Back to Basics!

As per Section 44 of the CGST Act, every registered person (except Casual Taxable person,  Input Service Distributor, Non resident Taxable Person, Person paying tax u/s. 51 or Section 52) must file an Annual Return for the financial year before 31st December following the end of the financial year.

If the turnover exceeds Rs. 2 Crores the taxpayer shall along with the Annual Return also submit audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year

Notification 39/2018 – CGST and Notification 49/2018 – CGST have been issued in this regard prescribing the Annual Return and the Reconciliation statement respectively.

What is the concern or Reasons why GST Annual Return is another disaster in GST implementation?

1. Redundant information

The basic purpose of submission of any return is that it shall provide information to the government to verify that the taxes have been duly paid. If one carefully analyses the annual return baring few tables, majority of the information is related to what is already declared in the returns.

In an era where we talk of “digitisation” and “ease of business”, furnishing such information ONCE AGAIN manually is like wastage of time of crores of people. Why cannot the system auto populate such consolidated information?

Further the sequence of the annual return and the GSTR 3B and GSTR 1 is not the same, hence there is an undue exercise to analyse again what needs to be filled where!

Example: Table 5H & 5I of Annual Return requires details of credit notes and debit notes issued in respect of exempt, nil-rated and Non-GST supply while in GSTR 1 there is no such bifurcation.

Example: Exports made with payment of IGST and without payment of IGST is filed in Table 6A of GSTR-1. However, Annual Return Format seeks details in Separate Tables.

Example: Bifurcation of ITC into”ITC on inputs” and “ITC on capital goods”. I Filing this information means, reanalysing all the ITC which is a real pain. I wonder what the government will arrive using this information as in GST 100% ITC can be availed upon meeting conditions of Section 16 and Section 17?

The accounting systems of the tax payers were never required to give such separate information. Looks like the government wants taxpayers to make, break and then remake!

2. Incorrect returns

Though the Annual Return does not require a one to one correlation of outward supply and inward supply, the government needs to understand that many of the tax payers, be it MSMEs or corporate have filed returns with errors in few months; some of them have variations in GSTR 3B and GSTR 1; some of them have not paid correct taxes. There is no table in the Annual Return that enables payment or credit of such tax. 

One view is that the errors need to be rectified by following circular 26/26/2017 dated 29th December 2017. As per the circular the errors shall be rectified in the subsequent months’ return.

However there are two things to be noted here:

  • Being a new law with so many amendments, notifications and circulars, is it fair on the part o the government to assume that the guidelines in the above circular should have been followed by all the tax payers?
  • Further the due date of Annual Return is 31st December 2017, which is after the date of filing Income Tax returns, after the date when GST law provides filing of last year’s missed information (Due of September return of next year or filing of Annual return whichever is earlier). What will be the status of a tax payer who has inadvertently made a mistake which comes to his knowledge only after filing the return of September Month?

As regards GSTR 1 vs. GSTR 3B is concerned, the instructions require that the details of outward return be filed using the information in the GSTR 1, appears fair enough as GSTR 3B is more of a payment challan however what will be the fate of a person who has filed GSTR 3B correctly and GSTR 1 incorrectly? 

3. Lapse of ITC on the basis of GSTR 2A

Table 8 of the Annual Returns has auto population of information of GSTR 2A. Section 16(2)(c) of CGST Act, 2017 provides that GST charged by Supplier should have been paid by him as one of the conditions to avail ITC. However it may be noted that it is possible that a person has filed GSTR 1 but not filed GSTR 3B which means no payment of tax yet the information will reflect in GSTR 2A! 

Though filing of Annual Return does not automatically reverse the ITC based on the calculation in Table 8, however it would be used by the officers during assessment.

A question arises that a supplier can file his GSTR 01 even after October, in which case does it mean that the tax payer shall wait till the last date of filing Annual Return so that maximum number of entries get updated in his GSTR 2A?

Another issue is that tax payers are unaware of how the GSTIN web portal’s system will operate. Example: If a supplier has filed the returns for July 2017 to March 2018 however he had missed one sale invoice of July 2017 which he declares in the returns of September 2018. In the GSTR 2 A of the recipient, this entry will be reflected in which month July 2017 or September 2018? 

4. HSN wise Inward Supply

Having dealt with many SMSEs and Corporate since the launch of GST, I can say with confidently that most of the tax payers had either not configured their software for this kind of report or the configured software does not give correct report. In such a situation how will a taxpayer dig into the 9 months old data? Also a business receives “n” number of services and goods while doing this will have serious implication on day to day operations.

Another important question is what is the government aiming at while asking for such information?

When the outward supply is provided with HSN in GSTR 1, the tax on outward supply is verified.  With GSTR 2A inward ITC is verified. What is this inward HSN summary going to serve? If only it is aimed at verifying reversal U/s. 17(5), then sorry boss this is not worth the pain at all!

5. Conclusion

If the real aim of GST is “ease of doing business” then first let tax payers do business! The increased compliance burden makes MSMEs suffer!

Annual Return could have been made in a much simpler form and with application of mind like for example:

  • Auto population of GSTR 1 information
  • Fill information as per financial statement
  • Difference
    • Rectified in returns of April 2018 to September 2018
    • Rectified in Annual Return

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  1. AJAY MODI says:

    inward supply : for manufacturer top 10 RM, for trader top 10 traded item, service provider top 10 service or goods entry with HSN and Qty. is sufficient for inward supply entry. Large number of entry are also not possible for GSTN.

  2. R Muthuraj says:

    Dear Pragya,

    In your Example: If a supplier has filed the returns for July 2017 to March 2018 however he had missed one sale invoice of July 2017 which he declares in the returns of September 2018. In the GSTR 2 A of the recipient, this entry will be reflected in which month July 2017 or September 2018?
    As observed the effect is happening with in the returns of July’2017.
    With regard to other points mentioned, it seems to be an another disaster in GST.

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September 2021