Library / Goods and Services Tax: The Professional's Master Guide

23. Accounts and Records (Sections 35 and 36)

Self-assessment can be checked only against books. Section 35 and rules 56 to 58 say what records are kept and where; section 36 says for how long.

23.1 Records to be kept and where

Every registered person must keep, at the principal place of business stated in the registration certificate, a true and correct account of production or manufacture, inward and outward supplies, stock, ITC availed, output tax payable and paid, and other prescribed particulars (section 35(1)). Each additional place keeps its own records. Rule 56 adds accounts of advances received, paid and adjusted, tax paid under reverse charge, stock of goods (opening balance, receipts, supplies, goods lost, stolen, destroyed, written off or given as gifts or free samples, and closing balance), and names and addresses of suppliers and customers.

Electronic records and audit trail. Records may be kept electronically (rule 57), with proper backup so that they can be restored within a reasonable time, and must be produced on demand in legible form. Any entry in the books cannot be erased or overwritten: the incorrect entry must be scored out and the correction shown, and for electronic records a log of every entry edited or deleted must be kept (rule 56(8)). Companies also have an audit trail requirement under company law from 1 April 2023.

Job work. The principal keeps records of goods sent to and received from each job worker. Inputs must come back within one year and capital goods within three years (section 143); otherwise the goods are deemed supplied on the day they were sent out. Movements are reported in ITC-04: half-yearly by 25 October and 25 April where AATO exceeds Rs. 5 crore, and annually by 25 April for others.

Transporters and warehouses (rule 58). Owners or operators of warehouses and godowns and transporters, even if not registered, must maintain records of consignor, consignee and goods, and must enrol on the portal in ENR-01 (or ENR-02 where registered in more than one State) to get an enrolment number.

Illustration 133: Inputs not returned by the job worker

Desai Engineering, Vadodara, sent castings worth Rs. 2,00,000 to a job worker on 10 June 2025 under a delivery challan. They were not returned by 10 June 2026. The company pays the tax on 15 July 2026.

Step 1: The castings are deemed supplied on 10 June 2025. Tax at 18% = Rs. 36,000 (CGST Rs. 18,000 + SGST Rs. 18,000), due with the June 2025 GSTR-3B by 20 July 2025.

Step 2: Delay from 21 July 2025 to 15 July 2026 = 360 days.

Step 3: Interest = Rs. 36,000 x 18% x 360 / 365 = Rs. 6,391.

Result: Tracking challans monthly would have avoided this cost.

23.2 Retention period and consequences

Records are kept for 72 months from the due date of the annual return (section 36); where an appeal, revision, proceeding or investigation is pending, until one year after its final disposal if later. If goods are not accounted for in the books, the officer determines tax on them as if they had been supplied (section 35(6)), through the demand provisions (section 73, 74 or 74A as applicable).

Illustration 134: Retention period and unaccounted stock

Bansal Traders files GSTR-9 for FY 2024-25; the due date was 31 December 2025. During an inspection in 2026 the officer finds stock of Rs. 3,00,000 (taxable at 18%) more than the book stock.

Step 1: Keep FY 2024-25 records till 31 December 2031 (72 months from 31 December 2025).

Step 2: Excess stock not in books is treated as supplied: tax = 18% of Rs. 3,00,000 = Rs. 54,000, demanded with interest and penalty under section 74A.

Practice note

Records checklist for a GST audit or inspection: purchase and sales registers reconciled to GSTR-1 and GSTR-2B; stock register reconciled with physical stock; ITC register showing reversals under rules 37, 37A, 42 and 43; RCM register with self-invoices and payment vouchers; job work challan register tied to ITC-04; e-way bill and e-invoice logs; credit and debit note register with IMS actions; copies of all returns, challans and notices; and the audit trail log of the accounting software.

Chapter summary

• Records are kept at the principal place of business and at each additional place for its own transactions; electronic records need backup and an audit trail.

• Rule 56 covers supplies, stock, ITC, advances, RCM and customer and supplier details; entries may not be erased or overwritten.

• Job work goods must return within one year (inputs) or three years (capital goods), or they are deemed supplied on the date sent; ITC-04 is filed half-yearly or annually.

• Retention is 72 months from the due date of the annual return, longer where proceedings are pending; unaccounted goods are taxed as if supplied.

PART F: RETURNS, PAYMENT AND REFUNDS

Reporting, paying and getting money back

Documented supplies must be reported, tax paid through the right ledger, and excess tax or credit recovered. Returns are now largely auto-populated and locked, so invoice-stage errors flow straight into liability. This Part covers returns, payment, interest, TDS and TCS, and refunds.