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Clause 44 of the Tax Audit Report & contents of the Guidance Note issued by the ICAI:
Clause 44 of the Tax Audit Report
Break-up of total expenditure of entities registered or not registered under the GST:
||Total amount of Expenditure incurred during the year
||Expenditure in respect of entities registered under GST
||Expenditure relating to entities not registered under GST
|Relating to goods or services exempt from GST
||Relating to entities falling under composition scheme
||Relating to other registered entities
||Total payment to registered entities
82.1 A question may arise whether the above information is to be given in respect of each and every head of expenditure or only the total expenditure is to be given. Here, guidance may be taken from the heading of the table which starts with the words “Breakup of total expenditure” and hence the total expenditure including purchases as per the above format may be given. It appears that head-wise / nature wise expenditure details is not envisaged in this clause.
82.2 Depreciation under section 32, deduction for bad debts u/s 36(1)(vii) etc. which are not expenses should not be reported under this clause in any of the Columns from 3 to 7.
82.3 Schedule III to the CGST Act, 2017 lists out activities or transactions which are treated neither as a supply of goods nor a supply of services and thus expenditure incurred in respect of such activities need not be reported under this clause in any of the columns from 3 to 7. For example, Para (1) of the Schedule III covers “Services by an employee to the employer in the course of or in relation to his employment” and thus, remuneration to employees need not be reported.
82.4 It may be noted that any expenditure that is incurred, wholly and exclusively for business or profession of the assessee qualifies for the deduction under the Act. Registration or otherwise of the payee under the GST Act has no relevance in considering allowability of expenditure.
82.5 The format as per clause 44 of form 3CD requires that the information is to be given as per the following details: A. Total amount of expenditure incurred during the year B. Expenditure in respect of entities registered under GST C. Expenditure related to entities not registered under GST
82.6 The reporting in respect of B above, i.e. the expenditure in respect of entities registered under GST is further sub-classified into four categories as follows: a) Expenditure relating to goods or services exempt from GST b) Expenditure relating to entities falling under composition scheme c) Expenditure relating to other registered entities d) Total payment to registered entities.
82.7 Expenditure relating to goods or service exempt from GST (Column 3): Here, the value of all inward supply of goods or services which are exempt from GST is to be given. Section 2(47) of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as CGST Act, 2017) defines exempt supply as follows: “exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under the Integrated Goods and Services Tax Act, and includes non-taxable supply;” To ascertain what are exempt supplies, the following notifications issued under the CGST Act, 2017 and the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as IGST Act, 2017) are relevant:
(A) Notification No.1/2017 CT (R), which prescribes rates for intra-State supply of goods
(B) Notification No.2/2017 CT (R), which prescribes intra-State supply of goods which are exempt
(C) Notification No.11/2017 CT (R), which prescribes rate for intra-State supply of services
(D) Notification No.12/2017 CT (R), which prescribes intra-State supply of services which are exempt
(E) Notification No.1/2017 IT (R), which prescribes rates for inter-State supply of goods
(F) Notification No.2/2017 IT (R), which prescribes rates for inter-State supply of goods which are exempt
(G) Notification No.8/2017 IT (R), which prescribes rates for inter-State supply of services
(H) Notification No.9/2017 IT (R), which prescribes rates for inter-State supply of services which are exempt
82.8 Further, the definition of exempt supply also includes non-taxable supply. The term “non-taxable supply” has been defined in section 2(78) of the CGST Act, 2017 as follows:
“non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act” As per the above definition “non-taxable supply” includes supply of goods or services which are not leviable to tax under the CGST Act, 2017 or under the IGST Act, 2017. 82.9 As per section 9 of the CGST Act, 2017 / 5 of the IGST Act, 2017, the following supplies are not leviable to GST: (i) supply of alcoholic liquor for human consumption (ii) supply of petroleum crude, high speed diesel oil, motor spirit, natural gas and aviation turbine fuel Hence, the above supplies, being not leviable to GST, are exempt supplies.
82.10 Expenditure relating to entities falling under composition scheme (Column 4): Levy of tax under composition scheme is governed by section 10 of the CGST Act, 2017.
While reporting the expenditure under this head, the following should be considered:
- a) A composition dealer cannot charge GST in the invoices.
- b) A composition dealer cannot make inter-State supply.
- c) A composition dealer can issue only bills of supply and not a tax invoice.
- d) The composition dealer should have mentioned the following words at the top of the bill of supply issued by them.
82.11 In case of ineligible input tax credits which are blocked under section 17(5) of the CGST Act, 2017 or in case of purchases from persons registered under composition levy, it is a normal practice of the small and medium taxpayers not to mention the GSTIN of the said suppliers in their accounting software.
Hence, a suitable remark / reference in this regard by the tax auditor may be included in the report.
82.12 Expenditure relating to other registered entities is furnished in Column 5. Value of all inward supplies from registered dealers, other than supplies from composition dealers and exempt supply from registered dealers, are to be mentioned here.
82.13 The language used in sub-heading of Column 6 is total ‘payment’ to registered entities. The word ‘payment’ should harmoniously be interpreted as ‘expenditure’ as the combined heading of columns (3), (4), (5) is ‘Expenditure in respect of entities registered under GST’. Hence, the total expenditure in respect of registered entities i.e., sum total of values reported in columns (3), (4) and (5) should be reported in Column 6.
82.14 Expenditure relating to entities not registered under GST (Column 7): The value of inward supply of goods and/or services received from unregistered persons should be reported here. It should be ensured that the total of columns 6 and 7, tallies with the amount mentioned in column (2) except to the extent of expenditure/ allowance mentioned in para 8.2. and 8.3. The auditor may retain the reconciliation prepared by the assessee for verification.
82.15 In the table under clause 44, the language used is “expenditure in respect of”. Since, the word used is ‘expenditure’, it is necessary that the capital expenditure should also be reported in the format prescribed. Separate reporting of capital expenditure will provide ease in reconciliation.
82.16 This report may be prepared for an entity as a whole or for a branch thereof, as may be audited and accordingly the information in these columns may have to be filled up consolidating the expenditure incurred under various GST registrations.
82.17 In order to verify the details filled in, the tax auditor needs to obtain from the assessee the required details in the below tabular format (an illustrative format which may be modified by the Tax auditor according to the facts and circumstances). The Tax auditor should verify the details furnished with the underlying document on a test check basis and retain the same as part of his working papers.
- Expenditure head
- Name of the entity to whom payment is made
- GSTIN of the entity
- Value debited to expenditure
- account Value for which input tax credit is taken
- Total amount paid to the vendor
- Reason for NIL GST
- General Remarks, if any
82.18 An appropriate disclosure should be made by the Tax auditor in Form 3CA/3CB, as the case may be, for the view taken by the assessee in relation to the meaning of “Total expenditure” and the method of filling up the appropriate columns. If the assessee is not in a position to give the details as required in clause 44, an appropriate disclosure/disclaimer may be made by the auditor in Form 3CA/3CB. Where the assessee has provided reason for not being able to provide details, the same may be reported, if found appropriate.