Key principles of new return as approved by the Council are as under:

i. One monthly Return: All taxpayers excluding a few exceptions like composition dealer shall file one monthly return. Return filing dates shall be staggered based on the turnover of the registered person to manage load on the IT system. Composition dealers and dealers having nil transaction shall have facility to file quarterly return.

Our comments: It is proposed to have only one monthly return. Even return filing dates shall be staggered based on the turnover criteria to manage the load on the IT system. It will be interesting to see how matching can be done with only one monthly return since the registered recipient will be allowed to claim ITC only on the basis of invoices uploaded by the supplier from April 2019 (i.e. Phase 3). Hence registered recipient will have to claim ITC only after the invoice data is uploaded by the supplier. This will naturally lead to two different statements (although Government may call it as “one” monthly return). It is also interesting to note that dealers having nil transaction will have the facility to file quarterly returns. How can a dealer predict whether he will not have any transaction at the start of the quarter ? If let us say such dealer undertakes a single transaction in the third month of a relevant quarter will he be required to file monthly return ?

ii. Unidirectional Flow of invoices: There shall be unidirectional flow of invoices uploaded by the seller on anytime basis during the month which would be the valid document to avail input tax credit by the buyer. Buyer would also be able to continuously see the uploaded invoices during the month. There shall not be any need to upload the purchase invoices also. Invoices for B2B transaction shall need to use HSN at four digit level or more to achieve uniformity in the reporting system.

Our comments: Registered recipient will not be required to upload purchase invoice. He can see the invoices uploaded by the supplier for claiming the ITC. It is also interesting to observe that although we have shifted to GST regime, love of Government for words such as “buyer”, “seller”, “purchase”, etc. does not go !!

iii. Simple Return design and easy IT interface: The B2B dealers will have to fill invoice-wise details of the outward supply made by them, based on which the system will automatically calculate his tax liability. The input tax credit will be calculated automatically by the system based on invoices uploaded by his sellers. Taxpayer shall be also given user friendly IT interface and offline IT tool to upload the invoices.

Our comments: It is astonishing to see that ITC will be calculated automatically by the system. What about restrictions on ITC u/s 17 of the CGST Act, 2017 ? Registered recipient will indeed have to identify such transactions separately. It is also amusing to note that taxpayer will be given “user friendly IT interface” to upload the invoices. This means that the current interface is not “user friendly” !!

iv. No automatic reversal of credit: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.

Our comments: This is perhaps the most interesting principle agreed by the Council. It says that there will not be automatic reversal on non-payment of tax by the seller. However in exceptional situations (only Government knows what will be those exceptions since they have used the word “etc.”) revenue authorities will recover such tax not paid by reversal of credit from buyer. One of the exception mentioned is “missing dealer”. We don’t know how department will conclude whether the dealer is “missing” or not ? Another exception that the “supplier is not having adequate assets” is mind boggling. It means that if you purchase let us say from Mr. Mallya and you give the tax amount to him. However if he uses the tax money to fulfill some fancy desire and is left with no assets, you will have to reverse the ITC ??

Great !!

v. Due process for recovery and reversal: Recovery of tax or reversal of input tax credit shall be through a due process of issuing notice and order. The process would be online and automated to reduce the human interface.

Our comments: The process to recover tax or seek reversal of ITC will be online and will be done by issuing notice and order. Thank God that some ray of hope is there !!

vi. Supplier side control: Unloading of invoices by the seller to pass input tax credit who has defaulted in payment of tax above a threshold amount shall be blocked to control misuse of input tax credit facility. Similar safeguards would be built with regard to newly registered dealers also. Analytical tools would be used to identify such transactions at the earliest and prevent loss of revenue.

Our comments: It means that you cannot avail ITC from “black listed suppliers”. You might be possibly allowed ITC after they have paid the tax.

vii. Transition: There will be a three stage transition to the new system. Stage I shall be the present system of filing of return GSTR 3B and GSTR 1. GSTR 2 and GSTR 3 shall continue to remain suspended. Stage I will continue for a period not exceeding 6 months by which time new return software would be ready. In stage  2, the new return will have facility for invoice-wise data upload and also facility for claiming input tax credit on self-declaration basis, as in case of GSTR 3B now.

During this stage 2, the dealer will be constantly fed with information about gap between credit available to them as per invoices uploaded by their sellers and the provisional credit being claimed by them. After 6 months of this phase 2, the facility of provisional credit will get withdrawn and input tax credit will only be limited to the invoices uploaded by the sellers from whom the dealer has purchased goods.

Our comments: Stages for return filing shall be as under:

Stage Period What is to be filed ITC implications
1 Not exceeding six months (possibly till September 2018) GSTR – 3B & GSTR – 1 Based on GSTR – 3B. Press release is silent on the process of reconciliation of ITC claimed in 3B with ITC allowable based on GSTR – 2A. It may be noted that Sec. 16(2)(c) of the CGST Act, 2017 permits ITC only if the tax is actually paid.
2 For six months from launch of new return (possible from October 2018 to March 2019) New return Dealer will be fed with information about the gap between ITC claimed and ITC allowable. Despite the gap provisional credit (of the difference) will be allowed. A separate process for reversal of the unreconciled gap will be put in place.
3 Possibly from April 2019 (remember that election fever will be there during such time and hence anything can happen !!) New return ITC will be allowed only based on invoices uploaded by the sellers. Hence no provisional credit from such phase.

viii. Content of the return and implementation: Return shall be simplified also by reducing the content/information required to be filled in the return. The details of the design of the return form, business process and legal changes would be worked out by the law committee based on these principles. Government is keen to introduce the simplified return design at the earliest to reduce the compliance burden on the trade in keeping with the philosophy of ease of doing business.

Our comments: In line with the new return design appropriate changes in law will also be made.

B. Concession On Digital Payments

It has been proposed to set up a Group of Ministers to finalize the proposal of a concession of 2% in GST rates on B2C supplies. This will be applicable on payment through cheque or digital mode, subject to ceiling of INR 100 per transaction. This means that for INR 100 someone will use digital mode and not cash !!

C. Imposition Of Sugar Cess And Reduction Of Gst Rate On Ethanol

Group of Ministers to discuss the imposition of sugar cess and reduction of GST rate on ethanol.

D. GSTN To Be Converted Into A Fully-Owned Government Company

GSTN which is presently a private entity to be converted into a fully-owned government company. Centre and State Governments will acquire 51% of equity currently held by private entities.

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September 2021