Government of Rajasthan

Commercial Tax Department

Office of the Deputy Commissioner of State Tax Unit-B Business Audit Wing-III,
Rajasthan, Jaipur
No.: Date:
ANNEXURE XIV
Draft Audit Report No. 01 / 2021-22

PART-I
1 Name & address of the taxable person M/s SANKALP INTERNAIONAL
Status & category of the taxable
2 Manufacturer, Wholesaler, Exporter
person
Zone: Jaipur-IV
3 Circle & Zone in which it is located Circle: A
Ward: CTO
4 GSTIN 08AAKFS4376D1ZZ
5 Trading and their tariff heading Wooden Furniture Parts
Brief description of the Assesses
6 (manufacturer/ trader/ service **Mentioned Below**
provider etc.)
Name of output service/service
7 received for which their liability to Seasoning, GTA
pay under reverse charge
Gist of main exemption notification
8 N.A.
No. Availed
2017-18
Year
(July 2017to March 2018)
Value (Taxable) 57,17,12,100.32
9 GST paid (in Rs) (Goods) IN cash 35,68,560.00
In credit 29,98,263.00
Ratio 3568560: 2998263
(Cash: credit) (1 : 0.84)
10 Date of last audit First Audit
Date on which current audit
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undertaken
1. Naved Ali Zaidi,
Deputy Commissioner of State Tax
2. Sashi Bhushan Baswala ,
12 Name of the Audit officers (Team)
Assistant Commissioner
3. Nitesh Agarwal, State Tax Officer

Period for which current audit under

13 July 2017 to March 2018
taken
14 No. Of procedural paras 01
15 No. Of revenue paras 05
16 Total revenue involved in audit paras 3,51,27,291.00
17 Date of MCM 11/03/2022
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 ** Brief description of the Assessee (Taxable Person)**
M/s SANKALP INTERNAIONAL, GSTIN- 08AAKFS4376D1ZZ which started from
01.07.2017 is a proprietor firm, which is located at F-944 Road No. 14 VKIA, Jaipur,
Jaipur is engaged in the manufacturing and trading of WOODEN FURNITURE which
are taxable at the rates 18 % Taxpayer having turnover of Rs. 57,17,12,100.32/-
during 2017-18 in GST regime.
PART-II
1- Brief description of Paras:-
Taxpayer’s
agreement
Yes/No, if
Audit Department’s
Para Revenue implication, yes, details of
Gist of Para objection conclusion
No. if any (in Rs.) payment/if
code reasons
No, reasons
for
disagreement
ITC Rs. – 261325.00
Interest Rs. -277005.00
Wrong (53 month)
Para stands
1 availment of Sec 17(5) No
Penalty u/s 73- raised
ITC
26133.00
Total – 564463.00
Tax amount Rs. -
11163430.00
Interest Rs. -
Wrongful
12056504.00 Para stands
2 availment of No
(54 month) raised
Refund Penalty Rs. -
11163430.00
Total- 34383364.00
Tax amount Rs. -
Inflated zero 9247.00 Recommended
3 Yes
rated turnover Interest Rs. – 15876.00 to be dropped
Total-25123.00
Recommended
4 Interest Rs.760(54month) Yes
to be dropped
Availment of
ITC in
violation of
Penalty amount Rs.
Penalty is
5 Section 31 & No
25000.00 payable
rule 46 of
RGST Act and
Rules 2017
Entry tax Rs. - 62418.00
Import of Interest Rs. - 66163.00 Recommended
6 Total- 128581.00 Yes
Motor Vehicle to be dropped

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2- Detailed explanation of Audit Paras: -

Para 01: - Non reversal of Excess Claimed ITC in GSTR 3B: - During the course of
audit of the records of the taxpayer, it was observed that in F.Y. 2017-18 that taxpayer
has availed ITC amounting Rs 2,21,798.00(IGST-1,04,878.00, CGST-584,60.00, SGST-
58,460.00) which is blocked under section 17(5) of RGST Act 2017 or not related to
furtherance of business. Also, ITC amounting Rs. 7,90,543.00(IGST-1,09,629.00,
CGST-3,40,457.00, SGST-3,40,457.00) is considerable under common credit rule 42 of
RGST rules 2017.
Relevant section is as follows: -
Section 16 of RGST Act 2017: -
(1) Every registered person shall, subject to such conditions and restrictions as
may be prescribed and, in the manner, specified in section 49, be entitled to take
credit of input tax charged on any supply of goods or services or both to him which
are used or intended to be used in the course or furtherance of his business and the
said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall
be entitled to the credit of any input tax in respect of any supply of goods or services
or both to him unless, ––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered
under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both. Explanation. — For the purposes
of this clause, it shall be deemed that the registered person has received the goods
or, as the case may be, services––
(i) where the goods are delivered by the supplier to a recipient or any other person
on the direction of such registered person, whether acting as an agent or otherwise,
before or during movement of goods, either by way of transfer of documents of title
to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction
of and on account of such registered person
(c) subject to the provisions of section 41, the tax charged in respect of such supply
has been actually paid to the Government, either in cash or through utilisation of
input tax credit admissible in respect of the said supply;
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or
instalments, the registered person shall be entitled to take credit upon receipt of the
last lot or instalment: Provided further that where a recipient fails to pay to the
supplier of goods or services or both, other than the supplies on which tax is
payable on reverse charge basis, the amount towards the value of supply along with
tax payable thereon within a period of one hundred and eighty days from the date of
issue of invoice by the supplier, an amount equal to the input tax credit availed by
the recipient shall be added to his output tax liability, along with interest thereon, in
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 such manner as may be prescribed: Provided also that the recipient shall be entitled
to avail of the credit of input tax on payment made by him of the amount towards
the value of supply of goods or services or both along with tax payable thereon.

(3) Where the registered person has claimed depreciation on the tax component of
the cost of capital goods and plant and machinery under the provisions of the
Income tax Act, 1961, the input tax credit on the said tax component shall not be
allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any
invoice or debit note for supply of goods or services or both after the due date of
furnishing of the return under section 39 for the month of September following the
end of financial year to which such invoice or invoice relating to such debit note
pertains or furnishing of the relevant annual return, whichever is earlier.
Provided that the registered person shall be entitled to take input tax credit
after the due date of furnishing of the return under section 39 for the month of
September, 2018 till the due date of furnishing of the return under the said section
for the month of March, 2019 in respect of any invoice or invoice relating to such
debit note for supply of goods or services or both made during the financial year
2017-18, the details of which have been uploaded by the supplier under sub-section
(1) of section 37 till the due date for furnishing the details under sub-section (1) of
said section for the month of March.

Section 17(5) of RGST Act 2017: -

input tax credit shall not be available in respect of the following, namely:
—
(a) motor vehicles for transportation of persons having approved seating
capacity of not more than thirteen persons (including the driver), except
when they are used for making the following taxable supplies, namely: —
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely: —
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in
so far as they relate to motor vehicles, vessels or aircraft referred to in
clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be
available—

(i) where the motor vehicles, vessels or aircraft referred to in clause

(a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged— (I) in the
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 manufacture of such motor vehicles, vessels or aircraft; or (II) in
the supply of general insurance services in respect of such motor
vehicles, vessels or aircraft insured by him.
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery, leasing, renting or hiring of motor

vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except

when used for the purposes specified therein, life insurance and health
insurance: Provided that the input tax credit in respect of such goods or
services or both shall be available where an inward supply of such goods
or services or both is used by a registered person for making an outward
taxable supply of the same category of goods or services or both or as an
element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness center; and
(iii) travel benefits extended to employees on vacation such as leave or
home travel concession: Provided that the input tax credit in respect of
such goods or services or both shall be available, where it is obligatory
for an employer to provide the same to its employees under any law for
the time being in force
(c) works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input
service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of
an immovable property (other than plant or machinery) on his own
account including when such goods or services or both are used in the
course or furtherance of business. Explanation. – For the purposes of
clauses (c) and (d), the expression ―construction‖ includes re-
construction, renovation, additions or alterations or repairs, to the extent
of capitalization, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except
on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or
free samples
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

Rule 42 of RGST Rules 2017: -

The input tax credit in respect of inputs or input services, which attract the
provisions of sub-section (1) or sub-section (2) of section 17, being partly used
for the purposes of business and partly for other purposes, or partly used for
effecting taxable supplies including zero rated supplies and partly for effecting
exempt supplies, shall be attributed to the purposes of business or for effecting
taxable supplies in the following manner, namely, -
(a) the total input tax involved on inputs and input services in a tax
period, be denoted as ‗T ‘; (b) the amount of input tax, out of ‗T ‘, attributable
to inputs and input services intended to be used exclusively for the purposes
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other than business, be denoted as ‗T1
(c) the amount of input tax, out of ‗T ‘, attributable to inputs and input services
intended to be used exclusively for effecting exempt supplies, be denoted as
‗T2‘;
(d) the amount of input tax, out of ‗T‘, in respect of inputs and input services
on which credit is not available under sub-section (5) of section 17, be denoted
as ‗T3‘;

(e) the amount of input tax credit credited to the electronic credit ledger of
registered person, be denoted as ‗C1‘and calculated asC1 = T- (T1+T2+T3);
(f) the amount of input tax credit attributable to inputs and input services
intended to be used exclusively for effecting supplies other than exempted but
including zero rated supplies, be denoted as ‗T4‘
(g) ‗T1‘, ‗T2‘, ‗T3‘and ‗T4‘shall be determined and declared by the
registered person at the invoice level in FORM GSTR-2;
(h) input tax credit left after attribution of input tax credit under clause (g) shall
be called common credit, be denoted as ‗C2‘and calculated asC2 = C1- T4;
(i) the amount of input tax credit attributable towards exempt supplies, be
denoted as ‗D1‘ and calculated asD1= (E÷F) × C2 where, ‗E‘ is the aggregate
value of exempt supplies during the tax period, and ‗F‘ is the total turnover in
the State of the registered person during the tax period: Provided that where the
registered person does not have any turnover during the said tax period or the
aforesaid information is not available, the value of ‗E/F‘ shall be calculated by
taking values of ‗E‘ and ‗F‘ of the last tax period for which the details of such
turnover are available, previous to the month during which the said value of
‗E/F‘ is to be calculated; Explanation: For the purposes of this clause, it is
hereby clarified that the aggregate value of exempt supplies and the total
turnover shall exclude the amount of any duty or tax levied under entry 84 of
List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II
of the said Schedule;
(j) the amount of credit attributable to non-business purposes if common inputs
and input services are used partly for business and partly for non-business
purposes, be denoted as ‗D2‘, and shall be equal to five per cent. of C2;
(k) the remainder of the common credit shall be the eligible input tax credit
attributed to the purposes of business and for effecting supplies other than
exempted supplies but including zero rated supplies and shall be denoted as
‗C3‘, where, - C3 = C2 - (D1+D2);
(l) the amount ‗C3‘shall be computed separately for input tax credit of central
tax, State tax, Union territory tax and integrated tax;
(m) the amount equal to aggregate of ‗D1‘ and ‗D2‘ shall be added to the
output tax liability of the registered person: Provided that where the amount of
input tax relating to inputs or input services used partly for the purposes other
than business and partly for effecting exempt supplies has been identified and
segregated at the invoice level by the registered person, the same shall be
included in ‗T1‘ and ‗T2‘ respectively, and the remaining amount of credit on
such inputs or input services shall be included in ‗T4‘.
(2) The input tax credit determined under sub-rule (1) shall be calculated
finally for the financial year before the due date for furnishing of the return for
6
 the month of September following the end of the financial year to which such
credit relates, in the manner specified in the said sub-rule and-
(a) where the aggregate of the amounts calculated finally in respect of ‗D1‘ and
‗D2‘ exceeds the aggregate of the amounts determined under sub-rule (1) in
respect of ‗D1‘ and ‗D2‘, such excess shall be added to the output tax liability
of the registered person in the month not later than the month of September
following the end of the financial year to which such credit relates and the said

person shall be liable to pay interest on the said excess amount at the rate
specified in sub-section (1) of section 50 for the period starting from the first
day of April of the succeeding financial year till the date of payment; or
(b) where the aggregate of the amounts determined under sub-rule (1) in
respect of ‗D1‘and ‗D2‘exceeds the aggregate of the amounts calculated finally
in respect of ‗D1‘and ‗D2‘, such excess amount shall be claimed as credit by
the registered person in his return for a month not later than the month of
September following the end of the financial year to which such credit relates.

Reply of Taxpayer: -
**Separate sheet attached**
Observation of Auditor: -
** Separate sheet attached**

Para Raised.
Para 02: - Wrongful availment of Refund: -
During the course of audit of the records of the taxpayer, for the F.Y. 2017-18(month
July & August 2017) received the higher duty drawback amounting of Rs. 23,57,340.00
at the rate of 5%, simultaneously refund (CGST+IGST) amounting of Rs. 11163430.00
(IGST & CGST) has also been received in the month of July-17 and Aug-17. So, the
taxpayer benefitted twice for drawback and refund which is violation of section 54(3) of
RGST Act 2017.
Relevant section is as follows-
Section 54(3) of RGST Act 2017: -
no refund of input tax credit shall be allowed in cases where the
supplier of goods or services or both avails of drawback in respect of central tax.
The rates and caps of drawback specified in columns (4) and (5) of the said
Schedule shall be applicable to export of a commodity or product if the exporter
satisfies the following conditions, namely: -
(a) the exporter shall declare, and if necessary, establish to the satisfaction of the
Assistant Commissioner of Customs or Deputy Commissioner of Customs, as the
case may be, that no input tax credit of the central goods and services tax or of
the integrated goods and services tax has been availed on the export product or
on any of the inputs or input services used in the manufacture of the export
product;
(b) if the goods are exported under bond or letter of undertaking or on payment
of integrated goods and services tax, a certificate from the officer of goods and
7
 services tax having jurisdiction over the exporter, to the effect that no input tax
credit of the central goods and services tax or input tax credit of the integrated
goods and services tax has been availed on the export product or on any inputs
or input services used in the manufacture of the export product or no refund of
integrated goods and services tax paid on export product shall be claimed, is
produced;
(c) a certificate from the officer of goods and services tax having jurisdiction
over the exporter, to the effect that exporter has not carried forward the amount
of Cen

vat credit on the export product or on the inputs or input services used in the
manufacture of the export product, under the Central Goods and Services Tax
Act,

2017 (12 of 2017), is produced.” The notification shall be deemed to have come
into force on the 1st July, 2017.
Reply of taxpayer(summary): -
- The taxpayer replied that u/s 6(2)(b) of RGST Act 2017, the jurisdictional proper
officer taken up the matter.
- Deposited the duty drawback.
- Not availed the credit of cenvat.
- Reference TMA International pvt. ltd v/s union of India [2021] 133
taxmann.com387(Delhi)
- Reference G Nxt Power Corp. v. Union of India*(2019) 109 taxmann.com 305
(Kerala) related to refund of IGST.
- Real Prince Spintex (P.)Ltd.v. Union of India* [2020] 115 taxmann.com 314
(Gujarat) related to refund of IGST.
- Amit Cotton Industries v. Principal Commissioner of Customs* [2019] 107
taxmann.com 167 (Gujarat) related to refund of IGST.
- AIM Worldwide (P.) Ltd. v. Union of India [2022] 134 taxmann.com 231
(Gujarat) related to refund of IGST.
Observation of Auditor: -
- After examining the reply of taxpayer, the facts and circumstances quoted in the
judgments of Hon’ble High Courts are different from the issue of Sankalp
International. These Judgments are related to refund of IGST but the
aforementioned case is related to refund of Input Tax Credit. Section 54(3) of
RGST Act 2017 clearly states that no refund of input tax credit shall be allowed in
cases where the supplier of goods or services or both avails of drawback in respect
of central tax. The taxpayer has availed higher duty drawback so no refund should
have been sanctioned. So, action is recommended to be taken u/s 74 & 50 of
RGST Act 2017 as the taxpayer willfully received both benefits. The tax amount
Rs. 11163430.00 along with interest Rs. 12056504.00 and penalty Rs.
11163430.00(total amount Rs. 34383364.00) is payable.
- The taxpayer could file TRAN-1/TRAN-2 and availed the benefit of cenvat credit
but due to the provision in rule 117(4) of RGST Rule 2017. It could avail 60% of
cenvat.
- After 9 months (after though) and not deposited adjusted against refund of further
8
 month.
- Circular dated 09/08/2018.
- Circular no 37/2018.
- If higher amount of duty drawback availed, no refund shall be granted.

Para Raised.

Para 03: - Inflated zero rated turnover: -

.
Reply of taxpayer: -
Taxpayer accepted the matter and deposited tax amount Rs. 9247.00 and interest Rs.
15876.00 by DRC 03.
Observation of the Auditor: -
After examination of the reply of taxpayer, reply was found correct. Hence, this audit
para is being dropped.

Para Raised.
Para04: -Interest
During the course of audit of the records of the taxpayer, it was observed that the
taxpayer delayed the return GSTR-3B of the month march by 56 days which is liable for
the interest amount Rs. 760.00 @ 18%.
Reply of Taxpayer: -
The taxpayer accepted the matter and deposited the interest amounting Rs. 760.00 by
DRC 03.
Observation of Auditor: -
After examination of the reply of taxpayer, reply was found correct. Hence, this audit
para is recommended to be dropped.

Para 05: - Availment of ITC in violation of Section 31 & rule 46 of RGST Act and
Rules 2017
During the course of audit of the records of the taxpayer, it was observed that the
taxpayer had availed ITC from suppliers on the basis of Tax Invoices in contravention of
Rule 46 of RGST Rules 2017. This is against the provision of RGST Act hence the
penalty of Rs. 25000.00 is liable u/s 125 of RGST Act 2017.
Reply of Taxpayer: -
As per provisions under section 16(2)(c) of the Central/State Goods & Service Tax Act,
2017 the suppliers of the goods have deposited the tax collected in the invoice to the
respective Government.
Observation of auditor: -
It is observed that many tax invoices were not fulfilled the requirements of rule 46 of
RGST rules 2017. After considering the reply of the taxpayer ITC reversal is not
recommended, though penalty u/s 125 of RGST Act 2017 is payable.

Para Raised. (Suggestive Para).

Para 06: - Import of Motor Vehicle: -

9
During the course of audit of the records of the taxpayer, it was observed that as per
taxpayer imported motor vehicle (Audi Q7) from BIG BOY TOYS PVT. LTD. Gudgaon
Haryana via invoice no. HAR/FY2017-18/24 dated 01.06.2017 which is liable for Entry

tax, Penalty and Interest under Rajasthan Tax on Entry of Goods into Local Areas Act,
1999.

Reply of Taxpayer: -
The taxpayer accepted and deposited the tax amount Rs. 62418.00. Challan not received
yet.
Observation of the Auditor: -
The audit is being conducted for the year 2017-18, so the period of first quarter is also in
the purview of the said audit. In this context, a suggestive para is made under The
Rajasthan Tax on Entry of Goods into Local Areas Act, 1999. The taxpayer gave his
consent on telephone to deposit the tax.

On being pointed out by audit,

(a) The taxable person has agreed with the view of audit and deposited
IGST/CGST/RGST/ET Rs. 71,665.00 Interest Rs. 16,636.00 And penalty Rs.0.00
Total sum Rs. 88,301.00 through DRC -03/ET Challan.
Therefore, the para stands raised and settled.
(b) The taxable person has not agreed with the view of audit and has not made
compliance accordingly.
Therefore, the para stands raised.
(c) The taxable person has agreed partially with the view of audit as follows-

The above-mentioned ITC is in contravention of section 16 of RGST Act, 2017.

Para Raised.

(Naved Ali Zaidi)

Deputy Commissioner of State Tax,
Unit-B, Business Audit Wing-III
Rajasthan, Jaipur
Copy forwarded to following for Information and necessary action: -
1. Special Commissioner of State Tax (Business Audit) Head Quarter, Commercial Tax Department,
Rajasthan, Jaipur.
2. Additional Commissioner of State Tax (Business Audit Rajasthan) Wing III, Commercial Tax
Department, Rajasthan, Jaipur.

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 Deputy Commissioner of State Tax,
Unit-B, Business Audit Wing-III
Rajasthan, Jaipur

11