accounts”. It will lead to only submission of anaudit report wherein the auditor shall comment onvarious claims made by the person in his annualreturn. This is because the definition of “audit” onlyasks to verify various claims made by the concernedperson and not to verify his “accounts” which willentail a far broader exercise. Moreover, if such personhas already obtained “audited annual accounts” underthe CompaniesAct, 2013 or the Income TaxAct, 1961(in case of non-corporates), which “audited annualaccounts” should he furnish ?? Is he still required toobtain again “audited annual accounts” under the

to verify the correctness of turnoverdeclared, taxes paid, refund claimed and input taxcredit availed, and to assess his compliance with theprovisions of thisAct or the rules made thereunder”

inverted duty structure under section 54(3) of the CGSTAct shall not be allowed where the credit has accumulatedon account of rate of tax on inputs being higher than the rateof tax on output supplies of such goods. However, in case offabric processors, the output supply is the supply of jobwork services and not of goods (fabrics). Hence, it isclarified that the fabric processors shall be eligible forrefund of unutilized ITC on account of inverted dutystructure under section 54(3) of the CGST Act even if thegoods (fabrics) supplied to them are covered undernotification No. 5/2017-Central Tax (Rate) dated28.06.2017.


GST laws. Answer seems to be no given the languageemployed. Hence seen in this light the word “audit”u/s 35(5) seems to be referring to audit under otherlaws and only the said audited accounts are requiredto be furnished along with a reconciliation statementand other prescribed documents. It is in thereconciliation statement that the State-wisebifurcation will be done of the figures appearing in theaudited financial statements to reach the figuresreported in the State-wise annual return.

7. As compared to GST laws, the drafting under theIncome Tax Audit, 1961 of the provisions concerningaudit is more logical. Sec. 44AB provides that in thespecified cases, person shall get his accounts auditedand an audit report is required to be furnished.However third proviso provides that in cases wheresuch person is required by or under any other law toget his accounts audited, it shall be sufficientcompliance with the provisions if such person gets theaccounts of such business or profession audited undersuch law. Hence second audit is not sought under theIncome Tax Act, 1961 accounts are already auditedunder other laws. Only a tax audit report is sought.

8. Sec. 44(2) is also relevant for appreciating the saidview and hence is reproduced below:

“(2) Every registered person who is required to get hisaccounts in accordance with the provisions ofsub-section (5) of section 35 shall furnish,electronically, the annual return under sub-section (1)along with a anda reconciliation statement, reconciling the value ofsupplies declared in the return furnished for thefinancial year with the

and such other particulars as may beprescribed.”

9. Above provision also talks about furnishing copy of“audited annual accounts” along with a reconciliationstatement. Hence it seems that audit is not required tobe carried out as per the present provisions of the law.

10. At this juncture it is also worthwhile to refer to the

audited

copy of the audited annual accounts

audited annual financialstatement,

CGST Rules, 2017 concerning the issue. Rule 80(3) isreproduced below:

“(3) Every registered person whose aggregateturnover during a financial year exceeds two crorerupees shall get his accounts as specifiedunder sub-section (5) of section 35 and he shallfurnish a copy of and a

in FORMGSTR-9C, electronically through the common portaleither directly or through a Facilitation Centrenotified by the Commissioner.”

11. Again the above rule provides for furnishing “auditedannual accounts” along with a certified reconciliationstatement.

12. Seen in the above light, it clearly appears that the auditunder the GST laws is not required. Only “auditedannual accounts” are required to be submitted alongwith a reconciliation statement. Hence accountsaudited under other laws are sufficient. Said accountsare to be taken as a base for preparation andcertification of the reconciliation statement.

13. It is also important to understand that what is soughtto be asked from the registered person is furnishing ofthe “audited annual accounts”. How can someonefurnish entire “audited accounts” ?? One can onlyfurnished “audited annual financial statements” alongwith reconciliation statement.

14. Now coming to the reconciliation statement, Sec.44(2) provides for furnishing the same by reconcilingthe value of supplies declared in the return furnishedfor the financial year with the audited annual financialstatement. Said reconciliation statement needs to becertified by a Chartered Accountant or a CostAccountant in cases where the turnover exceeds INR2 crores (see Rule 80(3)). Here also the languageprovides for only carrying out “reconciliation ofvalues”. Hence what appears is that a CharteredAccountant or a Cost Accountant is only required tocertify the said reconciliation and not enter into thelegality of various claims made in the annual return.

audited

audited annual accountsreconciliation statement, duly certified,

15. Readers will duly acknowledge that the aboveprovisions related to audits are very badly drafted andwill lead to different interpretations. Hence it issuggested that the Government comes out withappropriate clarification in this regard. The proposedamendments to GST laws does not seem to addressthis issue.

16. If the above interpretation is the actual intention of theGovernment then we must examine whether the samewill serve the purpose for which such provisions aremade ??

17. A Chartered Accountant or a Cost Accountant areprofessionals. They carry out their duties with utmostdedication. Hence Government time and again havereposed their faith in such professionals. If only“reconciliation statement” is required, then thepurpose of maintaining a check as regards variousclaims made by the registered person will be defeated.It is a fact that Government will not be able to carryout their audits for all the tax payers. Hence only suchchecks can serve the purpose of the Government inensuring that due taxes are paid.

18. Before we part we must also say that, whether or notsuch audit is legally required, trade and industry willbe far more benefitted if such checks are done onroutine basis to ensure that any major lapses arecorrected in a timely manner. It must be rememberedthat detection of lapses by the Department after aperiod of time will entail interest cost as well aspossibly penalties based on the issues involved.

As was highlighted in the previous issue, to meet the coreprinciple and to achieve the objectives, Ind AS 115

Contributed by : CA. Chandravali Tikmani & CA. Bijal Mehtacan be reached at [email protected] & [email protected]

Ind AS 115 - Revenuefrom Contracts with

Customers Part 2


prescribes revenue to be recognized by applying a 5-stepapproach. We shall now deliberate on each of these steps.

Contract:

A contract with a customer can be written, oral or impliedby customary business practices and shall be accounted forunder IndAS 115 only if the following criteria are met:

a. Parties to the contract have approved the contract andare committed to perform the promised obligations.The obligation of buyer can be to make payment to theseller and of the seller to deliver the goods / service.

b. Each party’s rights to goods / services are identifiable.The buyer has right to receive services / product andseller has right to receive payment in exchange.

c. Payment terms are identifiable. Payments can beadvance payment, cash on delivery or otherarrangements agreeable in the contract.

d. Contract has commercial substance.

e. Collection of the amount of consideration is probable.

The above criteria shall be assessed at the inception of thearrangement. If the criteria are met at inception, thensubsequent reassessment shall be done only if there is anindication of significant change in facts and circumstances.However, if the criteria are not met at inception, continuousassessment should be done to determine whether the abovecriteria are met subsequently.

A contract shall be considered as a wholly unperformedcontract if:

Step 1: Identifying the contract

In case contract conditions are not met and consideration isreceived, revenue shall be recognised only if:

(a) the seller does not have any pending obligations totransfer goods or services to the customer and almostall the consideration has been received by the sellerwhich is non-refundable; or

(b) the contract has been terminated and theconsideration received from the customer is non-refundable.

Two or more contracts with the same customer (or relatedparties of customer) and entered into at or near the sametime shall be combined when any of the following criteriaare met:

• Contracts are negotiated as a single commercialpackage.

• Consideration in one contract depends on the price orperformance of another contract.

• Goods or services (or some of them) are a singleperformance obligation and are not distinct.

Combination of Contracts:

Goods/Services 1 Goods/Services 2 Combine Contracts?

Car Additional Warranty No

Car Free Service Yes

Computer Printer No

Audit of Standalone Audit of Consolidated

Financial Statements

Yes

Financial Statements

Contract modifications:

A contract modification is an approved change in the scopeor price (or both) of a contract that creates new or changesexisting enforceable rights and obligations of the parties tothe contract.Acontract modification shall be considered asa separate contract if:

(a) The additional goods or services to be provided aredistinct;AND

(b) The additional consideration reflects the standaloneselling price of such additional goods or services.

The following flowchart can better explain contractmodification and its impact:

Example

Scenario 1:

Amanufacturer enters into contract with its customer

- to deliver 300 bags for total price of INR 600,000(INR 2,000 per bag).

- to be delivered in 3 separate deliveries (100 bags ineach).

- The customer takes control over the bags at delivery.

After the first delivery is made, contract is amended tosupply 200 additional bags (500 in total).

As of 31 March, 20X1, manufacturer delivered 400bags (300 as agreed initially and 100 under thecontract amendment).

The price for additional 200 bags was agreed atINR 388,000, being INR 1,940 per bag. A normal volumediscount of 3% for additional delivery is provided.

Here, the price for additional bags indeed reflects theirstand-alone selling prices, because manufacturer normallyprovides 3% volume discount.

Therefore, this contract modification is accounted for as aseparate contract and revenue for the year 20X1 (400 bagsdelivered) is:

INR 600,000 from the original contract for 300 bags;

INR 194,000 from the contract modification for

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Step 2: Identifying Performance Obligations

Performance Obligation

While assessing contracts under Ind AS 115 an importantpoint is to determine whether the goods or servicesprovided are individual promises to be performed or theyshall be combined. It is pertinent to note that identifyingperformance obligation is critical to measurement andtiming of revenue recognition.

is a promise (explicit or implicitor arising from customary business practice) to transfer to acustomer either:

(a) A distinct goods or services (bundle of goods orservices); or

(b) A series of distinct goods or services that aresubstantially same and have the same pattern oftransfer

Thus, there are two criteria for a good or service to beconsidered distinct, and both of those criteria must be met.The good or service must be capable of being distinct, and itmust be distinct in the context of the contract. Let’s gothrough each of these in more detail.

First, a good or service is “capable of being distinct” if thecustomer can benefit from that good or service either on itsown or with other resources that are readily available. Acustomer can benefit from a good or service if it can beused, consumed or sold for an amount greater than scrapvalue. A good or service that cannot be used on its own, butcan be used with other readily available resources, wouldalso meet this criterion, because the customer has theability to benefit from it. A customer is typically able tobenefit from a good or service on its own when a companyregularly sells that good or service on a standalone basis.

Second, a good or service must also be separatelyidentifiable from other promises in the contract. This iscommonly referred to as being “distinct in the context ofthe contract.” This criterion requires more judgement thanthe first. The objective is to determine whether the nature ofa company’s promise is to transfer individual goods orservices to the customer, or to transfer a combined item, towhich those individual goods and services are an input.There are three factors to consider when making thisassessment:

(i) Whether an entity provides a significant integrationservice, indicating that it is using goods and servicesas inputs to deliver the combined output specified bythe customer.

(ii) Whether one or more of the goods or servicessignificantly modifies or customizes other goods orservices in the contract.

(iii) Whether the goods or services are highlyinterdependent or highly interrelated with one

another.

It is important to note that these factors are not exhaustive,and they should not be used as a checklist. These factors areintended to help determine whether an entity’sperformance in transferring multiple goods or services is,in effect, fulfilling a single promise to a customer.

Let us understand better by few examples.

A Company engaged in Aviation business also providesvarious ancillary services such as meals on board,additional luggage, seat selection, etc., for which it chargesseparate fees and such services generally occurs inconjunction with the flight. There are other products andservices which are separate from transportation, such asairport shuttle, access to airport’s lounges for whichcustomer is separately charged.

When there are multiple promises in a contract, a companywill need to determine whether those goods or services aredistinct, and therefore separate performance obligations.Goods or services that are not distinct are bundled togetherwith other goods or services in a contract until a singleperformance obligation is achieved.

Some ancillary services provided to airline passengers arenot distinct from the travel component because they are notcapable of being separated from the travel component asthey are highly interdependent or highly interrelated withit. A customer could not separately benefit from anancillary service that occurs with or during the flight as theservice cannot be provided without the purchase of a ticketand is not sold separately.

In the case of most ancillary services, the price increases,but the ancillary services would not qualify as beingdistinct, for the reasons given above. Therefore, consistentwith guidance in Standard, such ancillary services wouldbe combined with the flight into a single performanceobligation and accounted for as a bundled transaction withthe recognition of revenue occurring at the flight date(s).

Ancillary Services inAviation business:

Software

ScenarioA

additional 100 bags delivered.

Total revenue in the year 20X1 is therefore INR 794,000 –exactly as under IndAS 18.

Scenario 2: The price for additional 200 bags was agreed atINR 280,000, being INR 1,400 per bag. A discount of 30%for additional delivery is provided because it hopes for thefuture cooperation with customer.

Here, Contract modification was made after the firstdelivery, so revenue recognition for the first 100 bags inline with the original contract:

100 bags x INR 2,000 per bag = INR 200,000

Total transaction price to allocate after the contractmodification is:

INR 400,000, being the part of original considerationrelated to undelivered 200 bags;

INR 280,000, being total consideration for additional200 bags;

Total: INR 680,000

We need to allocate INR 680,000 to 400 bags in total whichmeans that manufacturer allocates INR 1,700 to each bag.

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A vendor enters in to a contract with customer to supply alicence for a standard software package, install thesoftware and to provide unspecified software updates andtechnical support for a period of two years. The vendor sellsthe licence and technical support separately, and theinstallation service is routinely provided by a number ofother unrelated vendors. The software will remainfunctional without the software updates and technicalsupport.

The software is delivered separately from the other goodsor services, can be installed by a different third-partyvendor, and remains functional without the softwareupdates and technical support.Analysing the first criterion,it is concluded that the customer can benefit from each ofthe goods or services either on its own or together withother goods or services that are readily available.

In addition, while analysing the second criterion, it isconcluded that each of the promises, to transfer goods orservices is separately identifiable, because installationservices do not significantly modify or customise thesoftware, the installation and software are separate outputspromised by the vendor and not one overall combinedoutput.

Hence, in this case, following performance obligations areidentified and revenue would be recognized separately:

(a) Supply of Software licence

(b) Provision of Installation service

(c) Provision of Software updates

(d) Provision of Technical support

The vendor’s contract with its customer is same as inscenario A, except that as a part of the installation servicethe software is to be substantially customised in order toadd significant new functionality to enable the software tointerface with other software already being used by thecustomer. The customised installation service can beprovided by many unrelated vendors.

In this case, although installation services can be providedby other entities, as per second criterion, the promise totransfer licence is not separately identifiable from

Scenario B

entrepreneurs and rapidlyglobalizing firms areupending key sectors ofthe world economy. Butwhat is India’s truepotential?And what can bed o n e t o u n l o c k i t ?McKinsey & Companyhas pulled in wisdom frommany corners—social andcu l t u r a l a s w e l l a se c o n o m i c a n dpolitical—to launch afeisty debate about thefuture of Asia’s othersuperpower.

Some of the contributors are CNN’s Fareed Zakaria,Mukesh Ambani, Bill Gates, Eric Schmidt, Nitin Nohria,Nandan Nilekani, Azim Premji, Suhel Seth, GurcharanDas, Zia Mody, Kumar Mangalam Birla, Shekhar Gupta,Nisaba Godrej, Kiran Mazumdar Shaw, Vinod Khosla,John Chambers, etc.

The essays in this volume make clear India has noshortage of urgent challenges. Some of the issues raisedby the contributors are the role of state, embracingcompetition, the quest for inclusive growth, innovationand leapfrogging, sustainable development, findingIndia’s place in the world, defining India’s identity, etc.

Bill Gates—India’s success in eradicating polio offers atextbook script for winning some of the world’s mostdifficult battles, not only in public health but in almostevery area of human welfare: from business to agricultureto education.

Fareed Zakaria— We are watching the birth of a new senseof nationhood in India, drawn from the aspiring middleclasses in its cities and towns who are linked together bycommerce and technology. They have commonaspirations and ambitions, a common Indian dream. Thatis a powerful and durable base for a modern country thatseeks to make its mark on the world.


CA. Bimal R. Bhatt

Book -Reimagining India

Edited by McKinsey & Company

Reimagining India brings together leading thinkers fromaround the world to explore the challenges andopportunities faced by one of the most important and leastunderstood nation on earth. India’s abundance oflife—vibrant, chaotic and tumultuous—has long been itsforemost asset. The nation’s rising economy andburgeoning middle class have earned India a placealongside China as one of the world’s two indispensableemerging markets. At the same time, India’s tech-savy

customised installation service. In contrast and as before,the software updates and technical support are separatelyidentifiable.

Hence, in this case, following performance obligations areidentified and revenue would be recognized separately:

(a) Supply of Software licence and its customisedinstallation service

(b) Provision of Software updates

(c) Provision of Technical support

The vendor’s contract with customer is same as in scenarioB, except that the vendor is the only supplier that is capableof carrying out the customised installation service and thesoftware updates and technical support are essential toensure that the software continues to operate satisfactorily,and the customer’s employee continue to be able to operatethe related IT services. No other entity is capable ofproviding the software updates or technical support.

In this case, evaluating both criteria, it is concluded that thepromise is to transfer a combined service and hence thiscombined service is identified as single distinct good orservice and therefore, there is only one performanceobligation.

Scenario C


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National Seminar on GST Jointly with ASSOCHAMon 27.07.2018

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