Last Chance for GST adjustments for year 2021-22 – September, October or November?

GSTR1 & GSTR 3B return to be filed for the month of September is very significant as the taxpayers can rectify the errors, to the extent permissible, made / undisclosed in the returns filed during the previous financial year.

The statutory timeline for the above irregularities to be rectified, is the return to be filed for the month of September following the end of the financial year to which such error pertains. For instance, errors, if any, made in the returns filed for the FY 2021-2022 can be rectified up till the due date of filing of the return for the month of September ’22.

Taxpayers often confuse the time limit given in the law as till they file return for the month of September, when on the contrary the time limit so prescribed in the act is the due date of filing of return and not when the return is actually filed. So, the first key takeaway in this case would be to note that in order to avail / pass on the benefit of adjustment / rectification of previous year, the same should be filed within the due date.

However, it is pertinent to note that vide Notification No. 18/2022-Central Tax dated 28.09.2022, the Central Government has appointed 01.10.2022 as the date on which the provisions of sections 100 to 114, except clause (c) of section 110 and section 111, of the Finance Act, 2022 shall come into force, wherein the discussion is being limited to the extension of time limit for compliances in respect of a particular financial year has been extended and fixed as 30th November of the next financial year, or furnishing of the relevant annual return, whichever is earlier.

Uncertainties arose as to whether the changes so brought in effect would be applicable for FY 2022-23 onwards or whether the same are also applicable to the compliances for FY 2021-22.

Further the provisions have been revised by substituting the words “due date of furnishing of the return under section 39 for the month of September”, by the words “thirtieth day of November”, which also added on to the uncertainty whether the timelines for the said compliances stand extended to the date of filing/ furnishing of the return/ statement for the month of November 2022 or the said compliances can be carried out in a return or the statement filed/furnished upto 30th November 2022.

The above has been clarified vide press release dated 4^th October, 2022 wherein it is explained that the extended timelines are applicable to the compliances from FY 2021-22 onwards. It is also clarified that such compliances need to be carried out in the returns furnished upto 30^th November and not for the return to be filed for November, i.e. in December.

Although it is relevant to note that corresponding changes in the rules have not been made and as such the extension does not apply for all changes / adjustments to be done pertaining to the previous year.

There would be a number of changes and adjustments which are to be/can be shown in the return, however the focus in this article is on those changes only which are brought forward from the previous financial year. Such various implications that need the attention of the stakeholders on which necessary action is required is being discussed herewith:

Availing the benefit of Input Tax Credit within the set time-limit

Section 16(4) of The Central Goods and Services Tax Act, 2017 provides that the thirtieth day of November following the end of financial year or furnishing of the relevant annual return, whichever is earlier, shall be the time limit within which Input Tax Credit in respect of any invoice or debit note relating to the financial year should be claimed. As GSTR- 2B was implemented to bring the proposed matching concept of Input Tax Credit, the registered persons were restricted to avail credit every month to the extent, the said invoices were reflecting in these forms. Due to the concerned restriction existing owing to the implementation of matching concept, there may be instances where the registered person has not availed Input Tax Credit against certain invoices as they are not reflecting in form GSTR- 2B.  Therefore, all registered person should perform yearly review of the Input Tax Credit recorded in their books of accounts along with data reflecting in GSTR- 2B to assess the Input Tax Credit to be availed by the thirtieth day of November following the end of financial year for the previous financial year which they have not claimed in the relevant tax period.

Performing such exercise will ensure that the taxpayers do not incur any loss on account of non-availment of eligible Input Tax Credit which otherwise will not be available to the registered person post the availment due date.

Re-Calculation of reversal

Rules 42 and Rule 43 of The Central Goods and Services Tax Rules, 2017 prescribes the manner of reversal of Input Tax Credit as called for in Section 17(1) and Section 17(2) of The Central Goods and Services Tax Act, 2017. The manner set down in the rules demands for reversal of Input Tax Credit in accordance with the formulae specified, for every tax period. In addition to the reversal made for every tax period, the reversal amount has to be finally recomputed on completion of the financial year but before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates. If the re-calculated amount exceeds the amount so reversed in the financial year, such excess amount along with the applicable interest rate as specified in Section 50(1) of The Central Goods and Services Tax Act, 2017 shall be reversed in FORM GSTR- 3B or in DRC- 03 and in case, the amount so reversed in the financial year exceeds the amount so determined on re-calculation, the excess Input Tax Credit shall be claimed by the registered person. Such reversal or claim of the Input Tax Credit which is determined on re-computation is required to be done by the registered person up till the due date of return for the month not later than September following the end of the financial year to which such Input Tax Credit relates.

Delaying this activity would entail interest obligation on the taxpayer.

It is worthwhile to note that there has been no change in timelines for this compliance and as such the same needs to be done in the return to be filed for the period of September itself.

Rectification of error or omission in furnishing details of outward supply

First proviso to Section 37(3) of The Central Goods and Services Tax Act, 2017 lays down the time limit within which error or omission in relation to outward supply, if any, may be rectified upon discovery of the same. As set out in the proviso, all such rectifications may be made up till the thirtieth day of November following the end of financial year or furnishing of the relevant annual return, whichever is earlier, to which such error or omission pertains. The error or omission may be in respect of invoices, debit notes, credit notes and revised invoices issued in relation to outward supplies made during any tax period. Therefore, taxpayers may suo-moto rectify any error or omission in the returns filed during a tax period along with payment of interest, in case where there is short payment of taxes, which has been discovered well within the established time limit. To ensure that all such errors or omissions have been identified, the taxpayers should perform yearly reconciliation of the outward supply recorded in the books of accounts with the outward supply disclosed and reported in the returns filed during the relevant tax period. Such reconciliation process when performed within the stipulated time-limit will safeguard the taxpayer from the hassle cause by unwarranted notices from the department on account of short disclosure of outward supply.

A bonus in this case would be that the said purchaser/receiver of the goods/services would be eligible to claim such ITC being reported in the return now.

Non-issuance of Credit notes post September

In case where the tax amount charged or the taxable value reflecting in tax invoice issued by a registered person for a supply is detected to exceed the value of such supply made or where the supply made is to be returned, the registered person in such cases is required to issue a Credit Note in accordance with Section 34 of The Central Goods and Services Act, 2017. Section 34(2) of The Central Goods and Services Tax Act, 2017 specifies that such credit note shall be furnished in the return not later than the thirtieth day of November following the end of financial year or furnishing of the relevant annual return, whichever is earlier, to which such supply relates. To rephrase it, it can be said that where the registered person desires to adjust the output tax liability owing to the reasons mentioned above, such credit note should be issued within the stipulated time period. The registered person should review the supplies made in the financial year and all the returns accepted as well to ensure that Credit Notes against the same have been issued in accordance with the law and tax adjustments wherever required to be made, have been correctly accounted for via issuance of Credit Notes and appropriately disclosed in the return filed up till the thirtieth day of November following the end of financial year or furnishing of the relevant annual return, whichever is earlier, to which such supply relates.

Credit notes can be issued as a financial credit note also, however if done within the time period, the tax element can be adjusted and would therefore lead to reduction in cost.

It is therefore advisable for the taxpayers to take all precautionary measures before filing of the return for the month of September / October, i.e. within the thirtieth day of November as it is the last date up to which the registered person may make the desired tax adjustments with respect to Input Tax Credit or Output Tax Liability as warranted by the Goods and Services Tax law.