Namaskar ! 

I hope you find this blog in the best of your health.

Since the beginning of my professional career, I have realised that one small decision can literally change everything. Every small decision you take can have a massive impact on your everyday operations.

Because of this, you must think twice before making crucial decisions in your business. The best way to avoid problems is by learning from the mistakes of other people. This Email is all about sharing one of my experiences that will help you avoid making big mistakes in your business that might look tiny in the beginning.

So, a few days ago, the Department was conducting an audit in the office of one of our clients who is associated with us for just one service. They had informed us about it, and after thinking about the Audit for a while, they told us that they would manage the Audit on their own and would not need any of our assistance.

They told us that since they had never avoided any tax and never intended to avoid GST, they have nothing to worry about.

What happened during the Audit?

The officer reviewed everything in the business and found out that they had made a handsome payment to the transporter as they had a lot of operations running in their business and a good clientele. However, the transporter to whom the payment was made is unregistered with GST.

The officer found out that our earlier client has been regularly making the GST payments with the Reverse Charge Mechanism (RCM); however, there are some problems such as:

1. Self Invoice

There is a difference in the bill date and self invoice date in some cases. Also, in some cases, the self invoice was not even generated. Further ITC is allowed on the basis of Self Invoice and not on the basis of payment of GST. So also disallow ITC where Self Invoice is required to be generated but not generated.

Generating a self-invoice on the date of the bill is mandatory in the case of RCM payments.

2. Payment Voucher

Payment Voucher was not made while making payments to the transporter, which is mandatory.

3. EWB, Multimodal and RCM

When the officer reviewed the Eway bills, he found out that the transporter had rendered services of multimodal transportation in some cases. In cases of multimodal transportation, it is mandatory for the transporter to pay the GST amount, but he did not because the transporter is not registered with the GST framework.

4. Disallowance of ITC Credit in case of RCM payment for multimodal transportation.

RCM is not applicable in cases of multimodal transportation services. However, the business had made payments of GST on their own. The business had also availed Input Tax Credit, which was now disallowed by the officer along with a penalty.

Our client requested the officer for relaxation as they had made the payments of GST on time; however, the request was denied. The officer stated that the Audit is system driven and the checks were conducted after red flags were found in the returns.

The officer fined the business with a penalty stating non-compliance, along with an order to pay back the availed ITC.

What do you think of the situation?

I can understand that you might think that the officer, in this case, is trying to harass the business for a small mistake. However, it is important to understand that the officer is right in terms of the objections raised.

Times have changed, and so has the way the Department works. These new systems and processes are mandatory, and you have to take care of them:

1. Self Invoice

The date of the self invoice and the vendor invoice must be the same.

2. Payment Voucher

Payment voucher has to be made while making the payment in RCM cases. In such cases, it does not matter if the transporter is registered with the GST framework or not.

3. Multimodal and RCM

RCM is not applicable in cases of multimodal transportation. The thing that you should know about multimodal transportation is that you can get to know the transportation type just by checking the Eway bills. You or the officer need not ask the transporter to ascertain if the delivery comes under multimodal transportation or not.

What do we learn from this incident?

This particular case tells us that small things and formalities like these can become huge issues in the future. Businesses then have to bear lakhs of rupees in fines along with facing loads of tensions.

Because of this, we recommend that you should always have a competent and reliable GST consultant on your side if you can afford his/her services. You should also take due care of all processes, even in cases of GSTR 9 and 9C.

Don't get into the thoughts of "Why should I let the consultant earn from me?" Instead, think about "How much will I save by having the consultant manage my Taxation?"

Thanks & Regards

DOST Vikash Dhanania