CGST Section 35 — Accounts and other records

Section 35 of the CGST Act lays down the requirements for maintaining accounts and other records by businesses registered under GST. This section is crucial for ensuring proper tax compliance and facilitating audits by tax authorities.

This section applies to every person who is registered under the Goods and Services Tax (GST) regime. It also extends to owners or operators of warehouses, godowns, or any place used for storing goods, as well as transporters, irrespective of whether they are registered under GST or not. These requirements are effective from the date of GST registration and continue as long as the registration is valid, or as long as a warehouse/godown/transport business is operating.

Here are the key conditions and exceptions stipulated in Section 35:

• Mandatory Record Keeping: Every registered person must maintain a true and correct account of the following at their principal place of business (as stated in their registration certificate):
  • Production or manufacturing details of goods.
  • Inward and outward supplies of goods or services or both (i.e., purchases and sales).
  • Stock of goods.
  • Input Tax Credit (ITC) availed.
  • Output tax payable and paid.
  • Any other details as prescribed by the GST rules.
• Multiple Places of Business: If a registered person has more than one place of business specified in their registration, they must keep the accounts related to each place of business at that specific location.
• Electronic Records: Registered persons are permitted to maintain accounts and records in electronic form, as long as they comply with the manner prescribed in the GST rules.
• Warehouse and Transporter Records: Owners/operators of warehouses/godowns and transporters must maintain records of the consigner, consignee, and other relevant details of the goods, regardless of their registration status. The specific format and details are as prescribed in the rules.
• Additional Records: The Commissioner (a high-ranking GST official) has the power to notify certain classes of taxable persons who must maintain additional accounts or documents for specific purposes.
• Alternative Accounting Methods: If the Commissioner believes that a class of taxable persons cannot maintain accounts as per the standard provisions, they can allow those persons to maintain accounts in a different manner, after recording the reasons in writing.
• Failure to Account for Goods or Services: If a registered person fails to properly account for goods or services, the tax authorities can determine the tax payable on the unaccounted goods or services as if they were supplied by that person. In such cases, the provisions related to determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or wilful-misstatement or suppression of facts to evade tax, under Section 73 of CGST Act, or determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts to evade tax, under Section 74, will apply.

Practical Examples for Business Owners:

• A manufacturer of garments needs to maintain records of the raw materials purchased (inward supply), the quantity of garments produced, the stock of garments, the ITC claimed on inputs, and the GST collected on the sale of garments (outward supply).
• A restaurant owner needs to keep records of the food items purchased (inward supply), the food items sold (outward supply), the stock of ingredients, the ITC claimed, and the GST collected on sales.
• A transporter needs to maintain records of the goods being transported, including details of the sender, the receiver, the value of the goods, and the vehicle number.

Important Amendments:

Sub-section (5) of Section 35, which mandated GST audit if turnover exceeded a prescribed limit, was omitted effective from 1st August 2021. Therefore, GST audit is not a mandatory requirement anymore.

Also, section 74A was inserted with effect from 16th August 2024, which now enables the authorities to invoke the provisions related to tax determination not only under sections 73 and 74, but also under 74A in case of failure to account for goods/services.

In conclusion, Section 35 is a critical part of GST law that businesses must understand and comply with to avoid penalties and ensure smooth operations. Maintaining accurate and complete records is essential for GST compliance.