Know your supplier (KYS) under GST- A detailed analysis

Compliance rating system is one of the new ways of tax administration and as such “KYS” enables every registered person (recipient) to have information about the supplier, in term of compliance, with whom they intend to deal in.

Introduction:

The Government previously wanted to implement the compliance rating system that gives a rating to the supplier based on their accuracy in invoice uploading, regularity in return filing and compliance with the other law requirement.

But with the increasing case of tax non-compliance by registered person (“Supplier”) like:-

– Non-reporting of correct data in GSTR-1. –which result in restriction on the amount of ITC to claimed as stipulated in Rule 36(4),

– Collection of GST but non-remittance of same not within due date even after filing GSTR-1

– Non-filing of GSTR-3b-which certainly make you ineligible to avail ITC (as stipulated Section 16(2) of CGST

– E-way bill issue and many more….

It’s very important for recipient to have basic information about the supplier compliance nature.

At the press meet after the 39th GST Council meeting dated 14 March 2020, the Hon’ble Union Finance Minister explained that this facility was inspired by the ‘Know Your Customer’ (KYC) scheme. The KYC is a process where banks collect proofs to identify the existence and genuineness of their customers.

Section 149 of CGST Act 2017 which deals with KYS is reproduced as follows:

1) Every registered person shall be assigned a compliance rating on scale of 0 to 10

2) The compliance rating is subject to specified parameters or criteria.

3) The compliance rating shall be placed on public domain.

4) The prospective client may have check on such score as it will help them to take a decision as to whether to deal with such supplier or not.

5) This will result in healthy competition amongst registered person under GST.

Parameters subject to which GST compliance rating would be determined:

– Payment of GST within due date

– Collection of GST but non-remittance of the same within the due date

– Filing GST outward supply returns within due date, ratifying the inward returns within due date and uploading the final returns within due date

– Filing of first return, final return and annual returns

– Availment and utilisation of credit in accordance with provisions of the Act

– Transfer of credit in accordance with provisions of the Act

– Remittance of TDS within due date by persons prescribed u/s 51

– Remittance of TCS within due date by persons prescribed u/s 52

– Pending disputes with the department

– Arrears of GST revenue

– Seizure of goods, due to contravention of the provisions of the Act

– Maintenance of accounts and records in accordance with provisions of the Act

Compilation of Compliance rating

It would be compiled and updated on periodic basis and thereafter to be intimated to the said registered person and also to be placed on public domain through GST Portal.

Benefit of Compliance rating to registered person

Recipient of supplies can exercise caution or preventive measures and make best assessment of supplier before entering into any business transaction based on such compliance rating. This will help assist a taxable person choose his vendor carefully since non-remittance of tax by vendor would lead to disallowance of credit in the hands of purchaser.

Benefit of Compliance rating to Government

It will help the Government to check and select the cases of scrutiny/audit and for other administration purposes based on their lower rating.

Bar on disclosure of information

The information collected from an ‘individual return’, filed u/s 150 or section 151 shall not be published, without the previous consent in writing of the concerned person or his authorised representative, so as to enable such particulars to be identified as referring to a particular person.

Exception:- If in the opinion of the Commissioner, it is desirable in public information to provide such information.

Consequences on Wilful disclosure

As per Section 133 of CGST Act, where:

1. Any person engaged in connection with the collection of statistics u/s 151 or

2. Any officer of central tax having access to information specified u/s 150, or

3. Any person engaged in connection with the provision of service on the common portal or

4. Agent of common portal,

‘wilfully discloses’ any information or the contents of any return furnished under this Act or rules made there under:

1. Otherwise than in execution of his duties under the said sections or

2. Otherwise than for the purposes of prosecution for an offence under this Act or under any other Act for the time being in force,

then such person he shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to ` 25,000/- or both.

Note: The KYS facility will launch soon. As on 14^th March 2020, date of launch is not yet notified by the Council as certain amendments to be carried out in GST laws for such.

Disclaimer: Views expressed are my personal and it’s advised that appropriate legal advice is taken prior.