Notices being issued for Non-Payment of Output Tax Liability under GST in cash because Output Tax Liability being discharged by a registered person through utilization of Input Tax Credit.
Now-a-days the Department is sending notices to get clarification in regard of non-payment of Output Tax Liability because such liability being discharged by the person through Input Tax Credit. The GST Law allow to utilize input tax credit to discharge output tax liability. But availing and utilization of input tax credit must be done according to law. It is also correct that output tax on profit portion should be paid. For example, a person buys goods for Rs.1000.00 and pays input tax Rs.180.00. Now he sells such goods at Rs.1200.00 and collects gst Rs.216.00. After utilization of Rs.180.00, the person should pay Rs.36.00 in cash on profit portion i.e. 200.00 @ 18%. But it is also correct that in following reasons output tax liability would have been set off through input tax credit-
1. The person buys over stock. Suppose in a month he sells goods of Rs.2000.00 but he had bought goods of Rs.3000.00. Due to this over-buying, requirement to pay output tax liability does not arise. But from one point and later on, the dealer shall have to pay GST.
2. There is no provision of reversing the input tax credit under the GST if the person sells goods on loss while adhering the provisions stated under section 15 for purpose of valuation of taxable supply. A person sells goods at Rs.500.00 whose cost price is Rs.700.00. In this case also liability to pay output tax liability would not be arisen.
> But some time a person becomes over smart and takes such illegal steps so that liability for payment of tax should not be arisen. He does following transactions for this purpose–
1. He procures tax invoices, without getting supply of goods or services, to avail input tax credit.
2. He makes entry of sales at per reduce rate of tax in the books of account. For example, rate of tax for a particular goods is 18 percent but to reduce tax liability he makes such entry at the rate of 5 percent.
3. Sometimes he purchases goods or capital goods for his personal use and he accounts for such purchases in the books which increase the invalid input tax credit. Sometimes he does not reverse input tax credit on goods used for non-business purpose.
4. Some time he deliberately feeds input tax credit in the return Form GSTR 3B to reduce output tax liability.
5. And there may be other reasons very well known to him. Here is some examples have been taken to understand the topic.
The GST Council is also updating his system day by day to stop such illegal and invalid steps being taken by unscrupulous persons. Providing GSTR-2A, GSTR-2B and insertion of new rule 36(4) etc. are such steps which shall control on illegal and invalid claim of input tax credit.
> It is advised to a genuine person that if he has not been paying output tax liability in cash but all output tax liability being set off through input tax credit then he must do homework to reply the notice if he receives it or to rectify the mistake if he had done any such mistake. Some reconciliation tips are being given as under:
1. Over Purchase – For example, the person has not paid any output tax liability in cash during the period 01-04-2019 to 31-03-2020. He should check his closing stock with opening stock. For example, as on 01-04-2019 the stock was Rs.1 lakh with electronic credit ledger balance of Rs.16200.00. During the year 2019-20 he makes purchase of Rs.200000.00 after payment of input tax Rs.36000.00 and he sells goods of Rs.110000.00 on which he collects tax Rs.19800.00. In this case the sale of the person is less than his purchase made during the year. The stock balance and input tax credit balance as on 31-03-2020 would be Rs.2 lakh and Rs.32400.00 respectively. Due to the reason that sale is less than the purchase made during the year, the person had not paid tax in cash during the year.
2. Goods Sold on Loss – In the above example a person had to sell goods of Rs.200000.00 whose cost was Rs.300000.00. Thus, he had sold goods on loss by Rs.100000.00. Now as on 31-03-2020 stock in hand would be Rs.0.00 (NIL) (Opening 100000+Purchase 200000-Sale 300000). Input Tax Credit Balance will be Rs.16200.00 as on 31-03-2020 – (Opening 16200+Purchase 36000-Sale 36000). In this case stock is NIL, output tax liability not paid in cash and even input tax credit balance is available Rs.16200.00 which (input tax credit balance) may be adjusted against future output tax liability.
3. Purchase of Capital Goods – Input tax credit on capital goods purchased for business purpose is availed one-time full ITC. On this reason payment of output tax liability to be paid in cash might not be arisen.
4. Multiple rates of tax – It is also advised that if the person does busines in multiple rates of tax items then he should maintain stock rate wise. Sometimes it is found that stock under one rate say of 5 percent go to negative. It is happened when goods pertain to rate of 18 percent sold at 5 percent then stock of 18 percent will be in over side but stock of 5 percent will be in negative. Therefore, it is advisable to maintain rate wise stock also to check this discrepancy.
5. The best reason for not paying output tax liability in cash is known to the person according to his books of account and nature of business.
> The Department may examine the undermentioned records also for which one should be ready to provide the reply: –
1. The Department may get reconciliation of input tax credit, credit availed through GSTR returns 3B with tax available in GSTR-2A.
2. The Department may check validity of availed transitional credits.
3. The Department may examine reversal of input tax credit if the persons deals in exempt supply of goods or services or both or reversal is required under any other section or rule.
4. The Department may examine date of payments made against purchases to check whether payment had been made within 180 days within the date of issue of invoice by a supplier.
5. The Department may examine the books whether claim of input tax credit had been availed within stipulated period as envisaged under section 16(4) of the CGST Act, 2017. According to this section 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 financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Availment of input tax credit is very easy but when a matter is come to get examine such availment of input tax credit or other matter in GST then it will be very tedious and hard job if proper and regular records had not been maintained. It is very difficult for a someone in such a digital era to hide his mistake done inadvertently or deliberately. Therefore, GST want sincerity, honesty, regularity and day to day basis maintenance of accounts.
(To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is firstname.lastname@example.org.)