Impact of Amendments and Clarifications in GST on 27 December 2022 – Focus on non-payment of GST by Suppliers
When Goods and Service Tax (GST) was announced and introduced in the year 2017, the law, and the return filing process indicated one clear thought process in the minds of the Government: A recipient would get Input Tax Credit ONLY if his supplier had paid the GST on such supplies. This mechanism was ensured by the linked filing of GTSR 1, GSTR 2 and GSTR 3. Due to technical reasons, this system was eventually scrapped. Thus from the start of GST, there was no control over whether supplier has actually paid the GST, which has passed on to the recipient, hence the compliance with Section 16(2) c of the CGST Act was unascertainable.
While the old system of GST returns never came into force, today, we have the same system albeit in a new avatar. GSTR 1 passes credit into GSTR 2B of recipient, and GSTR 3B picks up Outward liability from GSTR 1. However, the system is not as watertight as the original system i.e. all the auto populated figures in GSTR 3B are editable, thus there is no certainty that all the liability declared in GSTR 1 (i.e. all the ITC passed on to recipients) is paid off in the GSTR 3B.
To address this problem for past tax period as well as going forward, CBIC has issued several clarifications and made some amendments in the rules:
To deal with the issue of the past tax periods, CBIC has issued a circular number Circular No. 183/15/2022-GST.
In the opinion of the author, the circular firstly indirectly acknowledges that the concept of matching of ITC between GSTR 2A and GSTR 3B did not exist or was not possible to be made operational till the introduction of Rule 36(4) of CGST Rules, which was introduced in October 2019. Hence, the circular instead tackles this issue differently, i.e. by addressing Section 16(2)c of the CGST Act, which speaks of payment of GST by the supplier.
The circular states that an officer should verify compliance with other provisions of Section 16(2) i.e. possession of an invoice, receipt of goods/services and payment to supplier. To verify the compliance with Section 16(2)c, officer must do as below:
a. Where the difference in ITC between GSTR 2A and GSTR 3B exceeds Rs 5 lacs in a Financial Year – Rely on a certificate by a Chartered Accountant (CA) or the Cost Accountant (CMA) certifying that supplies in respect of the said invoices of supplier have actually been made by the supplier to the said registered person and the tax on such supplies has been paid by the said supplier in his return in FORM GSTR 3B.
b. Where the difference in ITC between GSTR 2A and GSTR 3B is less than rs 5 lacs in a Financial Year – Rely on certificate from the concerned supplier to the effect that said supplies have actually been made by him to the said registered person and the tax on said supplies has been paid by the said supplier in his return in FORM GSTR 3B
While this is a welcome step one important issue may need further study
– The circular says that the certificate can state that taxes have been paid via GSTR 3B. What if the supplier had paid the said taxes via Form DRC 03 especially during finalisation of his annual returns?
2. To deal with the issue of non-payment of GST by suppliers, for the tax periods in the future:
a. The Finance Act, 2021, had inserted an Explanation to Section 75(12) of the CGST Act which gave the effect that, if GSTR 1 liability was more than the tax paid in GSTR 3B, then the department could initiate recovery proceedings considering it as a “self-assessed liability”. In a move which seems to have given teeth to this provision, a new Rule 88C has been introduced. This rule states that if the liability as per GSTR 1 is in excess of liability as per GSTR 3B (by an amount or percentage as will be notified), the taxpayer will be issued an intimation, to which the taxpayer can either respond explaining the differences, or pay the differential GST. Where this new intimation fits in the general scheme of adjudication in GST Act is a million dollar question as of now.
Another sub-rule is also inserted that unless a supplier responds to above intimation or pays the tax as per above intimation, he will not be allowed to file subsequent GSTR 1.
b. While suppliers are being caught by the above provision, recipients too have not been spared. Rule 37A has been introduced which states that if a supplier has not filed his GSTR 3B for the tax period in which an invoice (on which a recipient has claimed ITC belongs), then the recipient must reverse such ITC.
Timelines have been given in respect of above, which specify that:
i. The supplier has time to file his GSTR 1 till the 30th day of September following the end of financial year in which the input tax credit in respect of such invoice or debit note has been availed. The peculiar point here being: The timeline for supplier to file his GSTR 1 is linked to the financial year of ITC availment by the recipient!
ii. The recipient has to reverse such ITC in a return in FORM GSTR-3B on or before the 30thday of November following the end of such financial year during which such input tax credit has been availed. If he fails, then he has to reverse the ITC with interest
Once the supplier files his GSTR 3B the recipient can reclaim the ITC which he had reversed.
The key points here are:
a. There is no reference made to amounts declared in GSTR 1 vs amounts declared in GSTR 3B, hence even a NIL GSTR 3B filed could make the recipient eligible for Input Tax credit?
b. Once again there is no leeway given for GST paid via DRC 03 instead of GSTR 3B i.e. focus is not on “payment of tax” per se, but merely on filing on GSTR 3B
Due to the above reasons, the author is of the view that this Rule, although seemingly is issued to provide machinery provisions to Section 16(2)c, fails to address the main condition of Section 16(2)c i.e. payment of tax, because the emphasis of this rule is wholly on filing of GSTR 3B and not payment of tax per se.
It appears that this Rule will have to be implemented in tandem with Rule 88C above i.e. Rule 37A ensures that supplier must file GSTR 3B, and if the GSTR 3B is filed for GST liability less than GSTR 1, then Rule 88C will kick in.
In sum and substance, the intent of the Government is clear: For the past periods, there is some much needed relief, and for the future, tax payment will be enforced using both the supplier as well as the recipient.
Author Bio
Very good analysis and conclusion