Unlike the erstwhile indirect tax laws, the provisions contained in Section 54(3) of the CGST Act, 2017 provide for a refund in case of an inverted duty structure. Inverted duty structure means a situation where the rate of tax on inputs is higher than the rate of tax on outward supplies. While, the provisions for refund in case of an inverted duty structure are a welcome step and have been appreciated by one and all, however, the process of filing the refunds on the GST portal due to recent changes is proving to be nothing short of a nightmare for both taxpayers and consultants alike.
The application for filing refund has to be made in form GST RFD-01A along with which invoice wise details of inward and outward supplies have to be furnished electronically in Statement 1A. The Statement 1A uploaded by the taxpayer is validated by the system from the invoice data available with the system. While the details of outward supplies are validated from the data furnished in the GSTR-1 by the taxpayer himself, the details of inward supplies are validated from the GSTR-1 furnished by the persons from whom the taxpayer has procured the inward supplies. The Article below highlights the various technical issues which might arise in the filing the refund application due to invoice matching:
1. The details of B2C supplies are furnished by taxpayers in their GSTR-1 state wise and there is no provision to furnish invoice wise data in respect of the same. In such a case, if the details of any B2C invoice issued by the taxpayer of B2C supplies are furnished by the taxpayer in the Statement 1A, the system gives a validation error that the particular invoice is not found in GSTR-1 data available with the portal. Neither the GSTR-1 shall accept the invoice wise data of B2C supplies, nor the software validating the Statement 1A is intellectual enough to differentiate between a B2B supply and a B2C supply and accept the B2C supply even if invoice wise details are not available;
2. The details of inward supplies are validated from the GSTR-1 data furnished by the parties from whom the taxpayer has procured the inward supplies. While the validation prevents any fraudulent refunds, it leaves no room for correction in case invoice wise data furnished by the parties from whom the taxpayer has procured the inward supplies is incorrect with respect to taxable value / tax rate / invoice number or tax amounts. For example- if A Ltd. issues an invoice to B Ltd. for INR 10,000 plus 18% tax. However, A Ltd. enters the tax rate in its GSTR-1 as 28% due to a clerical error. In such a case, there is no provision for B Ltd. to enter the invoice data correctly in Statement 1A. Either B Ltd. can forego that invoice or B Ltd. has to enter the invoice as taxable at 28% (as has been entered by A Ltd.). Further, if during the course of any proceedings it is later detected that B Ltd has furnished incorrect data and claimed excess refund, B Ltd. shall be liable to interest @ 24% on the inadmissible refund and also penalty under the Act for no fault of B Ltd..
3. The details of inward and outward supplies are matched from the GSTR-1 data even to the extent of decimal values and the system does not accept rounded off values. For example, if the tax on a particular invoice is entered in GSTR-1 as INR 721.75 and the tax amount entered by taxpayer in the Statement 1A is INR 722, the system will give a validation error that the invoice data is not matching with the GSTR-1 data. While correcting these types of errors is possible, it is an unnecessary laborious exercise having little logic especially for those taxpayers having a large number of invoices;
4. The invoice wise matching of inward supplies leaves no scope for taxpayers to claim refunds of those invoices that are not appearing in the GSTR-2A of the taxpayer. While this system prevents taxpayer to file fraudulent refunds claims, however, genuine taxpayers may also face hardships due to fault on the part of the person from whom inward supplies are procured. It may be argued by the tax authorities that this system prevents taxpayers to claim refunds in respect of invoices for which tax has not been paid by any person. However, there may be other reasons for the input tax credit not reflecting in the GSTR-2A of the taxpayer. The person from whom the taxpayer has made the purchases might have declared the supply as a B2C supply or declared the supply with an incorrect GSTN number. In such cases, even though tax was paid with respect to the supply, claiming refund in respect of that invoice would not be possible. Further, the sunset clause of amending the invoices upto September of the next financial year adds to the misery of the taxpayers.
It is also worth mentioning here that even though Circular No. 59/33/2018-GST clearly specifies that invoices can be submitted by the taxpayer in case the invoices are not appearing in GTSR 2A of the taxpayer and refunds can be claimed in respect of such invoices. However, the GSTN portal makes no provision to claim refund in respect of those invoices which are not appearing in GSTR 2A of the taxpayer. This is irrational considering that circulars issued are also binding on the tax authorities.
While using the GSTN software as a tool to check tax evasion is a welcome move, however, practical repercussions of the same should be examined in detail. Further, it should also be ensured that the portal does not impose limitations on the circulars issued by the tax authorities.
(The author is a practicing Chartered Accountant based in Delhi and can be reached at firstname.lastname@example.org or 9811933762)