GST Section 35: Detailed Guide on Accounts and Records Maintenance under CGST Act

Section 35 of the CGST Act, 2017 mandates comprehensive requirements for maintaining accounts and records under the GST regime, applicable to registered persons, warehouse operators, and transporters. It covers crucial aspects such as production, supply, stock, input tax credit, and output tax, with provisions for electronic record-keeping and flexibility for certain taxpayers.

While the mandatory GST audit under Section 35(5) has been omitted since August 1, 2021, the emphasis on accurate documentation remains critical for compliance and avoiding tax disputes. This guide by AUBSP provides a detailed breakdown of the section, relevant rules, forms, and recent updates.

GST Section 35: Unpacking the Requirements for Accounts and Other Records

Section 35 of the Central Goods and Services Tax (CGST) Act, 2017, effective from July 1, 2017, as per Notification No. 9/2017-Central Tax, dated June 28, 2017, lays down the crucial framework for maintaining accounts and other records under the Goods and Services Tax (GST) regime in India. This section is fundamental to ensuring transparency, accountability, and proper compliance within the GST ecosystem. It outlines detailed requirements for various entities, from registered persons to warehouse operators and transporters, to maintain accurate and verifiable records.

Section 35(1): Obligation of Registered Persons to Maintain Accounts

This sub-section mandates every registered person to keep and maintain a true and correct account of specific aspects at their principal place of business, as mentioned in their certificate of registration. The key areas for which records must be maintained include:

• Production or manufacture of goods: This ensures a clear trail of goods produced or manufactured, crucial for assessing supply and tax implications.
• Inward and outward supply of goods or services or both: Detailed records of purchases and sales are essential for determining input tax credit and output tax liability.
• Stock of goods: Accurate stock records are vital for preventing leakage and for proper valuation.
• Input tax credit availed: A meticulous record of ITC claimed is necessary for reconciliation and compliance.
• Output tax payable and paid: This helps in tracking the tax liability discharged by the registered person.
• Such other particulars as may be prescribed: This allows for the inclusion of additional record-keeping requirements as deemed necessary by the authorities through rules.

Provisos to Section 35(1):

Multiple Places of Business: If a registered person has more than one place of business specified in their registration certificate, the accounts relating to each place of business must be kept at those respective locations. This decentralization ensures ease of access and verification for each specific business unit.

Electronic Records: The section also provides flexibility, allowing registered persons to maintain such accounts and other particulars in electronic form, provided it is done in a prescribed manner. This aligns with the push for digitization and ease of record management.

Section 35(2): Records for Warehouses, Godowns, and Transporters

This sub-section extends the record-keeping obligation beyond registered persons to include:

Every owner or operator of a warehouse or godown or any other place used for storage of goods: This ensures that the movement and storage of goods are properly documented, even if the storage facility itself is not a registered GST entity.

Every transporter: Regardless of whether the transporter is a registered person or not, they are required to maintain records of the consigner, consignee, and other relevant details of the goods being transported in a prescribed manner. This provision is crucial for tracking the movement of goods and preventing tax evasion.

Section 35(3): Power of Commissioner to Notify Additional Accounts/Documents

The Commissioner is empowered to notify specific classes of taxable persons to maintain additional accounts or documents for a stated purpose. This provision allows the authorities to impose specific record-keeping requirements based on the nature of the business or perceived risks in certain sectors.

Section 35(4): Flexibility for Certain Taxable Persons

Recognizing that some classes of taxable persons may face difficulties in maintaining accounts as per the standard provisions, the Commissioner may, for reasons recorded in writing, permit such classes of taxable persons to maintain accounts in a modified or prescribed manner. This provision offers a degree of flexibility and pragmatism in enforcement.

Section 35(5): Annual Audit Requirement (Omitted)

It is critical to note that sub-section (5) of Section 35, which mandated a GST audit by a chartered accountant or a cost accountant for registered persons exceeding a prescribed turnover limit, has been omitted with effect from August 1, 2021, by the Finance Act 2021 vide Notification No. 29/2021-Central Tax, dated July 30, 2021.

Prior to its omission, this sub-section required such persons to submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 (FORM GSTR-9C), and other prescribed documents.

The proviso to the erstwhile Section 35(5) exempted certain government departments and local authorities whose accounts are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing local authorities.

Section 35(6): Consequences of Failure to Account for Goods/Services

This sub-section addresses situations where a registered person fails to account for goods or services as per the provisions of sub-section (1). In such cases, the proper officer is empowered to determine the amount of tax payable on the unaccounted goods or services, treating them as if they had been supplied by the person. The provisions of Section 73 (determination of tax in non-fraud cases) or Section 74 (determination of tax in fraud cases), or Section 74A (inserted w.e.f. November 1, 2024, by the Finance (No. 2) Act, 2024 vide Notification No. 17/2024-Central Tax, dated September 27, 2024), as the case may be, will apply mutatis mutandis for the determination of such tax. This provision acts as a deterrent against non-compliance and ensures that tax is collected on undeclared supplies.

Relevant Rules and Forms for Section 35:

To facilitate the implementation of Section 35, several rules and forms have been prescribed:

Rule 56: Maintenance of accounts by registered persons: This rule provides detailed guidelines on the specific types of accounts and records to be maintained by registered persons, expanding on the broad categories mentioned in Section 35(1).

Rule 57: Generation and maintenance of electronic records: This rule specifies the manner in which electronic records should be generated and maintained, providing clarity on the electronic record-keeping option.

Rule 58: Records to be maintained by owner or operator of godown or warehouse and transporters: This rule elaborates on the specific records required from these entities as per Section 35(2), including details of consignors, consignees, and goods.

Relevant Forms:

FORM GST ENR-01: Application for Enrolment under section 35(2): This form is used by owners/operators of warehouses/godowns and transporters for enrolment to comply with the record-keeping requirements.

FORM GST ENR-02: Application for obtaining unique common enrolment number: This form is for obtaining a unique common enrolment number for the purpose of record-keeping under Section 35(2).

Annual Return and Reconciliation (Rule 80 & Forms GSTR-9/9A/9C):

While the audit requirement of Section 35(5) has been omitted, the obligation to file annual returns and reconciliation statements remains crucial for overall compliance.

• Rule 80: Annual return: This rule governs the filing of annual returns under GST.
• FORM GSTR-9: Annual Return: This is the standard annual return form for regular taxpayers.
• FORM GSTR-9A: Annual Return (For Composition Taxpayer): This form is specifically for taxpayers registered under the composition scheme.
• FORM GSTR-9C: Reconciliation Statement: This statement, though no longer requiring mandatory audit certification as per the omission of Section 35(5), still serves as a reconciliation of the annual turnover as declared in the annual return with the audited annual financial statement.

Conclusion:

Section 35 of the CGST Act is a cornerstone of effective GST administration. It establishes clear and comprehensive requirements for maintaining accounts and records, which are essential for self-assessment, verification by tax authorities, and preventing revenue leakage.

While the mandatory audit under Section 35(5) has been removed, the emphasis on accurate and accessible record-keeping through other sub-sections and supporting rules remains paramount for all stakeholders in the GST ecosystem. Compliance with these provisions is not merely a legal obligation but a critical element for smooth business operations and avoiding potential tax disputes.

FAQs on Section 35 of CGST Act 2017

What is Section 35 of the CGST Act, 2017?
Section 35 deals with the requirement for maintaining accounts and other records under the Goods and Services Tax (GST) regime by registered persons, warehouse operators, and transporters.

Who is required to maintain records under Section 35?
Registered persons, warehouse/godown operators, and transporters are required to maintain true and correct accounts as prescribed under this section.

What records must be maintained by a registered person under GST?
They must maintain records related to the production or manufacture of goods, inward and outward supplies, stock, input tax credit (ITC), output tax payable and paid, and other prescribed particulars.

Can GST records be maintained electronically?
Yes, Section 35 allows electronic maintenance of records, provided it is done in accordance with the prescribed manner under Rule 57 of the CGST Rules.

Is it mandatory to maintain separate records for each business location?
Yes, if a registered person has multiple places of business, separate records must be maintained at each of those locations.

What are the responsibilities of warehouse operators and transporters under Section 35?
They must maintain records of goods stored or transported, along with details of consignors and consignees, even if they are not registered under GST.

Can the Commissioner require additional documents to be maintained?
Yes, under Section 35(3), the Commissioner can notify specific classes of taxable persons to maintain additional accounts or documents.

Is there flexibility for certain taxpayers regarding record maintenance?
Yes, Section 35(4) allows the Commissioner to permit certain classes of taxpayers to maintain records in a modified or prescribed manner based on valid reasons.

What was Section 35(5) related to, and is it still applicable?
Section 35(5) previously mandated GST audit by a chartered or cost accountant for taxpayers exceeding a turnover limit, but it was omitted effective 1st August 2021.

What forms are used for warehouse operators and transporters under Section 35?
FORM GST ENR-01 is used for enrolment, and FORM GST ENR-02 is used to obtain a unique common enrolment number.

Are there any consequences for not maintaining proper records under Section 35?
Yes, under Section 35(6), if records are not properly maintained, the tax authority may treat unaccounted goods or services as deemed supply and determine tax liability accordingly.

What provisions apply if a person fails to account for goods or services?
The proper officer may initiate proceedings under Section 73 (non-fraud), Section 74 (fraud), or Section 74A (introduced in 2024) to determine tax liability.

Which rules under the CGST Rules relate to Section 35?
Rules 56, 57, and 58 relate directly to record maintenance by registered persons, electronic records, and obligations of transporters and warehouse operators. Rule 80 is relevant for annual return filing.

Is GSTR-9C still mandatory after the removal of GST audit?
GSTR-9C remains relevant as a reconciliation statement but no longer requires certification from a chartered accountant due to the removal of the audit requirement.

Is it still necessary to file GSTR-9 after the removal of audit requirement?
Yes, filing of GSTR-9 remains mandatory for regular taxpayers as per Rule 80, even though the audit requirement under Section 35(5) has been removed.

Does Section 35 apply to composition taxpayers?
Yes, composition taxpayers must maintain records as prescribed, and file GSTR-9A annually if applicable.

Is there a threshold limit for maintaining records under Section 35?
No specific turnover threshold is mentioned for maintaining records; all registered persons must comply with Section 35 irrespective of turnover.

What is the importance of maintaining GST records as per Section 35?
It ensures proper compliance, supports ITC claims, helps in self-assessment, and protects businesses from penalties and disputes during audits.

Are businesses required to back up their electronic GST records?
Yes, Rule 57 states that businesses must generate and maintain proper electronic records with suitable backup and security measures.

Can non-compliance with Section 35 lead to penalties?
Yes, failure to maintain proper records can lead to tax demands and penalties under Sections 73, 74, or 74A, depending on the nature of the default.

Does Section 35 have any link with GST return filing?
Yes, accurate record-keeping under Section 35 is essential for filing returns like GSTR-1, GSTR-3B, GSTR-9, and GSTR-9C.

Is it necessary to maintain physical copies of all GST records?
No, electronic maintenance is acceptable as long as it complies with the prescribed format and security norms under the GST Rules.

Has Section 35 undergone any major amendment recently?
Yes, Section 74A was introduced in 2024 to strengthen enforcement related to unaccounted supplies under Section 35(6).

Who can inspect records maintained under Section 35?
The proper officer under GST law is authorized to inspect, audit, and verify records maintained by a registered person or relevant entity.

What is the role of AUBSP in understanding GST Section 35?
AUBSP provides expert guidance, detailed explanations, and compliance strategies to help taxpayers understand and meet their GST obligations under Section 35.