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1. 01.2022 has changed the dynamics for managing the cash-flows as far as the businesses are concerned. No businessmen can take the risk of default in filings/payments under GST as far as the self-assessed liabilities are concerned. We say so for the following reasons.

2. W.e.f. 01.01.2022 the entire GST cycle has been tightened. The normal cycle runs as under:

GST cycle has been tightened

3. Now a weak business that has made the taxable supplies but is running short of funds to discharge GST liabilities will face the following options as regards the compliance on a monthly basis (exclude the quarterly filers that will eventually face a similar challenge albeit after the end of the quarter):

Option Consequences
To file GSTR 1 and not file GSTR 3B in view of the shortage of funds to deposit the tax
  • The authorities by virtue of amendment in law (Explanation to Sec. 75(12)) will have the power to initiate the direct recovery of the liabilities (remember that it shall be gross liabilities as ITC cannot be offset in view of non-filing of the GSTR 3B) by attaching the bank account/other assets of the taxpayer including confiscation of property that will certainly bring the business to halt (as the entire fund’s cycle will get disrupted).
  • Further non-furnishing of GSTR 3B for a single tax period will restrict the taxpayer from filing GSTR 1 for the succeeding tax period due to Rule 59(6) (if the taxpayer cannot make the arrangement for the funds by such date).
  • It may be noted that in the given scenario the taxpayer cannot take the option of filing GSTR 1 declaring actual liability and filing GSTR 3B declaring only the liability to the extent of the available ITC so as to offset the same. Such misdeclaration will attract cancellation of registration (Rule 21) that will certainly bring the business to halt.
Not to file GSTR 1 and GSTR 3B till the funds to deposit the tax along with interest are arranged
  • In such case, the recipients (B2B) of the said taxpayer will not be entitled to the input tax credit (Sec. 16(2)(aa)) as the supplies will not get auto-populated in GSTR 2B and hence will largely not reimburse the GST component to such erring taxpayer.
  • This aggravates the situation as non-reimbursement of GST by the recipients will only add more pains to the already suffering taxpayer and further creates difficulty in terms of arranging far greater funds than otherwise ordinarily required to pay the outstanding liabilities.

4. The above table reveals that none of the aforementioned options is advisable.

5. Further, the facility of making the payment under instalment (Sec. 80) is generally not available for the self-assessed liability.

6. Further, the facility to generate E-way bills (must for the inward and outward movement of goods beyond the value of Rs. 50,000/- generally) will be restricted if GSTR 1 or GSTR 3B has not been filed for the two consecutive tax periods (Rule 138E). Also, consider that the belated payments of liabilities will attract interest @ 18% p.a. when earning that rate of return is not possible in every business.

7. The aforesaid situation becomes onerous since a default beyond even one month can have harsh consequences. Hence businessmen cannot hope to regularize the default over a period of time (exceeding one month) on the basis of the normalization of the business cash-flow cycle (that may extend over several months depending on the nature of business) without entailing the risk of aggravating the adverse situation.

8. Now in the aforesaid environment, no businessmen can opt to ignore the timely discharge of GST liabilities as the consequences of failure will result in only further aggravation of the problem. Hence now the time has come to review the cash-flow cycle (this applies equally to start-ups as they are not excused from the aforesaid environment). The subject of GST in such evaluation should deserve the top-most priority.

9. Genuine taxpayers facing a temporary cash crunch (due to various exigencies of business) will have to pin their hopes on the Courts to find a solution to keep the businesses running and at the same time secure the recovery of the revenue for the Government.

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