The Hon’ble High Court of Gujarat in a recent decision has held that GSTR 3B is not a return in terms of Section 39 of the CGST Act, 2017 (‘Act’).
Judgment was given in the case of AAP And Co. Vs Union of India (Gujarat High Court).
In relation to a writ petition filed against the contents of para 3 of GST Press Release dated 18.10.2018, the High Court observed that GSTR 3B is not in lieu of GSTR 3, GSTR 3B is only a stop-gap arrangement till the GST system glitches were resolved for introduction of GSTR 3 and hence GSTR 3B is not a return in terms of Section 39 (1) of the CGST Act. Consequently, it has been held that, the contents of para 3 of the Press Release dated 18.10.2018 which restricted the availment of input GST credit for the period 2017-18 only till the last date of filing of GSTR 3B for the month of September 2018 (i.e. October 20, 2018, later extended to October 25, 2018) as not legal.
This is a welcome decision by the High Court. The confusion that prevailed in the industry with regard to the last date for availment of input GST credit on the invoices for the period 2017-18 has been addressed through this decision. While the High Court has only addressed the validity of para 3 of the Press Release dated 18.10.2018, the decision has wider ramifications across the GST legislation.
Let us look at some of the key implications of this decision.
1. Input GST Credit – It is evident from the above decision that GSTR 3B is not a return in terms of Section 39 of the Act. Hence, for the purpose of input GST credit, the assessee would not be constrained by the limitation prescribed under Section 16(4) of the Act. Section 16(4) of the Act provides that ‘a 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 the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier’.
With the above decision that GSTR 3B is not a return and GSTR 3 was not made effective for the financial year 2017-18, the assessee is not bound by the due date of furnishing return for the month of September 2018 (later extended vide Order No. 2/2018 dated 31.12.2018 till the return for the month of March 2019) for availing input GST credit. The other condition under Section 16(4) being, till the due date of furnishing of the annual returns, the assessee should be able to avail the input GST credit for the period 2017-18 till the date of furnishing of the annual return or August 31, 2019 (the extended due date for filing of the annual return) whichever is earlier.
However, in a recent clarification dated 03.07.2019, the Central Government in Para C of the clarification stated that the deadline for availment of credit for the period July 2017 to March 2018 has already passed and the taxpayer cannot avail credit for the period July 2017 to March 2018 in the annual return for the said period. This clarification is in contradiction to the interpretation of the above decision and needs to be seen as to how these different views will be resolved for the purpose of filing the annual return for 2017-18.
2. Credit Note/Debit Note adjustment – Section 34(2) of the Act provides that ‘’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, and the tax liability shall be adjusted in such manner as may be prescribed”.
The above provision in the context of 2017-18 would mean that any credit note for adjustment of invoices for the period 2017-18 has to be done in the GST return for the month of September 2018 or annual return whichever is earlier. Inferring from the above decision, given that GSTR 3B is not a return, the assessee should be now eligible for adjustment of credit/debit note for the period 2017-18 till the date of furnishing of the annual return or August 31, 2019 whichever is earlier.
3. GSTR 1 – The proviso to Section 37 of the Act in relation to furnishing details of outward supplies through GSTR 1 provides 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”. The above decision of the High Court would mean that even the GSTR 1 can be rectified till the due date of furnishing of the annual return.
Further, while the government insisted that input GST credit for 2017-18 has to be availed by September 2018 return (later extended to return for the month of March 2019 vide Order No. 2/2018 dated 31.12.2018), when it was the turn of declaring the output supplies in the annual return, it provided the flexibility to update the correct numbers of outward supplies in the annual return based on the books of accounts of the assessee and not necessarily based on the numbers finalized in GSTR 1 by the March 2019 return. This aspect has been clarified in the clarification dated 03.07.2019 stating that “the annual return provides an additional opportunity for such taxpayers to declare the summary of supply against which payment of tax is made”.
It is surprising that the positions adopted by the Central Government for disclosure of output liability and availment of input GST credit in the annual return are different for almost identical provisions under Section 16(4) and Section 37 of the Act.
4. Interest on Excess Input GST Credit – Section 50 and Section 42 of the Act, read together, contemplates levy of interest at 24% on irregular availment of credit without the invoice being uploaded by the supplier in GSTR 1 and for duplicate availment of input GST credit. However, this entire process of mapping of invoices of the supplier with the purchase of the recipient is linked into the process of filing of return under Section 39 of the Act.
With GSTR 3B having been held as not a return, it needs to be seen how the courts will deal with attachment of interest by the authorities to any excess credit availed and utilized through GSTR 3B in the absence of any specific provision under the Act connecting excess availment with GSTR3B. However, the authorities may still take the cover under Section 73 of the Act to recover the excess credit utilised along with interest.
5. Levy of Late Fee – Section 47 of the Act proposes late fee where the registered person fails to file the details of inward (GSTR 1) or outward (GSTR 2) supplies or furnish returns under Section 39 (GSTR 3) of the Act. The Central Government, has from time to time collected late fee on delayed filing of GSTR 3B (barring waived late fees for a few periods). If GSTR 3B is not a return then the provisions of Section 47 would be inapplicable on the same and hence there could be an argument for refund of the late fee so collected to the assessees.
Further, a host of other provisions on GST assessment, audit, annual return, refund, etc. are intricately linked to meeting the requirements of the return under Section 39 of the Act. Undoubtedly, this decision of the Gujarat High Court will have significant impact on a host of other provisions and the magnitude of the implication will be apparent as we move forward through the GST processes.
In order to mitigate the consequences of the above decision of the High Court, the Central Government could also take recourse to retrospective amendments to Section 39 of the CGST Act, 2017.