QUESTION

DURING SURVEY OF INCOME TAX AUTHORITIES EXCESS UNACCOUNTED STOCK WAS SURRENDERED AND NOW IT IS RECORDED IN BOOKS OF ACCOUNTS. NOW UNDER GST ACT , WHETHER THERE IS ANY LIABILITY TO PAY TAX UNDER GST ACT.

ANSWER

Facts of the case:Unaccounted stock was surrendered under income tax survey and the same is now recorded in the books of accounts.

Law Applicable:
(i) As per sub section (6) of section 35;
"Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax."

(ii) As per sub section (4) of section 16;
"A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier."

Interpretation: Section 35(6) could have been invoked if the GST authorities would have conducted a search and found unaccounted stock. Since the search was conducted by the income tax authorities and now for the purpose of GST the registered person is himself recording the unaccounted stock therefore the provisions of 35(6) are not attracted.
Hence the registered person can account for the unrecorded stock and claim ITC on it. However the claim of ITC shall be time restricted by provisions of 16(4). If the time limits of 16(4) have not expired then the ITC shall be claimed.

Conclusion: Unaccounted stock can be recorded without resulting in tax liability and ITC on it can be claimed subject to time limits of 16(4).(Reply dt.23-03-2020)