RETURNS UNDER GST – A NEW LOOK !!

INTRODUCTION

1.  When GST was introduced in July,
2017, a lot of noise was created around the proposed elaborate return filing
systems which provided for online uploading of invoices issued by the supplier
systems, monthly reconciliation of transaction between registered persons,
amendment of transaction in case of mis-matches and subsequently filing of the
final return on a monthly basis to be followed by an annual return at the end
of the financial year and audit for suppliers where the aggregate turnover
exceeded the prescribed limit of Rs. 2 crore.

2.  However, the system remained in
papers only as implementation was hit with multiple issues, ranging from
non-functional government portal, lack of preparedness amongst all the
stakeholders, confusion relating to the law, and so on. Therefore, dropping the
above proposed structure, the elaborate return filing mechanism was kept on
hold and compliance was restricted to filing of GSTR 1, i.e., details of
outward supplies on either monthly or quarterly basis depending upon prescribed
turnover and GSTR 3B, a summary statement of outward supplies made during the
period and input tax credit availed on inward supplies on a monthly basis.

3.  However, the makeshift
arrangement did not serve the purpose of Government to allow credits based on
transaction level matching, identifying defaulting taxpayers at an earlier
stage, etc. Therefore, a new return filing mechanism has been proposed to
re-introduce the concept of uploading of all details relating to outward and
inward supplies and matching of transactions. In this article, we shall deal
with the proposed return forms and various intricate issues revolving around
the same. The entire discussion is based on the proposed return formats made
available on the public platform. The proposed return filing mechanism is
expected to be made applicable w.e.f July, 2019. The enabling provisions w.r.t
the same are contained in section 43A of the CGST Act, 2017.

BROAD FRAMEWORK

4.  The proposed framework
bifurcates tax payers into two categories, based on their aggregate turnover
as:

–Tax payers having annualised aggregate turnover during FY 2017-18
not exceeding Rs. 5 crore. Such tax payers have been given an option to
file returns quarterly or monthly. Further, there are three different options
of returns which can be filed by such tax payers, which are Sahaj, Sugam and
Normal returns. However, if opting for quarterly returns, the tax payers would
be required to make payment of taxes on monthly basis only, which would be
considered while filing of quarterly returns. Further, in case of fresh
registration, the turnover of the previous financial year shall be considered
as zero and therefore such taxpayers shall have an option of filing the returns
either monthly or quarterly.

–Tax payers having annualised aggregate turnover during FY 2017-18
exceeding Rs. 5 crore. Such tax payers have to compulsorily file returns on
monthly basis.

5.  The following chart explains
the proposed scheme:

6.  The option of whether return
has to be filed monthly or quarterly has to be selected at the start of the
financial year. It is important to note that once a periodicity is selected,
the same can be changed only during the start of next financial year. It is
also important to note that in case there is a change in status during the next
Financial Year, it will be the responsibility of the tax payer to opt for the
change. In case no option is selected, the option selected in the previous year
shall continue to be applied for the next Financial Year as well.

7.  Once a tax payer opts to file
quarterly returns, the next step that he needs to take is decide the type of
return that he has to file. For such tax payers there are three different
options of return filing available based on the type of transactions carried
out. For instance, Sahaj scheme is feasible for such tax payers who exclusively
provide service to unregistered persons while Sugam is suitable for those class
of tax payers who are providing service to both, registered as well as
unregistered persons but do not make other supplies, such as exempt, non-GST,
zero rated, etc. For the balance tax payers, i.e., who have all kinds of
transactions, the normal option has to be chosen.

8.  In case Sahaj option has been
selected, the tax payer can switch to Sugam but not vice-versa. Similarly, in
case a tax payer selects the normal scheme, he can switch to Sahaj / Sugam
scheme. However, the switch can be done only once, at the start of the
financial year. Further, option for switching from Sugam to Sahaj is not
available, except at the start of the financial year.

FLOW OF EVENTS

9.  The flow of events preceding
the filing of the above returns, be it Sahaj / Sugam / Normal return is

-Filing of ANX – 1 – this contains details of outward supplies made
during the tax period and details of inward supplies liable to RCM.

-Filing of ANX – 2 – based on details auto-populated from the suppliers
ANX – 1, the recipient shall file details of inward supplies are following the
steps discussed in the subsequent paras.

-Filing of RET – 1/2/3 – basis the details furnished in ANX – 1 and ANX
– 2, the tax payer will be required to file his applicable return and discharge
the applicable taxes, interest, fees, etc.,

-Interestingly, the formats are silent w.r.t the due dates for filing
the Annexures. Only in the context of ANX – 2, it has been stated that the same
shall be deemed to be filed after the return for the relevant period (month /
quarter) has been filed.

10. While the return in case of
Sahaj and Sugam has to be filed quarterly, the tax payer will have to make
payment on monthly basis in PMT-08 on provisional basis, after disclosing the
liability as well as the ITC availed provisionally, which will be available for
offset while filing the quarterly return. However, in all other cases,
compliances will have to be done on a monthly basis.

11. In this article, we shall
discuss in detail the various intricate aspects revolving around the filing of
ANX – 1 , ANX – 2 and RET – 1 along with the amendments through ANX – 1A and
RET – 1A.

ANX – 1 – details of outward supplies and inward
supplies liable to RCM

12. The new mechanism provides the
tax payer an option to upload ANX – 1 during the course of tax period itself
and not after the end of tax period. Further, the details will also be updated
on real time basis and would be made available to the recipient in his ANX – 2
by way of auto-population.

13. It is imperative to note that
the information to be provided in ANX – 1 is segregated into two parts, one
relating to outward supplies and second relating to inward supplies liable to
RCM. However, on going through the proposed formats, one can note that the
details relating to inward supplies required to be reported not only covers
transactions where tax is payable on RCM, but also all other cases where tax is
applicable but not charged by vendors. For instance, import of goods from
outside India / SEZ / SEZ developer and documents on which credit has been
claimed but not disclosed by the supplier in his RET – 1 for more than two tax
periods, if the tax payer files return monthly and one tax period if the tax
payer files return quarterly.

14. The following table lists down
the key information relating to a transaction that would be required to be
reported in ANX – 1:

15. Once the above set of details
w.r.t each transaction has been collated, the tax payers will need to
segregate, depending on its’ nature, each transaction into:

16. The above classification at
various junctures mentions “including edit / amendment”. The background to the
same is that the proposed scheme is also expected to work on a concept of
matching of transactions. It has been provided that once a transaction has been
uploaded on the portal, the facility to edit/amend the same shall depend on the
status of the transaction, i.e., whether it has been accepted or not? If not
accepted, the same can be amended upto 10^th of the following month.
However, if accepted, the same can be amended upto 10^th of the
following month, provided the same has been reset/unlocked by the recipient.
However, this restriction of editing/amending a transaction will not apply to
cases where the same pertains to a transaction of supply to a person not filing
returns in RET – 1/2/3, for example supplies made to composition dealers, ISD
or UIN holders and so on). Further, a facility of shifting the documents is
also proposed to be provided for transactions rejected by recipients on account
of wrong tagging. For instance, transaction wrongly tagged as SEZ supply on
payment of tax while the same relates to SEZ supply without payment of tax.

17. In addition to the above, all
tax payers who make supplies through e-commerce operators shall also be
required to disclose the details of turnover made through E-commerce operator
in table 4. However, it is important to note that the details to be disclosed
in table 4 should already be disclosed in table 3 and this is merely for
statistical purpose and would not have any impact on the output liability of
the tax payer.

TRANSITION FROM EXISTING SYSTEM

18. One important question that
arises is how to deal with cases where invoices were issued prior to the
introduction of the proposed scheme. For such cases, there can be three
probable scenarios, as tabulated below:

ANX – 2 ANNEXURE OF INWARD SUPPLIES AND MATCHING CONCEPT

19. This annexure primarily deals
with the concept of matching of transactions wherein the transactions reported
by suppliers would be auto-populated on real time basis in this annexure and
the recipient is required to mark each such transaction as either accepted,
rejected or pending.

20. The act of accepting a document
would mean that the recipient has accepted the transaction in all aspects. Acceptance
of a transaction would make it not eligible for edit / amendment by supplier,
unless unlocked.

21. Upon acceptance, if the
supplier has disclosed the transaction in ANX – 1 by 10^th of the
next month, credit of the same can be claimed by the recipient in the month to
which the transaction pertains. However, for transactions disclosed after 10^th
of the next month, credit would get deferred. Let us understand this with an
example. A supplier has issued an invoice on 15^th July, 2019 and
disclosed the same in ANX – 1 on 5^th August, 2019, the recipient can
claim credit of this invoice while filing the return for the month of July,
2019 itself. However, in case the supplier reports this transaction only on 15^th
August, 2019, then the credit will have to be claimed in the next month.

22. The need to reject a
transaction shall arise, as per the instructions to filing ANX – 2, when
recipient does not agree with details disclosed such as the HSN Code, tax rate,
value etc., which cannot be corrected through a credit/debit note or the GSTIN
of the recipient itself is erroneous and therefore the transaction appears to a
person who is not concerned with the same. The notice of rejection of a
transaction would be sent to the supplier only after filing of return by the
recipient and the same would enable the supplier to edit / amend the
transactions in ANX – 1.

23. The third action, i.e., mark
the transaction as pending means that the recipient is either unsure of the
transaction appearing in ANX – 2 or he is yet to receive the invoice for such
transaction or the corresponding supplies would not have been received by them.
Such transactions which are marked as pending would be rolled over to the ANX –
2 for the next period. However, the same would not be available to the
supplier for editing / amendment unless the recipient rejects them.

24. However, if any transaction is
not marked as accepted/ rejected / pending and the return in RET – 1 / 2 / 3 is
filed, the same shall be deemed to be accepted and corresponding ITC shall be
made available for such recipient. Therefore, it would be very important for
the recipient to ensure that all transactions are marked as either accepted,
rejected or pending as failure to do so might result in claim of credit in case
of transactions which were ultimately meant to be rejected or dealt with
ineligible credits.

25. In addition to the above, there
can be instances wherein a recipient has received invoice from a supplier and
accounted the same in his books of accounts. However, such invoice is not
reported by the supplier in his ANX – 1 or has been reported wrongly (say
classified as B2C or tagged to wrong GSTIN and so on). For such transactions,
the recipient of supply shall be required to self-claim credit for such
transactions in the return form. However, such recipient shall be required to
disclose transactions of self – claim of credit in ANX – 1 if the supplier has
failed to report the transaction in his ANX – 1, in the following manner:

-If the supplier failed to report supplies after lapse of two tax
periods in case of monthly return and one tax period in case of quarterly
return being filed by the recipient.

-The details of such transactions
wherein the suppliers have still not filed their returns, but credit has been
claimed by therecipient shall be made available to the recipient through ANX –
2.

RET – 1 – MONTHLY OR QUARTERLY RETURNS UNDER THE NORMAL SCHEME

26. This is the return which each
tax payer is required to file w.r.t his outward and inward supplies. As of now,
the formats suggest that substantial information would be auto-populated from
disclosures made in ANX – 1 and actions taken on various transactions appearing
in ANX – 2 of the tax payer.

27. However, there would be certain
information which would be required to be filled by the tax payer. The same in
the context of outward supplies would be:

28. Similarly in the context of
inward supplies and input tax credit, the tax payer would require to input
following details which would increase the claim of input tax credit:

29. Further following details which
would decrease the claim of input tax credit will also have to be manually
added to the return by the tax payer:

30.In addition to the above, as statistical
information, the tax payer would need to identify the amount of credit which
pertains to capital goods and input services out of ITC available net of
reversals determined in the return. The logic behind this segregation is to
determine the amount of ITC in case the tax payer claims refund of accumulated
ITC on account of zero rated supplies/inverted rate structure. However, this
would pose a substantial challenge since various adjustments to the ITC
reported in the return, such as relating to Rule 43 are at aggregate level and
cannot be identified easily at transaction level and therefore the submission
of information to this extent might pose difficulty.

31. The next field that is relevant relates to
calculation of interest and late fee details at table 6. The liability on
account of interest and late fee due to late filing of returns would be
auto-computed by the system. Interestingly, this would also cover following:

liability on
account of late reporting of tax invoices, for instance, invoice of July
reported in August.

liability on
account of rejection of accepted documents.

32. In addition to the above, the tax payer will be
also required to self-calculate interest liability on account of following:

reversal of input
tax credit on account of various reasons, such as Rule 37, 42, 43, etc., as
well as interest

interest liability on account of delayed reporting of transactions
attracting reverse charge. The time of supply in case of reverse charge
transactions is attracted within 60 days from the date of invoice or date of
payment to the vendor, whichever is earlier. However, in case of supply of
services by Associated Enterprises located outside India, the time of supply is
triggered on the date when the entry is made in the books of accounts or the
date of payment, whichever is earlier. In all such cases where the time of
supply is determined late, the same would result in a liability to pay interest
which would have to be reported here.

•    Any other interest liability

33. Once the above action is taken, the tax payer
will have to discharge the liability, either by utilising the balance lying in
electronic cash ledger or electronic credit ledger as per the applicable
provisions and file the return.

ANX – 1A – AMENDMENTS TO ANX – 1

34. Under the proposed scheme, it is provided that
a tax payer can amend the details furnished in ANX – 1 and RET – 1 by amending
the return filed for the tax period in which the transaction was reported.
However, such amendment can be done only for transactions wherein GSTIN level
details were not submitted. In other words, B2B, SEZ and Deemed export
transactions cannot be amended. The same will have to be processed through the
“edit/amendment” route only as discussed above.

35. For other cases wherein amendment is required,
the amendment will have to be given effect for the period to which the
transaction pertains. For instance, a sales invoice was reported in July, 2019
as local sale. In September, 2019, it came to the tax payers’ attention that
the transaction was wrongly reported as local sale though it was an interstate
sale as per invoice. Accordingly, for such transaction, the tax payer will be
required to file ANX – 1A of July, 2019 and then proceed to file RET – 1A to
amend the RET – 1 of that period.

36. The above concept will be applicable in case of
amendment of transaction reported late in ANX – 1 also. For instance, an
invoice dated July, 2019 has been reported in ANX – 1 of September, 2019 and
liability discharged while filing the return for September, 2019. However, if
for such transaction any amendment is required to be done, the same will have
to be done in the month of July, 2019 as the transaction pertains to that
month, though disclosed in September, 2019.

37. An amendment can be done in ANX – 1A only w.r.t
transactions which have been reported in ANX – 1. For instance in the above
example, if an invoice dated July, 2019 was not reported in ANX – 1 of July,
2019, the same cannot be then reported in July, 2019 through ANX – 1A. Such
transactions can be reported only through ANX – 1.

38. The ANX – 1A shall be deemed to be filed only
after the RET – 1A has been filed.

RET – 1A – AMENDMENT TO RET – 1

39. Based on the details amended in ANX – 1A,
amendment to details already disclosed in RET – 1 on account of the ANX – 1A
will have to be done. For instance, in ANX – 1A, the liability under reverse
charge has been increased. The impact of this amendment will be auto-populated
in RET – 1A and the tax payer will have to make disclosures w.r.t the said
amendment as to whether any supplies are not eligible for credits and so on.
Only the impact of amendments will be considered in RET – 1A and not all the
transactions reported in the original return.

40. Basis the amendments disclosed in the RET – 1A,
the net tax payable/refundable will be determined. In case a liability is
determined, the same will have to be paid before the filing of RET – 1A.
However, in case the amendment results in excess payment, or negative liability
as referred in the instructions, the same will be made available to the
taxpayer in the next RET – 1 to be filed after filing of RET – 1A. 

CONCLUSION:

41. The proposed scheme of returns, undoubtedly
appear more in the nature of old wine in new bottle, with the scope of details
to be disclosed remaining more or less the same. However, there are certain
substantial changes, such as option to amend the returns itself.

42.  In
addition to the above, it will also be important for tax payers to shore up
their IT systems to facilitate the above process through automation rather than
manual intervention to avoid possibility of errors.