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For the month of March’18, GSTR 3B needs to be filed by 20th April’18. Considering the fact that this is the first closing year in GST, assesses should take care of the following points before GST returns are filed for Mar’18. Further, this is also important from the perspective of GST Annual Returns and GST Audit (Reconciliation) to be carried out FY 17-18 on or before 31st December, 2018.

       1. Transition Credit:

For the GST transition credit availed on the closing balance of ST, VAT and stock assessee needs to make sure required entries are passed in the financial records. In case of Closing balance of Service tax Credit carried forward, CGST Ledger should be debited whereas in case of VAT credit carried forward, SGST Ledger needs to be debited. Further, excise credit availed on stock for which invoice is available should be debited to CGST Account and credited to Inventory.

2. Turnover:

The Assessee needs to make sure that consolidated turnover for the period July’17 to Mar’18 matches with GSTR 3B and GSTR 1. In case of any differences or instances where turnover was not disclosed earlier, then the same should be disclosed in Mar’18. For the delay in payment of tax, assessee may opt for payment of interest.

3. GST Liability appearing as on 31st Mar’18

GST liability appearing in books as on 31st Mar’18 should be matched to GST liability paid or to be paid in Apr’18. The liability of CGST, SGST and IGST should be individually tallied and not on consolidated basis. Difference if any needs to be reconciled. Further, break up of GST liability i.e., CGST, SGST and IGST should be shown separately in the financials. In case assessee is having registration in more than one state then the GST liability needs to be grouped State wise at the time of preparing consolidated financial statements. 

4. Credit Balance as per Electronic Credit Ledger:

In case if input tax credit is more than tax payable for the month of Mar’18 then the same should be shown as recoverable in the books and should be matched with the balance appearing in the Electronic Credit Ledger as per the GST Portal. Closing balance of Input tax credit should form part of the financials under Current Assets.

5. Cash Balance as per Electronic Cash Ledger:

Amount available in Electronic Cash Ledger, if any should be first utilized for payment of tax for Mar’18. In case if the same cannot be utilized then it should be carried forward to FY 18-19. This balance should also appear in the financials under Current Assets.

6. Excess Tax Paid:

In case if any tax is paid inadvertently then the same can be adjusted against actual tax liability. However, in case if tax is collected wrongly from the customer then it needs to be completely remitted to the Govt. and cannot be adjusted against other liability.   

7. Unavailed Input Tax Credit:

On detailed review of financials it can be observed that there is a very possibility that certain credits are missed out esp. in cases where the vendor would not have issued tax invoice immediately. Generally assessee’s miss out availing credit on Bank Charges, Loan Processing charges, Insurance (other than employees), expenses debited directly to prepared expenses, capital goods, credit card commission, courier charges etc. It is suggested to carry out a detailed review of all expenses and purchases to identify such instances. Any instances of unavailed credit needs to be accounted only in Mar’18 as GST returns for earlier periods would have already been filed. Further, GST law provides an option to claim unavailed credit in the following period upto September following the financial year.  

8. Late filing fees and Interest:

Considering the present GSTR 3B system which automatically populates payment challan including late filing fees, there is high possibility that such payments may have been debited directly to GST liability account instead of debiting it to rates and taxes.

9. GST Credit of tax paid under RCM.

Unlike the erstwhile ST law where credit of ST paid under RCM was available only at the time of payment, under GST there is no such restriction as the same can be availed immediately. Accordingly, credit for GST paid for Mar’18 should be availed in March itself. Detailed verification of RCM payments upto Mar’18 and corresponding credit of it needs to be carried out.

10. GSTR 2A:

Although the Govt. has temporarily suspended matching of credit and filing of GSTR 2, assessee will be still required to download GSTR 2A and consolidated upto Mar’18 to check:

    1. Whether all vendors have uploaded their invoices
    2. Whether credit of other locations or third party is appearing
    3. Identify instances where vendor has uploaded its invoice, however assessee has missed availing credit of it.   

The above exercise will be helpful to avoid any major issues to crop up during the audit and assessments.

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Posted by on in Management

The old saying “When the going gets tough the tough get going” is probably most apt to describe the current situation that most organizations are facing!  There is pressure all around – strong evidence of slowing down of the economy, inflation -prices  of key raw materials are going up, interest rates are going up all of which are clear pointers that margins are going to be under enormous pressure.  It would not be possible to increase prices under these circumstances or even maybe suicidal!

In an extremely challenging and competitive environment, like this, it is impossible to pass on all increases in costs to customers. The fact is that the customers have become very discerning with greater choices and more importantly availability of information. In such a situation if a company is desirous of increasing or retaining customers, it may even have to do it by reducing its prices without compromising on its profitability. It then becomes imperative for them to target all costs that do not add value to its products. 

It is here that companies should focus on a great opportunity to focus on “Cost of Quality”.  Like the term quality itself, the term “Cost of Quality” is used loosely and not entirely in the right context.  The term “Cost of Quality” refers to the summation of all costs associated with not delivering product or service in accordance with the requirements. These requirements can be regulatory, customer specifications or even internal.

Many organizations while monitoring performance do not measure this in its entirety effectively losing a great opportunity to manage costs.  It is estimated that in a typical organization the cost of quality would in be region of 30% of its sales, if not higher, while ideally the number should be less than half of it. The problem is that there is really no validated data but past experience does tend to point towards these numbers.

There is management quote that says that “What is measured gets managed”. A focused assessment of cost of quality will have an impact not only on the profitability of the company but on the quantum of resources that a company would require.  It could reduce the inventory requirements, make the collections more efficient and probably even impact the fixed assets acquisition.  Interest rates being high the lower the capital employed the better it would be.

There are four broad parameters under which “Cost of Quality” has to be measured under two categories.  The categories are “Cost of Non-conformance” and “Cost of Conformance”. Costs of Non-conformance include costs associated with internal failures & external failures. Conformance costs include costs of appraisal and costs of prevention.  To elaborate, internal failures would include costs associated with wastages & scrap, rework, breakdowns etc and external failures would include warranty claims, costs associated with addressing customer complaints, litigation costs etc.  Appraisal costs would include all costs associated with inspecting goods and services to ensure that they meet the specifications.  Preventive costs are costs associated with establishing good systems, training costs etc. In the ultimate analysis the first three costs namely internal failures, external failures and appraisal costs have to be brought down.  Preventive costs are proactive measures and it is the only cost that is permitted to go up though its incremental growth has to be continuously brought down.

It is strongly recommend that all costs are monitored using the four M approach – Men, Machines, Materials and Methods.  This captures all the elements of costs barring financial costs though even that is done indirectly.  The various parameters of costs of quality can be monitored under the above four heads and it would be possible to get a fairly reasonable picture of what the targets should be.  Every organization tends to have some low hanging fruits and that can easily be initial target. 

For prioritizing the target the ABC analysis of costs would be best approach where “A” items could account for about 65% of total costs, “B” 25% and “C” 10%. Invariably material and labour costs account for a significant part of the costs and that would be best starting point. It has been observed that revisiting the bill of material and checking out the ideal material consumption norms is very effective. It is critical to get back to basics and use the zero base approach where you have to justify expenditure from the first rupee. Better material specifications, choosing the right vendor are all integral part of the exercise.  We must remember that when are sourcing goods and services we not buying just products but capabilities.  Coming to manpower costs, much higher in the context of service industries, good job definitions, recruitment policies go a long way in reducing costs.

The cost of quality can also be used judiciously by companies to compensate employees as a part of their variable pay component.  This will make the employees also part of the process of cost management.

In addition to constantly monitoring cost of quality it is critical to monitor capacity utilizations. Capacity utilization monitoring helps to take dynamic pricing decisions to ensure that organizational activity is maintained at a healthy level. Again the primary metric would have to change depending on the industry, why a typical manufacturing company would monitor the capacity determining equipment a service company should be monitoring the utilization levels of the manpower. For example in a situation when the capacity utilization low it may be good idea to price a product or service below full cost recovery. That would ensure atleast partial recovery of fixed costs. From a metric perspective, it would be good idea to monitor “Overall Equipment Effectiveness” as it considers all the aspects namely availability, efficiency and quality. Best in class measures of OEE would be anything in excess of 85%.

Management of cost of quality is definitely the right route to cost optimization and strongly recommended even in good times!

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