We are all aware that COVID 19 pandemic has a great impact on the economy and non-compliance under any tax law due to cash flow has led to the payment of interest, late fee, and penalty. Generally, September is the compliance month for tax laws such as Income tax or GST law (previous financial year compliance).

Study of GST trend from inception, relaxation for rectification of errors, or omission only for FY 2017-18 transaction up to due date of furnishing GSTR 1 of March 2019. However, for FY 2018-19 only due date of filing GSTR 3B was extended up to 25th October 2019.

Government has taken various steps to support taxpayers in pandemic by extending due dates or reduction in interest and late fees. There is an expectation for an extension for reporting transactions of FY 19-20 in returns.

Also Read- FY 2019-20: GST Compliance – Action Points – Part II

To avoid a last-minute hassle in being complaint (whether the extension has been made or not), an effort has been made in this article in two series to list down the following

i. Key consideration to comply within the timelines for FY 2019-20 (Series I),

ii. Procedures to be followed for the compliance of above-mentioned consideration (Series II), and

iii. Practical challenges/caution to comply with the above-mentioned provisions (Series II).

I. Key consideration to comply within the timelines for FY 2019-20.

Timelines for various compliances for transactions of FY 19-20 are up to the due date of GSTR 3B of September 2020 (i.e. 20th October 2020 unless extended) or furnishing of the annual return of FY 2019-20, whichever is earlier (except if any specifically mentioned). As we come close to such a due date, it is important to revisit and validate certain critical aspects of accounting and compliance in GST laws. Following is the list of considerations for which detailed discussion has been made further.

A. Rectification in GSTR 1/ GSTR 3B

B. Disclosure of credit note

C. Availment of ITC

D. Annual re-computation of Rule 42 Reversal

E. Applicability of Rule 36(4)

F. Amnesty Scheme for filing return of FY 2019-20

G. Filing of various other returns

H. Interest on delayed payment of taxes

I. Disclosure of ineligible ITC

J. Closure of accounts

A detailed discussion is followed:

A. Rectification in GSTR 1/ GSTR 3BRectification of error or omission in respect of the details furnished in GSTR 3B shall be made in not later than an above-specified date – as per Section 39(9) of CGST Act 2017. However, any rectification of error or omission in respect of the details furnished in GSTR 1 shall be made before filing GSTR 3B of the September 2020 – as per Section 37(3) of the CGST Act 2017.

In case of taxes, not discharged/short discharged through GSTR 3B within the time of supply applicable then interest would be an additional cost.

Circular 26/2017 dated 29.12.2017 clarified the procedure for rectification of errors as follows:

Sr no Particulars Action to be taken in GSTR 3B and GSTR 1
1 Liability was under-reported a. GSTR 3B – Liability may be added in the subsequent month(s) return after payment of interest.

b. GSTR 1 – To be declared in subsequent months return or may be amended through amendments under Table 9 of FORM GSTR-1

2 Liability was over-reported a. GSTR 3B – Liability may be adjusted in return of subsequent month(s) or refund may be claimed where adjustment is not feasible.

b. GSTR 1 – To be declared in subsequent months return or may be amended through amendments under Table 9 of FORM GSTR-1

3 ITC was under-reported Avail in next month
4 ITC was over-reported Pay (through cash) / Reverse over reported ITC with interest in the return of subsequent month(s)

Circular 13/2020 dated 13.04.2020 clarified the adjustment of advances received for supply of service which subsequently got cancelled as follows:

Sr no Particulars Action to be taken in GSTR 3B and GSTR 1
1 The supplier has issued the invoice before the supply of service and paid the GST thereon. Declare in the return for the month during which such a credit note has been issued.

In cases with no output liability to be adjusted, the taxpayer may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.

2 The supplier has issued a receipt voucher and paid the GST on such advance received. The taxpayer can apply for a refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.

However, 2nd point states claiming a refund for in case only receipt voucher has been issued due to option not available in the common portal shall be a cumbersome process.

B. Disclosure of credit note – Credit note in relation to supply made in FY 2019-20 shall be issued by September and declared the latest by the above-mentioned date. Adjustment in tax liability shall be made by the supplier only if the recipient reduces its ITC – Section 34(2) of the CGST Act 2017.

Analysis: This could be understood with an example as follows:

Supply made on Credit Note issued on Activity till date Action to be taken
13.03.2020 20.03.2020 Disclosed in GSTR 1 Adjust tax in GSTR 3B
15.01.2020 15.09.2020 Adjust tax in GSTR 3B, disclose in GSTR 1 of Sept 2020 within the due date.
10.12.2019 20.10.2020 Cannot adjust taxes or disclose since its time has lapsed

In the third example, differences in accounting and return would exist as taxes would not be adjusted in return but accounted as expenses. Where the time has lapsed than ensure financial credit note (without tax implication) could be issued which is not required to be disclosed in returns as clarified in Circular 72/46/2018 GST dated 26-10-2018.

C. Availment of ITC – ITC could be availed in respect of invoices issued in FY 2019-20 or debit note (DN) relating to invoices issued in FY 2019-20 within the date specified above – Section 16(4) of CGST Act 2017.

Analysis

a. ITC on invoices – ITC in respect of invoices dated in FY 19-20 could be availed within the due date of GSTR 3B for September 2020.

b. ITC on debit notes – Timeline for issuance and disclosure in returns of debit note by the supplier as provided for credit note is not available. However, the timeline has been provided for the availment of ITC in respect of debit notes relating to invoices of FY 19-20 within the date specified above. Hence to maintain a healthy relationship with the customer, it would be beneficial to issue a debit note within such a due date.

Amendment vide Finance Act 2020 – Timeline for availment of ITC pertaining to debit notes has been extended to the due date of furnishing September following the end of the financial year to which such debit note pertains or furnishing of annual return whichever is earlier. However, this amendment would be applicable once the notification relating to such provision would be issued.

This could be understood with an example as follows:

Invoice date Debit note date Activity till date Action to be taken
31.01.2020 Not availed Could be availed up to 20th October 2020 (unless extended)
31.01.2020 04.03.2020 Not availed ITC relating to both invoice and debit note could be availed up to 20th October 2020 (unless extended)
31.03.2020 04.10.2020 Before Amendment

I. TC relating to invoice – could be availed up to 20th October 2020 (unless extended)

II.ITC relating to debit note – Cannot be availed by the recipient

Post Amendment

I. ITC on an invoice – could be availed up to 20th October 2020 (unless extended)

II. ITC on Debit note – could be availed up to 20th October 2021 (unless extended)

31.01.2018 04.10.2020 Before Amendment

ITC relating to both invoice and debit note could not be availed now as time lapsed for FY 2017-18

Post Amendment

I. ITC relating to invoice – cannot be availed as time lapsed for FY 2017-18

II. ITC relating to debit note – could be availed up to 20th October 2021 (unless extended)

c. ITC on a Self invoice – Taxpayer liable to pay tax under RCM shall issue self-invoice in respect of receipt of goods or service or both from an unregistered supplier and could avail the eligible credit based on such invoice and subject to payment of tax as provided under Section 31(1)(f) read with Rule 36(1).

Timeline for issuance of invoice and debit note under forward charge has been provided in Section 31 however the same has been not provided for the issuance of self-invoice. Based on the date of self-invoice, the timeline provided above for the availment of credit could be determined. This is to say that there is a loophole in the provision of law which ensures for availment of credit for supplies received from the unregistered person liable to RCM is linked to when the self-invoice is raised, rather than when the self-invoice should have been raised.

Following is the example for understanding of the timeline for the availment of RCM credit. Let us take an example that the legal service provided by the advocate has been availed by the recipient on 13.03.2020.

Supplier Document type Date of invoice Action to be taken
Registered Supplier invoice 13.03.2020 Could be availed up to 20th October 2020 (unless extended)
Unregistered Self-invoice 13.03.2020 Could be availed up to 20th October 2020 (unless extended)
Unregistered Self-invoice 13.09.2020 Could be availed up to 20th October 2021 (unless extended)

D. Annual re-computation of Rule 42 Reversal

The ITC in respect of inputs and input services being partially used for

a. the purpose of business and partially for other purposes

b. affecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies (excluding Schedule III activities of CGST Act 2017)

then proportionate ITC of other than business and taxable supplies including zero-rated supplies shall be reversed according to Rule 42.

Such reversal shall be recomputed finally for the financial year before the above-mentioned date and in case

i. the final amount exceeds the aggregate of the amounts determined earlier shall be reversed in GSTR 3B or through DRC 03 along with interest starting from 1st of April of next FY till the date of payment.

ii. the aggregate of the amounts determined earlier exceeds the aggregate of the amounts calculated finally shall be claimed as ITC.

Exception of the timeline has been provided to the construction industry that such computation shall before the due date for furnishing of the return for September following the end of the financial year in which the completion certificate is issued or the first occupation takes place of the project.

AnalysisRule 42 reversal shall be required on a tax period basis and yearly (except for the construction industry). It suggested to recompute and take action as soon as possible to avoid incremental interest cost.

This could be understood with an example as follows:

Accumulations on tax period basis Yearly basis reversal amount Action to be taken
Rs 1,00,000 Rs 1,50,000 Reverse in GSTR 3B or DRC 03 not later than Sept 2020 along with interest from 1st April 2020 to date of payment @18%.
Rs 1,20,000 Rs 80,000 Avail the credit not later than Sept 2020 return.

E. Applicability of Rule 36(4)

Rule 36(4) has been inserted w.e.f. October 2019 providing restriction on availment of ITC up to ITC on invoices and debit note available in GSTR 2A plus 10% of eligible credit details available in GSTR 2A (except RCM (unregistered). Import of goods and services could be availed without restriction). For the period October to December 2019 the ad-hoc credit which could be claimed was 20%.

However, an extension has been provided for compliance of provisions of Rule 36(4) while claiming ITC in GSTR-3B for February to August 2020 due to the impact of COVID 19 but cumulative adjustment shall be made in  GSTR-3B for September 2020. Practically challenges and way outs are discussed ahead.

Sr no Particulars Case 1 Case II
1 ITC as per books of accounts for Feb to Sept 2020 10 Lakhs 10 Lakhs
2 ITC as per GSTR-2A in Feb to Sept 2020 i.e. L1 6 Lakhs 9.5 Lakhs
3 The extent to which ITC available as per Rule 36(4) i.e. L2 6*10% = 0.6 lakh or 4 lakhs, whichever is lower 9.5*10% = 0.95 lakh or 0.5 lakh, whichever is lower
4 Claimed in the current tax period 6.6 Lakh (6 Lakh + 0.6 lakh) 10 Lakhs
5 Balance unclaimed i.e. L3 4.4 Lakh 0

F. Amnesty Scheme for filing return of FY 2019-20

Amnesty scheme has been bought the second time for the taxpayers to comply with GST law considering this pandemic situation such that late fee has been reduced drastically. Relaxation has been provided for taxpayers who have failed to file GSTR 3B of the period July 2017 to January 2020 as follows –

a. In case of NIL tax liability (i.e. CGST, SGST, IGST, or cess payable for a period is NIL) – NIL Late fee.

b. In any other case – Late fee above Rs 500 has been waived off

However, returns should be furnished between the period from 01st July 2020 to 30th September 2020 to avail of the above relief.

Taking into consideration compliance of FY 19-20 only, the amnesty scheme has covered April 2019 to January 2020. However, interest would be applicable from the due date of the respective month till the date of filing of return. Further relaxation for late fees and interest for February and March 2020 based on turnover and States has been provided.

G. Filing of various other returns

Because of the spread of pandemic COVID-19 across many countries of the world including India, the due date of various other compliance of FY 2019-20 extended which falls during the period from the 20th March 2020 to the 30th August 2020 and where completion or compliance of such action has not been made within such time limit, shall be extended up to the 31st August 2020.

Various other compliance shall be

1. GSTR 4 – Return for every financial year for composition dealers

2. GSTR 6 – Return of Input Service Distributor

3. GSTR 7 – Return of Tax Deducted at Source furnished by the Deductor

4. GSTR 8 – Return of Tax Collected at Source furnished by the e-commerce operator

5. ITC 04 – Details of goods/capital goods sent to a job worker and received back

H. Interest on delayed payment of taxes

ITC to be revered for ineligible credit availed or credit reversed lesser during the monthly computation under Rule 42 and credit to be reversed for February to August 2020 if invoice not available in GSTR 2A in September 2020 as per Rule 36(4). However, ITC availed but not utilized against any output tax liability, then the taxpayer may not be liable to pay interest for the reversal of ITC.

The same view was held in the case of Swift Laboratories Ltd. Vs Union of India [2009-240-ELT-328 (P&H)] and CCE vs. Maruti Udyog Ltd. [2007 (214) ELT 173 (P&H)] under earlier regime and Patna High Court’s decision in case of. Commercial Steel Engineering vs the State of Bihar TS-553-HC-2019(PAT)-NT under GST. A similar amendment has been proposed to be made effective retrospectively from 01.07.2017 in the recently held 39th GST Council Meeting. However, it could be disputed by the department.

I. Disclosure of ineligible ITC

State of Maharashtra (Trade Circular No 47T 2019) and State of Kerala (Trade Circular No 6/2020) have issued circular stating taxpayers who have committed errors of wrong reporting or not reporting ineligible ITC in table 4D(2), as well as the reversal of ITC in the GSTR 3B for FY 2019-20, shall be disclosed in April 2020 to September 2020. In case of default, it may result in the selection of cases for scrutiny. Such circular may be issued in other states also mandating the requirement. To avoid such circumstances, accounting of ineligible ITC would result in appropriate disclosure in returns.

J. Closure of accounts

Accounting entries have to be passed to close all the ledgers relating to GST. This would be ensuring all reconciliation would be made and would be beneficial to arrive at figures required for annual return and audit.

continued in FY 2019-20: GST Compliance – Action Points – Part II

Special thanks to CA Akshay Hiregange for inputs. The author could be reached at dhruv@hiregange.com for any queries /feedback

Author Bio

Qualification: CA in Job / Business
Company: Hiregnage & Associates
Location: Bangalore, Karnataka, IN
Member Since: 14 Jan 2019 | Total Posts: 4

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