Introduction:

Unlike in FY 2017-18 where the assesses were provided with extension of time limit for rectifying the errors or omissions and availment of input tax credit through removal of difficulties (ROD) order no. 02/2018, the time limits for FY 2018-19 have yet been extended. However, considering significant delay in FY 2017-18 GST compliances, in order to provide an opportunity to the assesses it would be expected to extend the time limit for ITC claim (probably upto 31st December 2019). This article provides an insight into adjustments to be made in September 2019 GSTR return for transactions effected in FY 2018-19 within the specified time limits. Also, we provide details of various practical transactions of FY 18-19 and the action points in GSTR-3B/GSTR-1/GSTR-9 annual return.

Relevance of Circular no. 26/2017:

In most of our earlier laws, there was an option of revising the returns which was filed, although, now only amendments in subsequent returns are allowed under GST in lieu of any rectification/omissions of previous returns. The above-mentioned circular was released to provide such benefits to the assesses as the GSTR 2 & 3 were deferred.

Any rectifications/amendments for transactions pertaining to FY 18-19 could be performed with in the due date of filing September 2019 GSTR 3B return, i.e. 20th October 2019 (presently no extension).

Time limit for disclosing amendment details in GSTR-1 and increase/decrease in tax lability in GSTR-3B read with circular 26/2017:

First proviso to section 37(3) of CGST Act (GSTR-1) states that: –

 “no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier”.

 First proviso to section 39(9) of CGST Act (GSTR-3B) states that: –

“no rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following [the end of the financial year to which such details pertain], or the actual date of furnishing of relevant annual return, whichever is earlier”.

Analysis:

A registered person can make any amendment to the disclosure made in the returns or disclosure of additional details pertaining to FY 2018-19 and increase or decrease in tax liability in GSTR-3B within the due date of furnishing the return for the month of September 2019 (i.e. 20th October 2019) or the date of furnishing of annual return for FY 2018-19, whichever is earlier.

Other important updates:

By virtue of Notification no.29/2018- Central Tax (Rate) with effect from 1st January 2019, RCM has to be discharged by the recipient in case of security services provided by any person other than body corporate to a registered person located in taxable territory.

Circular No. 72/46/2018 dated 26th October 2018 provides following procedure in respect of return of time expired drugs or medicines: –

a) Return of time expired goods to be treated as fresh supply issue invoice and claim credit if regular tax payer or issue bill of supply and pay tax as composition tax payer without availing ITC

b) Return of time expired goods by issuing Credit Note the manufacturer or the wholesaler who has supplied the goods to the wholesaler or retailer, as the case may be, has the option to issue a credit note in relation to the time expired goods returned by the wholesaler or retailer, by issuing a delivery challan

Circular no. 92/11/2019 dated 7th March 2019 provides clarification regarding treatment of sales promotion schemes (which attracts tax liability is discussed below): –

Buy one get one free – It can be best treated as suppling goods for the price of one. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the CGST Act.

Refer action points tables below on various possibilities, restrictions and compliance requirements.

Time Limit for making adjustments by way of credit note:

In terms of section 34(2) of CGST Act, Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier.

Analysis:

Under GST, credit note can be raised only in the following situation as per section 34(1) of CGST Act: –

a) The supplier has erroneously declared a value which is more than the actual value of the goods or services provided.

b) The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied.

c) The quantity received by the recipient is less than what has been declared in the tax invoice.

d) The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.

A registered person (i.e. supplier) can raise credit note with taxes for original invoice raised during FY 2018-19 within the last date of September 2019 (i.e. 30th September 2019) or date of furnishing of annual return for FY 2018-19. The supplier can reduce his taxes once the recipient has reduced his ITC.

Note: A taxable person may issue a credit note reducing the value of original supply without tax attributable to the reduction claimed. such credit notes are referred as financial credit notes and the same does not have any impact under GST nor the same to be disclosed in GST returns.

Credit Note Illustration

Original Invoice date  Credit note date Activity till date Action
10-Feb-2019 20-Mar-2019 Credit note disclosed in GSTR-1 only > Adjust tax in GSTR 3B in Sep 19.

>Disclose in Part V of GSTR 9 of FY 18-19

10-Jan-2019 20-Sep-2019 GSTR pending > Adjust tax in GSTR 3B, disclose in GSTR 1 in Sep 19

> Disclose in Part V of GSTR 9 of FY 18-19

10-Dec-2018 20-Oct-2019 GSTR pending Cannot adjust taxes, as time limit passed.
10-May-2019 20-Aug-2019 GSTR 1 & 3B filed FY 19-20 transaction, does not affect here.

Time limit for availing ITC:

In terms of Section 16(4) of CGST Act, “the registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier”.

Analysis:

A registered person can avail ITC on the invoices/debit notes pertaining to FY 18-19 within the due date of furnishing the return for the month of September 2019 (i.e. 20th October 2019) or the date of furnishing of annual return for FY 2018-19, whichever is earlier. (Tip – the invoices/debit notes which are uploaded by the vendor in the Form GSTR-1 up to September 2019 i.e. reflecting in recipient GSTR-2A can be verified, and documents if not available to be followed up with from Vendor)

It is important to note, although there is to time limit to raise a debit note under GST, ITC on debit notes raised against the original invoices issued during the period April 2018 to March 2019 is permitted only upto September 2019 return in terms of Section 16(4) only.

Eligibility of Input tax credit as per section 16 of CGST Act:

a) Expense incurred in the course or furtherance of business

b) Valid tax invoice with GSTIN of both parties, description, taxable value, taxes, POS (inter-state supply)

c) Receipt of goods/services

d) Tax paid to the government (difficult to verify without matching concept)

e) Recipient has filed his return

f) Payment made to vendor (if not done in 180 days reversal/re-claim)

Amendment to section 17(5)(a) and (b) of CGST Act with respect to restricted input tax credit (with effect from 1st February 2019): –

a) Vehicles having less than 13-seater, unless used for making further taxable supply/transportation of passengers, etc. Service of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles unless used for making further taxable supply /transportation of passenger etc. Similar clause for aircraft and vessels.

b) For below service, input tax credit eligible only when such inward supply is used to make an outward taxable supply or if obligatory for the employer to provide such services to employee under any law:

1) Food & beverage, outdoor catering, health services and leasing, renting or hiring of motor vehicle.

2) Membership of club, health & fitness center

3) Travel benefits provided to employees on vacation. This must not be confused with business travel.

Examples of Eligible input tax credit: – Insurance- building insurance, fire insurance, stock insurance etc., Karnataka Factories Act – Canteen mandatory if > 250 workers, Karnataka Factories Rules/Shops & Establishment – Cab for women employees if worked upto 10/8 pm.

Detailed Article available on TaxGuru on changes in ITC w.e.f 1st February 2019:

https://taxguru.in/goods-and-service-tax/gst-itc-ineligible-changes-w-e-f-1st-february-2019.html

Refer action points tables below on various possibilities, restrictions and compliance requirements.

Time limit for credit re-computation in terms of Rule 42 and 43:

In terms of Rule 42(2) of CGST Rule 2017, except in case of Supply of service covered by clause(b) of paragraph 5 of schedule II of CGST Act, input tax credit determined under sub-rule (1) [i.e. calculated on monthly basis] shall be recalculated for financial year and make adjustment in case of credit reversal or credit availment 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.

In terms of Rule 43(2) of CGST Rule 2017, in case of Supply of service covered by clause(b) of paragraph 5 of schedule II of CGST Act  the amount of common credit attributable towards exempted supplies shall be re-calculated for the entire period from the commencement of the project or 1st July, 2017, whichever is later, to the completion or first occupation of the project, whichever is earlier, for each project separately, year and make adjustment in case of credit reversal or credit availment before the due date for furnishing of the return for the month of September following the end of financial year in which the completion certificate is issued or first occupation takes place of the project.

 Analysis:

For the purpose of credit re-computation as per Rule 42 and Rule 43 (in case of construction industry) of CGST Rule,2017 for business making taxable and exempt supplies, it is required to perform comparison of credit availed during FY 2018-19 with the recomputed credit to identify any credit reversal or availment is required within the due date of filing September 2019 return (i.e. 20th October 2019).

Note: If after performing annual credit re-computation according to Rule 42 and Rule 43, it results in credit reversal, then interest shall be payable on such excess amount at the rate specified under section 50(1) of CGST Act i.e. 18% 1st April 2019 till the date of payment.

For the purpose of reversal of common input tax credit under Rule 42 and 43 of CGST Rules, explanation has been inserted in amendment of CGST act on 1st February 2019 which in the authors opinion has a retrospective effect i.e. from 1st July 2017 that value of “exempt supply” shall not include the value of activities or transaction specified in Schedule III, except those specified in para 5 of the said schedule (sale of land and building sold after occupation). Hence, there would be no cost impact due to input tax credit reversal.

Action points – GST Transactions – Outward & Inward:

Outward supplies in relation to F.Y 18-19:

SI. No. Observation Correction Time Limit
1. Missed out outward taxable supplies in FY 2018-19 (interest is additional cost) > Include in GSTR-3B -Table 3; if not

> Include in GSTR-9 & DRC-03 (cash only)

> 20th October 2019

> 31st December 2019 (extension expected + interest cost)

2. Excess paid taxes on outward taxable supplies in FY 2018-19

(refund success, working capital hit)

> Include in GSTR-3B – Table 3; or

> Refund application only. Cannot adjust in next GSTR 3B/9.

 

> 20th October 2019

> Within 2 years – To prove to GST officer that excess tax discharged, unjust enrichment, documents etc.

3. No tax Impact – Disclosure errors in GSTR-3B of FY 2018-19 >Include in GSTR-3B -Table 3; or

> Include in GSTR-9 later(suggested)

> 20th October 2019

> 31st December 2019 (extension expected + NO interest)

4. No tax Impact – Disclosure errors in GSTR-1 of FY 2018-19 Include in GSTR-1 – Amendment/Originals 20th October 2019 (Ensure GSTR-1 Vs GSTR3B matches for FY 2018-19).

Inward supplies in relation to F.Y 18-19:

SI. No. Observation Correction Time limit
1. Missed out ITC/short claim of ITC in FY 2018-19 > Include in GSTR-3B -Table 4; or

> Cannot claim in GSTR-9 later or obtain a refund (cost)

20th October 2019 (Subject to extension similar to FY 17-18)
2. Excess ITC claimed but not utilised in FY 2018-19

(Based on net liability concept, not yet notified.)

> Adjust in GSTR-3B – Table 4; or

> Include as ITC reversal in GSTR 9 & DRC-03 (cash only)

> 20th October 2019

> 31st December 2019 (extension expected + NO interest) *

3. Excess ITC claimed and utilised in FY 2018-19 > Adjust in GSTR 3B – Table 4; or

> Include as ITC reversal in GSTR 9 & DRC-03 (cash only)

> 20th October 2019

>  1st December 2019 (extension expected + 24% interest cost)

4. No tax impact – Disclosure errors in GSTR 3B of FY 2018-19

(Exempt & non-GST inward supplies, Ineligible ITC)

>  Include in GSTR-3B

> Include in GSTR-9

> 20th October 2019

>  31st December 2019 (extension expected)

 Note: For the delayed period Interest will be applicable as per section 50(1) & 50(3)

* – Net liability concept although part of Finance Act 2019 (enacted on 1st August 2019), the GST law requires a notification to be issued, to bring the same into effect. Whether the same would be provided retrospectively or prospectively is ambiguous. Although, considering the previous laws, intention and keep the law just and fair, we opine interest could only be applied for incorrect/excess ITC availed and utilised.

To ensure the above accuracy for FY 2018-19 following can be followed:

a) Reconcile ITC as per books and the ITC as per Form GSTR-3B to check for any missed credits

b) Reconcile ITC availed in Form GSTR-3B and the entries in Form GSTR-2A to check for any missed credits. Note, GSTR 2A matching to GSTR 3B is not a compulsory requirement under law.

c) Re-computation of the credit eligibility as per rule 42 and 43 of the Rules, as applicable.

d) Reconcile the turnover as per Form GSTR-3B and Form GSTR-1 to rectify any differences between the two.

e) Review of the expenses (importantly the foreign currency payments) to ensure that payment of tax under RCM is done and eligible ITC is claimed.

f) Reconcile the credit notes issued as per books and the credit notes disclosed in returns to check if any disclosures are missed in the returns with respect to GST credit notes.

g) Review of the contract terms or agreed clauses in respect of supplies made during FY 2018-19 and annual customer ledger reconciliation to identify any agreed downward revision in prices or discounts, that require issue of a GST credit note and issue and disclose the same.

h) Although debit note does not have time limit (for supplier), recipient can claim ITC upto original invoice eligibility.

Conclusion:

The course of action to be adhered to in relation to GST transactions of FY 2018-19 as provided in the above article might help in ease understanding through various situation and adjustment. Considering the various changes in law, disclosure requirements, and possible departmental reviews, it is suggested to obtain professional help during the growing stages of the newly introduced indirect tax law in India.

The authors could be reached at varshav@hiregange.com & akshay@hiregange.com.

Author Bio

More Under Goods and Services Tax

2 Comments

Leave a Comment

Your email address will not be published. Required fields are marked *