Improving Your Internal Audit Reports: Expert Tips By VGNC


A good audit report should lead to essential information and separate the identified risks into those affecting the single business unit and enterprise as a whole. It should also embed links to assist the reader in finding what they need.

All auditors produce reports after completing the auditing process. It is a standard activity expected by management and other stakeholders of the company. The audit report records the result of the audit procedure which becomes the foundation of sustainable growth and improvement in the organization.

If you want to achieve stable growth, you need to focus on making your internal audit reports clear and effective. A high-quality audit report helps the management to make informed and timely decisions.

Why You Need to Improve Your Audit Report

To Increase Visibility

As the audit reports are distributed to the internal stakeholders and external auditor, the reports must provide clear information that is neither overstating nor understating the facts. The accurate picture of risk and control environment is useful for management.

For Credibility

Internal audit reports review complex and strategic risks faced by your organization. Auditor builds an understanding of business and other associated risks to demonstrate them clearly in the report. If credibility is not demonstrated, internal audit report might not have the same impact.

Communicating Business Value

Audit reports showcase the business priorities, risks and improvements failing to link it with your priorities.

Avoid Clustered Decision

The tendency to cluster results which might lead to inadequate knowledge of actual risk exposure.

Internal Audit & Retail Supply Chain Audit Services | VGNC, Delhi NCR

Tips to Improve Audit Reports

These are some of the most common mistakes which call for improvement in the audit report. Most of the mistakes are easy to avoid through use of the better template, good writing, and streamlined audit process.

With the growth of technology, most of the departments count on electronic distribution of audit reports. Periodic summaries of the audit are digitally provided to the audit committee. Your management uses the mobile electronic device to review reports.

The audit report improvement that you need to make to be in tune with current trends are:

  • You must lead your audit report with important information. The audit report must embed links in the text allow easy navigation to detailed information as needed.
  • You must divide your audit reports into parts that effectively demonstrates the result of the audit engagement including isolating risk impacts on your company.

In the end, we can conclude that clarity of internal audit report is necessary for its effectiveness and to make improvements in the procedures of your company.

Inventory & Supply Chain Consultancy Services - VGNC, Delhi


Ways to Incorporate Strategic Objectives into Internal Audit Plan

Internal auditingteams must check whether or not your company is incorporating its strategic objectivesin audit plans and other operational concerns.


Your company will face existential risk due to strategic risks. Strategic risks may cause 80% damage to your company’s market share. Often, internal audit teams spend the majority of their time on operational and financial audits ignoring the strategic risks.

Although all these areas are crucial, audit teams need to incorporate your company’s strategic objectives into their audit plan. This will help you to gain an insight of whether or not your company is on the right track or not.

At VGNC, we believe that internal audit is incomplete without incorporation of strategic objectives. Today, we will discuss a few methods using which you can incorporate your company’s strategic objective in your audit plan.



One of the popular approaches used in investing, this method can help you to ensure that your audit plan gives a satisfactory record of your company’s strategic priorities. It is one of the best ways to gather information and insight about whether your company and its employees are true to the strategic objectives.

Information is collected from unit-level processes that have a strong impact on corporate objectives of your company. We encourage our clients to make enterprise level goals the core of their annual audit. Our clients were able to identify strategic procedures that need careful scrutiny.



Basically, it is the starting point of all the corporate strategic objectives. In this method, you can make organization-wide drivers that have strategic value an essential input while creating a new audit or risk assessment plan.

In this type of audit, the analysis begins with the identification of strategies that is of highest value to stakeholders. The functions and processes are evaluated while keeping their specific contribution to these strategic objectives in mind.

The audit projects are first grouped into the themes of strategy and then aligned with the enterprise risk. Value driver analysis is used to filter all the potential engagement for final selection. The focus is laid on the process that is creating the most value for your company.

The Hybrid

This method is a perfect blend of both top-down and bottom-up method. This blended approach ensures the strategic plan and objectives of your company are accounted for. The information is diligently collected through management interviews to avoid any kind of wrong information or missing information.

Whether the corporate objectives are to be met or not based on strategic planning is verified at a high level. Further drilling is done by asking detailed questionnaires during management interviews. This helps the audit team to understand unit strategies for your business. The result of risk assessment and audit is in tune with business and enterprise- level strategies.

These are some methods that help you to incorporate strategic objectives of your business into your audit plan. A right internal audit consulting partner can help you to achieve long-term goals by ensuring that your corporate goals are prioritized right from the unit level.





5 Inventory Metrics that Every Retailer Should Track

If you are running a retail business, exercising inventory control and efficientlymanaging inventory is of utmost importance to maintain the stability of your business. By knowing and looking after right inventory metrics, you can avoid both surplus and deficit in your warehouse which is cost effective.

Springboard Retail Blog _ inventory KPI

In this post, we are going to discuss top inventory metrics that you need to track as a retailer. Let’s get started:

  1. Margin Return on Investment

Gross margin return on investment or GMROI helps retailers to know what they are getting back in return in return for what they have spent. You measure the profit return you are getting the funds that you have put in your inventory. The formula of GMROI: gross returns/average cost of inventory. While there are many other inventory ratios and functions, GMROI is one of the most crucial metric that retail owners track to optimize their inventory process.

By calculating GMROI, retailers can find the proportion of profit made against the scarce resources that take up your warehouse or storage space.

If you have limited space, you can calculate profit generated per square foot of your storage space that the inventory occupies. In case you have limited monetary resources, you can streamline your inventory by focusing on profit generated per average stock held. Thus, you can make better decisions under various circumstances.

  1. Inventory Turnover

Inventory turnover or stock turn is a metric that calculates sell through against the stock held. This metric gives a clear picture of sales versus items stocked. As a retailer, high inventory turnover ratio is favorable for your business because it is an indicator that you are selling more than you are stocking.

The stock turn is calculated using a formula: the cost of goods sold/ average inventory

You can track your efficiency by using this formula. Higher inventory turnover ratio means that you are investing less in inventory for generating the profitable level of sale. This ratio can be calculated for both shorter and longer time periods (if the periods are consistent).

If your business is a highly seasonal one, you can look into shorter time periods to track inventory in high vs. low seasons.

  1. Performing Product

For a retail owner, knowing top performing products and least performing products is crucial. Using product performance metric, you will be able to make informed decisions on many issues, including:

  • What product should be stocked up?
  • What items need a promotional push to perform better?

Many crucial actions such as stock orders,merchandising, advertising and promoting, etc. depend on product performancemetric.


If you apply the 80/20 rule to maintain your inventory stock, product performance is the first metric and at times the only metric you must look at. By comparing stock orders and sale reports, you can find top performing and slow performing products.

  1. Shrinkage

Shrinkage refers to the difference between the amount of stock appearing of the paper or records and the actual stock available physically. This reduction in sales is not caused by sales rather it is caused by reasons including, shoplifting, supplier fraud, administrative errors and employee theft.

Shrinkage is the value of physically verified inventory deducted from closing inventory valuein the books. The shrinkage in value is divided by sales and then multiplied by100 to get a percentage.

According to many national and international standards, favorable shrinkage is 1.38%. Measuring shrinkage not only allows you to find out all the risk factors but also helps you in finding solutions that promote inventory accuracy.

Tips to reduce shrinkage:

  • You must regularly count your inventory to spot, prevent and address shrinkage
  • Physical verification of stock helps in reducing shrinkage to a great extent
  • Use technology or hire special staff to physically count your inventory
  1. Sell-Through Rate

When you put the percentage of units sold against the stock available to be sold is known as sell-through rate. It is calculated by dividing the number of units sold by opening stock multiplied by 100. This metric allows retailers to make informed decisions about slow performing products such as announcing discount. You need to focus on improving your sell-through rate.

The mentioned 5 inventory metrics allow retailers to enhance the accuracy of their inventory and magnify the profits. Retailers can improve inventory management and inventory control by calculating these five inventory metrics.



By what method will Corporates be able to take advantage of the Input Tax Credit System in the GST Era?

Taken off on the first of July, GST has recorded a noteworthy change in India’s duty changes and has supplanted an extent of circuitous focal and state demands. This change is not just going to achieve a positive change for FMCG organizations yet has additionally figured out how to evacuate excess changes which faultfinders contended, have blunted financial intensity in the nation.

One such tremendous change is the end of falling impact of charges which was generally predominant in the past administration. With the presentation of information assess credit over the production network (from the assembling stage till it achieves the customer) and crosswise over state fringes, GST will make the progress simple and consistent for organizations and organizations with regards to guaranteeing input impose credit (ITC). How about we feature a portion of the fundamental purposes of ITC which will enable you in understanding all that you to need to think about how corporates remain to pick up from ITC under GST.


How is ITC set to profit organizations under GST?

Before we get into the low down, here are a few guidelines each association must follow keeping in mind the end goal to guarantee ITC under GST:

  1. Any association who expects on guaranteeing ITC must have every single supporting report, for example, impose receipt, charge note, supplementary receipt, and so on.
  2. ITC can be asserted just if the Input Tax has been paid through electronic money record or electronic credit record.
  3. For any merchandise which are gotten in parts, ITC can be asserted by that association simply after they have gotten the last parcel.


How about we us now abide into how organizations remain to profit:

  • Generally, when an organization purchases crude materials to fabricate an item, the organization is subject to pay impose on it. Additionally, the organization likewise needs to pay assess on the completed great which brings about twofold tax collection. Under GST, organizations would now be able to decrease this assessment occurrence by essentially paying the rest of the expense risk. Also, If the duty paid on these sources of info work out to be higher than the expense on the yield, the abundance charge paid can be asserted as a discount. This diminishment, thusly, will help bring down the last cost of items and this advantage can be passed onto customers through lower costs.
  • Automobile and customer durables producers would now be able to hurl a moan of alleviation as under GST, for change arrangements, the framework now concedes them extra time to convey forward info impose credit for 90 days, rather than the prior arrangement of 60 days.


  • Under GST, input charge credit on products and enterprises not proposed to be utilized “over the span of business” or “for the encouragement of a business” won’t be qualified for ITC. It ought to entirely have been utilized just for business purposes. This essentially implies ITC can’t be guaranteed for merchandise and administrations utilized for individual purposes.


  • In request to keep away from any potential fakes or income spillage for the administration, GST rules for asserting information charge credit has been fixed which involve that the purchaser can’t guarantee enter assess credit unless the provider has really paid the important duty or guaranteed input credit.


  • ITC can be guaranteed just on the off chance that you are in the receipt of real merchandise and ventures as it were.


  • Under GST, any organization engaging a business client or partner for lunch, or so far as that is concerned any great or administration with the end goal of corporate social duty, the organization will be qualified to assert the credit on assess paid. Be that as it may, for this situation, there are special cases to the case, for example, any commitment towards representative provident reserve and auto rent, which are not secured under ITC.


  • Companies can benefit ITC on assessable and zero appraised supplies, for example, sends out.


  • Shareholders of corporates additionally remain to increase attributable to the accessibility of ITC for merchandise and ventures as it will ease up money streams and which, thusly, will help in boosting better efficiencies for organizations all in all. Moreover, attributable to ITC, organizations likewise can profit by better funds and proficient and powerful sending of assets.


  • Although rental taxis are still let well enough alone for the domain of GST, similarly as they were under CENVAT, GST permits ITC for the utilization of taxicab benefits by ladies for their security and for physically tested people as commanded by law. Likewise, any wellbeing or extra security for the individuals who work in risky callings is additionally material.


  • For merchants and organizations, in the event that IGST has been paid for merchandise, a credit of 30 for every penny is allowed for those exhausted at 18 for each penny or above and 20 for each penny for things burdened at bring down rates.

Real Estate and Construction Industry: Pre & Post GST

The never ending litigation of taxation relating to works contracts, particularly in construction industry and more particularly & challenging in real estate industry, gets a fresh turn in GST regime. Let us travel through the recently retired regime of works contract in pre GST, to newly born GST regime, presently grappling with transitional issues. The subject is a little lengthy, hope you stay the length of present Article.

Works Contract under Pre-GST: Service Tax Law

The Service Tax Law was reincarnated on 1st July 2012 when the concept of Negative List came into being. In this Negative list Regime, a new sec 66E was introduced to specify certain services as “declared services” wherein two clauses (b) and (h) of Sec 66E dealt with cases of a Works Contract.

Clause (b) to sec 66E:                   Construction of a complex, building, civil structure including a complex or building indented for sale to a buyer except where the entire consideration is received after the completion certificate.

Clause (h) to sec 66E:                   Service portion in the execution of a Works Contract.

It is interesting to note that though the services declared in clause (b) relating to construction of complex as above very much falls within the meaning of Works Contract in clause (h), but still the legislature in its wisdom specifically also declared the construction of complex service separately in clause (b). It seems as if it has been done as an abundant caution to ensure that House Buyer Agreements (HBA)/ Builders Buyer Agreements (BBA) entered into by Real Estate developers with the prospective buyers of apartments, if in litigation are upheld as out of the meaning of Works Contracts under clause (h), still the Government can levy service tax under clause (b). However, the litigation went in favor of Government when the Supreme Court in the year 2013 upheld that such House Buyer Agreements by real estate developers does fall within the scope of Works Contracts, in the matter of L&T case, see full judgement at

In Pre-GST Service Tax law there were two notifications to deal with this valuation aspect of services from a Works Contract.

Valuation of Service portion in a Works Contract

It is to be noted that it is only the service portion of works contract/construction of complex, which can be the subject matter of service tax levy. A Works Contract is a composition of ‘Goods’ as well as ‘Services’ which are so intermingled with each other that it forms a Single Indivisible Composite Contract. Furthermore, in the case of House Buyers Agreement (HBA) executed by real estate developers, (which is also a Works Contract as upheld by Apex Court in L&T case supra), it is a composition of three things, undivided share in Land, Goods and Services, three of which are so intermingled that it forms a Single Indivisible Composite Contract. Thus the challenge is as to how to extract the value of service portion out of the Composite Value of such a Works Contract.

Notification No. 24/2012 dt 06.06.2012 amended rule 2A, dealt with works contracts covered in clause (h) of sec 66E i.e. other than real estate House Buyer Agreements (HBA).

(see full Notification No 24/2012 at

Notification No. 26/2012 dt 20.06.2012 amended by Notification 08/2016 dealt with abatement in case of House buyers agreements (HBA) covered in clause (b) of sec 66E in case of Real Estate.

(see full Notification No.8/2016 at

Broadly speaking in case of construction contract (original works) the valuation of service portion used to be taken at 40% and in case of real estate House Buyer Agreements (HBA) the value of service portion used to be taken at 30%.

Works Contract under Pre-GST:  State VAT Laws

By and large all State Laws dealing with VAT defined Works Contract with quite a large scope including all the agreements of building construction, manufacture, processing, fabrications, erections, installations, fitting out, improvement, modification, repair, or commissioning of any Movable or Immovable property. All the State VAT Laws levied VAT on the value of Goods transferred in the course of executing the works contracts. All state VAT laws prescribed valuation rules to arrive at the value of Goods involved in the execution of works contracts and also notified an alternate way of composition scheme whereby in lieu of VAT, specific percentage of aggregate value of turnover was levied as composition levy. Most of the contractors as well as real estate developers used to opt for composition levy instead of going by valuation as per valuation rules. That is how the VAT liability used to be discharged till 30th June 2017.

Works Contract under GST Regime

Under GST regime the very difference of ‘Goods’ and ‘Services’ has been dispensed with. The concept of sale, manufacture and provision of service has gone and only a single concept of supply (whether of Goods or Services) has been brought in.

GST Law has come up with a new concept of “Composite Supply” which broadly means a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof which are naturally bundled and supplied in conjunction with each other, one of which is principal supply.

Going by this definition of “Composite Supply” u/s 2(30) of the CGST Act, one can appreciate that all works contracts very much fall within the meaning of Composite Supply.

Further the concept of Works Contract has been redefined under the GST Law u/s 2(119) of CGST Act whereby the works contracts pertaining to movable property have been excluded from the definition of Works Contract and therefore only works contracts relating to immovable property fall within its statutory definition u/s 2(119). Thus in GST regime the hitherto concept of Works Contract gets bifurcated into

  • Works Contract (Immovable Property) covered u/s 2(119) of CGST Act
  • Works Contract (Movable Property) excluded from statutory definition of Works Contract and classified a Composite Supply u/s 2(30) of CGST Act.

Taxation of works contracts (Immovable Property)  u/s 2(119)

Like under Pre GST Service Tax law, the GST Regime has come up with Schedule II (Para 5 & 6) to declare certain supplies to be treated as supply of services. The clauses (b) and (h) of erstwhile sec 66E have been reintroduced as clause (b) of Para 5 & clause (a) of Para 6 to schedule II of CGST Act.

Clause (b) of sec 66E pertaining to construction of complex services has become clause (b) of Para 5 of Schedule II

Clause (h) of sec 66E pertaining to works contract service has become clause (a) of Para 6 of schedule II

The appreciable improvement is that in case of real state, apart from completion certificate, the first occupation of the Complex has also been given the sanctity of completion of the project irrespective that completion certificate of the project is awaited, thus after actual occupation of the complex, there will be no liability of GST only because the completion certificate is awaited from competent authority where delay is a routine.

Hence the application of brute force to composite works contracts to extract the value of goods and services for the levy of VAT and Service Tax, is no longer required, as under GST regime the works contracts is essentially service by deeming provision of declared services incorporated under schedule II of GST regime.

Rate of Tax:               The GST rate as per notified tariff via notification 11/2017-Central Tax (Rate) dated 28.06.2017 under CGST Act is 9% as per Serial No. 3. Equally 9% is the rate under SGST, thus a combined GST rate is 18%. However in case of Real Estate House Buyers Agreements (HBA) which involve value of Land also, there is a provision of abatement of 1/3rd value as per Para 2 of the aforesaid notification, thus the effective rate in case of Real Estate is 12%.

Input Tax Credit:     Full ITC u/s 16 (CGST Act) will be available on all inward supply of Goods/Services including Goods/Services under reverse charge, used as inputs for supply of works contracts service as per ITC rules. Provided in case of Real estate any excess ITC over output GST liability, will not be eligible for any refund.

At times there is a doubt raised whether clause (c) and clause (d) of sec 17(5) which restrict the ITC in relation to an immovable property, would pose any problem in availment of ITC in construction & real estate industry as both industries deal in construction of immovable property only. The author’s view is abundantly clear that the aforesaid doubt is absolutely unfounded and clause (c)/(d) of sec 17(5) has no application and there is no restriction at all in availing ITC because of these clauses of sec 17(5).

Transition from Pre GST to GST regime

The transition provisions are provided under chapter XX of CGST Act. Broadly the ITC pertaining to stock as on 30 June 2017 is allowed to be carried forward under GST regime. There is no composition scheme under GST regime and the construction industry has to maintain all books of accounts and inward supply record, to claim ITC from output liability on execution of works contract classified as supply of service.

In case of Government contractors they need to close their sales invoices which practically consist of completion of measurement books (MB) in government (Contractee) records. The MB completed and recorded till 30 June 2017 will remain under Pre GST regime while the MB prepared from 1st July 2017 onwards will attract full rate of 18% GST under new regime. For Government contractors with low inventory of WIP as on 30th June 2017, it will lower their tax burdens as their ITC on stock as on 30th June 2017 is likely to be low impacting their cash flow in new regime. Further the construction contractors and particularly government contractors need to revisit their construction contracts to ascertain the burden of additional tax liability under GST and to renegotiate with contractee as per revised costing under GST regime.

Taxation of Works Contracts (Movable Property) u/s 2(30)

All works contracts relating to movable property are no longer a works contract under statutory scheme of GST but rather all such works contracts relating to movable property are simply a case of composite supply u/s 2(30) of CGST Act. Therefore the rate of GST will be decided on the basis of “Principle Supply” under such works contracts (movable property). If the principle supply is that of services then the applicable GST rate on respective service will apply, and if the principle supply is that of Goods, then the applicable GST rate of such principle supply of goods will apply. Thus in GST regime, the theory of dominance test is back under the nomenclature of principle supply.

Full ITC u/s 16 (CGST Act) will be available on all inward supply of Goods/Services including Goods/Services under reverse charge, used as inputs for supply of works contracts service as per ITC rules.


Now under GST regime there is no mandatory extraction from composite value of Contract, to arrive at the value of Goods and Services separately but rather it is an issue of classification of works contracts (movable property) on the basis of principle supply. Thus now under GST the entire works contract (movable property), either it is a supply of goods or supply of service as decided as per dominant test called as principle supply test.

So far as the works contract (immovable property) is concerned, it is essentially a supply of service by virtue of schedule II.


Reverse Charge Mechanism (RCM) under GST Regime

The Reverse Charge Mechanism (RCM) under GST Regime is two-fold.

Case1:   Specified Supplies- Sec 9(3) of CGST Act

Case 2:  Supplies from Unregistered Persons- Sec 9(4) of CGST Act

Case1:   Specified Supplies- Sec 9(3) of CGST Act

Sec 9(3) authorizes the Government to notify the specific supplies of Goods and/or Services to be covered under Reverse Charge Mechanism (RCM) whereupon it is not the Supplier of Goods/Services who will be liable to pay GST, but instead it will be the Recipient of Goods/Services who will be liable to pay. Such Recipient of such notified Goods/Services is compulsorily required to take registration in GST as per the provisions of clause (iii) of Sec.24 of the CGST Act.

The Government exercising its above authority u/s 9(3) of the Act has already issued two notifications to specify the Goods/Services covered under RCM.

  1. Notification No. 4/2017- Central Tax (Rate) dated 28.06.2017 comprising of FIVE items of Supply of Goods. To see full Notification visit at
  2. Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 comprising of NINE items of Supply of Services. To see full Notification visit at

Thus on these FOURTEEN items of Supply of Goods/Services, GST liability is to be paid and discharged by the Recipient of these Goods/Services under RCM u/s 9(3) of the Act.

Therefore every Recipient as specified in above Notification(s) pertaining to FOURTEEN items is mandatory required to get Registration u/s 24 of the Act irrespective of the fact whether his Output Supply is taxable or not, likewise whether or not his aggregate turnover of outward supply exceed 20 Lacs or not.

Here the Recipient of such specified Goods/Services who are otherwise not liable for Registration may plan their procurements in such a way so as to avoid liability under RCM, to the extent possible. For instance, one can plan to procure his inward supplies where the liability to pay freight to any Goods Transport Agency (GTA) is assigned on the part of Supplier only such that no payment is made to any GTA by the purchaser and thus he may avoid GST on such freight under RCM and resultant requirement of Registration u/s 24 of the Act.

Case 2:  Supplies from Unregistered Persons- Sec 9(4) of CGST Act

While case 1 under section 9(3) deals with specified items of Supply (at present FOURTEEN items as per two Notifications supra) and clause (iii) of sec 24 correspondingly mandates compulsory Registration for the Recipient of these Specified Supplies, Case 2 incorporates another scenario of RCM u/s 9 (4) of the Act which comes into picture only when the Recipient of Goods/Services is a Registered person. Thus section 9(3) and 9(4) operates in a little different domain, whereas Sec 9(3) mandates Specified Supplies and correspondingly sec 24 mandates compulsory registration, sec 9(4) is dependent on the Registration of the Recipient and applies only if the Recipient is already registered under GST.

Sec 9 (4) provides that in case of all the supplies of all the Goods and/or Services (as contrasted with specified supplies in case 1) by a Registered Person from any person who is not Registered under GST, the liability of GST on all such inward supplies by the Registered person shall be paid and discharged by such Registered Person in the capacity of the Recipient of Goods/Services.

Thus as a general principle every Registered person should try to procure all his inward supplies of Goods as well as Services from registered persons only to avoid the compliance of RCM u/s 9(4) of the Act. However with each registered person there are bound to be certain petty supplies from unregistered suppliers which are unavoidable. To take care of such unavoidable petty supplies and to save such petty supplies from the rigor of RCM u/s 9(4), a Notification No. 8/2017-Central Tax (Rate) dated 28.06.2017 has been issued u/s 11 of the CGST Act, whereby intra-state supplies of Goods/ Services has been exempted from RCM under sec 9(4) provided that the aggregate value of such supplies from all such unregistered  suppliers doesn’t exceed an outer limit of Rs. 5000 per day. To see full Notification visit at

After going through the provisions of sec 9(4) of the Act, one may wonder that the exemption limit of Rs.20 lacs from registration under GST is merely eyewash as in any case the levy of GST doesn’t spare any supply. It only shifts the liability from the Supplier to the Recipient if turnover is below 20 Lacs and otherwise if it is above 20 Lacs the liability is already there on the Supplier to pay GST. For instance, If a Registered Supplier takes a Factory Premises or Office Premises on Rent from a local individual who is not liable to be registered under GST as his aggregate turnover doesn’t exceed Rs.20 lacs, though that individual landlord will not pay any GST, but the Recipient being a Registered Supplier, shall pay GST on such rental outflow under RCM as per sec 9(4) of the Act. Thus, Government doesn’t lose a single penny of tax, on account of exemption limit.

Smart Move, someone has to pay.

Input Tax Credit (ITC) of GST paid on inward supplies of Goods/Services under RCM covered u/s 9(3)-Specified Inward Supplies as well as u/s 9(3)- Supplies from Unregistered Suppliers.

The GST paid under RCM as per sec 9(3)-Specified Supplies as well as sec 9(4)-Supplies from Unregistered Persons, both, shall qualify to be credited as ITC under sec. 16 of the Act. Here a question arises that these inward supplies will dominantly be without any Tax Invoice except in some cases of specified supplies u/s 9(3) where the supplier might have registration; then for such supplies without inward Tax Invoice, as to how the requirement of having a Tax Invoice will be fulfilled to avail ITC as per section 16(2) of the Act. The answer lies in clause (f) of sec 31 (1) which authorizes the Registered Person – the Recipient himself, to issue a Tax Invoice on self (consolidated daily self-invoice) in respect of Goods /Services received by him as covered under sec 9(3) as well u/s 9(4), wherever required. Thus the absence of Inward Tax Invoice is no hurdle in availing ITC of input tax paid under RCM- whether u/s 9(3) or 9(4) of the Act.

Further in case of regular supply (not covered under RCM) if the Recipient fails to pay the value of supply to the Supplier within 180 days from the date of Inward Invoice, the ITC originally availed is added to output tax liability along with interest thereon. However in case of inward supplies covered under RCM u/s 9(3) and/or sec 9(4), there is no such compulsion to pay the value of supply within 180 days and no liability of payment of ITC arises after non-payment beyond 180 days.

One may logically argue that this discrimination between Regular Inward Supply and RCM Inward Supply is arbitrary. While non-payment of value  of RCM Supply does not burden the Recipient to pay the ITC availed then why such kind of liability arise while not paying the Regular Supply within 180 days, and particularly when input tax has been paid to the inward Supplier. This kind of unreasonable discrimination directs towards foreseeable litigation in writ courts.

Forward or Reverse- Pay Tax on each Rupee of Supply- Pay your Supplier in Time.

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