Pedestrians walk past an Idea Cellular Ltd. and a Bharti Airtel stores in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Directorate General Of Audit To Scrutinise Service Firms’ Accounting Software

In order to prevent incorrect allocation of Goods and Services Tax revenue among states, the Directorate General of Audit has been asked to scrutinise the accounting software of large service providers like banks and telecom companies, an official said.

The issue concerning allocation of revenue in case of inter-state supply of services was raised by some states during high-level meetings between the central and state tax officers to analyse reasons for GST revenue shortfall, the official added.

Some states have expressed apprehension that service providers might not be depositing the taxes collected from customers to the state exchequer where they are rightfully due. Instead, they are depositing in some other states where they are not due as per the GST rules and regulations of Place of Supply.

Under the PoS rules, the taxes are required to be paid at the place of consumption. However, in case of services, it becomes difficult to identify the place of consumption and hence, the GST regulations have laid down elaborate rules for appropriation of taxes by states.

Also read: GST Collections Cross Rs 1 Lakh Crore Mark In September

The Directorate General of Audit has been asked to give its report within three-four months.

The official said that since GST is a new tax, it is likely that the service providers, especially banks and telecom companies, may not be depositing the taxes to the correct states.

Here’s how PoS rules differ across services:

  • Banking and financial services: The PoS is the location of the recipient of the services. However, in case the location is not known, the PoS would be deemed to the location of the supplier of services.
  • Post-paid mobile connections: The PoS is the billing address of the recipient.
  • Pre-paid vouchers for mobile, internet or home television: The PoS would be deemed to the address of the selling agent or distributor as per the record of the supplier.
  • Online recharges: The place of depositing GST will be the address of the recipient of service on record with the telecom companies.
  • Hospitality industry: The PoS would be the location of the immovable property.

Similar regulations have been laid down for other services like insurance, passenger transportation and transportation of goods including by mail or courier.

The Directorate General of Audit would go into the details of software being used by service providers to ensure whether the GST collected is flowing to the states as specified under the regulations, the official said.