GST impact on Excess Stocks Account booking(Physical stock is excess then books)

[Prem Choudhary]

Dear Expert

please advice gst impact on following query:-

In physical verification of stock(Raw materials) it was found that the physical is excess over books. please advice on:-

1. if excess stock account for in books, what are consequences in GST ? and

2. if supply of stock was made from sister Concern unit then, GST consequences ?

[KASTURI SETHI]

An assessee is required to maintain proper record of raw material and finished goods under Sections 56 and 57 of CGST Act. If not maintained properly,

(i) Penalty of ₹ 25,000/- is imposable under Section 125 of CGST Act.

(ii) Penalty of ₹ 10000/- under Section 122 (xvi) of CGST Act.

Also see Board's Flyer No.14 dated 1.1.18.

You know tax is on 'supply' of goods (finished). Actually no evasion of GST takes place by way of improper maintenance of records of goods and raw material. But it is a very serious lapse and will invite penalty. Such lapse cannot be taken lightly.

[Prem Choudhary]

Sir

This is not serious lapses, since the stock (purchase) and consumptions are continuing activities 24 X7 and it is properly maintained in SAP . However the gap is arising due to consumption and normal loss booking.

and Management has carried Physical verification and found excess stock over books. hence same will be accounted in books.

[KASTURI SETHI]

Dear Querist,

You may or may not agree. It is your prerogative. I have explained the legal aspect. If you rectify your error before it is detected by the department, it is O.K. What I want to say that Govt. has made provision for imposition of penalty on account of procedural lapse also. It is not in dispute that in this scenario there is no loss of revenue to Govt.

[Ganeshan Kalyani]

The difference will create doubts in the mind of the officer. He may dive deep in the accounting and physical existence of the goods. Actually both physical stock and books stock should be same. It cannot be different.

Sri Kasturi Sir mentioned the Penalty of CGST Act. Equal penalty is there in SGST Act as well. General Penalty can anyway be applied for contravention of any provision of GST provision.

[YAGAY and SUN]

Any non compliance under the provisions of GST Laws will attract penal actions. Therefore, it is required to have books of accounts reconciled as per the requirement of GST Laws, Income Tax Act and Company Laws.

AI Summary

Record-keeping obligations under GST can trigger penalties and scrutiny when physical stock exceeds book records, requiring reconciliation.
Discrepancies where physical stock exceeds books trigger GST record keeping obligations and can attract penalties under CGST/SGST for procedural non compliance even absent revenue loss; tax applies on supply, so excess stock accounted after verification requires reconciliation, corrective accounting, and documentation to demonstrate absence of undisclosed supply, otherwise departmental scrutiny, tax adjustments and penalties may follow.