INTRODUCTION
Recently, the Gujarat High Court had occasion
to examine an interesting issue of whether GSTR3B is a return as envisaged u/s
16(4) of the CGST Act, 2017. In a detailed judgement, the Court held that the
press release dated 18th October, 2018 could be said to be illegal
to the extent that it clarifies that the last date for availing input tax
credit relating to the invoices issued during the period from July, 2017 to
March, 2018 is the last date for the filing of returns in Form GSTR3B for the
month of September, 2018. The decision brings to the fore the risks of changing
tax compliance processes without supporting amendments in the legislative
framework.
GUJARAT HIGH COURT DECISION
The pivot of the entire debate revolved
around the time limit for claiming input tax credit as prescribed u/s 16(4) of
the Act. The said provision is reproduced below for ready reference:
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 invoice relating to such
debit note pertains or furnishing of the relevant annual return, whichever is
earlier,
1Provided that the registered person shall be
entitled to take input tax credit after the due date of furnishing of the
return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the
said section for the month of March, 2019 in respect of any invoice or invoice
relating to such debit note for supply of goods or services or both made during
the financial year 2017-18, the details of which have been uploaded by the supplier
under sub-section (1) of section 37 till the due date for furnishing the
details under sub-section (1) of said section for the month of March, 2019.
Since section 16(4) of the Act refers to a
return to be filed u/s 39, the Court directed itself to the provisions of
section 39(1) of the CGST Act which reads as under:
Every registered
person, other than an Input Service Distributor or a non-resident taxable
person or a person paying tax under the provisions of section 10 or section 51
or section 52 shall, for every calendar month or part thereof, furnish, in such
form and manner as may be prescribed, a return, electronically, of inward and
outward supplies of goods or services or both, input tax credit availed, tax
paid and such other particulars as may be prescribed, on or before the
twentieth day of the month succeeding such calendar month or part thereof.
The search for the correct return format then
led towards Rule 61(1) which prescribes GSTR-3 to be the form in which the
monthly return specified u/s 39(1) should be filed. The said Rule reads as
under:
Every registered
person other than a person referred to in section 14 of the Integrated Goods
and Services Tax Act, 2017 or an Input Service Distributor or a non-resident
taxable person or a person paying tax under section 10 or section 51 or, as the
case may be, under section 52, shall furnish a return specified under
sub-section (1) of section 39 in Form GSTR-3, electronically, through the
common portal either directly or through a facilitation centre notified by the
Commissioner.
The provisions of section 16(4), section
39(1), Rule 61(1) and many other provisions were drafted considering the
original workflow of a two-way transaction level matching through the processes
of filing GSTR-1 followed by auto population of credit in GSTR2A and matching
and self-claim in GSTR-2, resulting in the return in form GSTR-3. However, due
to various reasons, the compliance process was sought to be simplified through
the introduction of form GSTR3B. The same was done not though any amendment in
the Act, but through the introduction of Rule 61(5). The initial verbiage of
Rule 61(5) was as under:
Where the time limit
for furnishing of details in FORM GSTR-1 under section 37 and in form GSTR-2
under section 38 has been extended and the circumstances so warrant, return in
form GSTR3B, in lieu of form
GSTR-3, may be furnished in such manner and subject to such conditions as may
be notified by the Commissioner.
The said verbiage suggested that form GSTR3B
was a substitute for the filing of return in GSTR-3. However, the said verbiage
was substituted with retrospective effect with the following words:
Where the time limit
for furnishing of details in form GSTR-1 under section 37 and in form GSTR-2
under section 38 has been extended and the circumstances so warrant, the
Commissioner may, by notification, specify that return shall be furnished in
form GSTR3B electronically through the common portal, either directly or
through a facilitation centre notified by the Commissioner.
Based on the above, the Gujarat High Court
observed that the Notification No. 10/2017 Central Tax dated 28th
June, 2017 which introduced mandatory filing of the return in form GSTR3B
stated that it is a return in lieu of form GSTR-3. However, the Government, on
realising its mistake that the return in form GSTR3B is not intended to be in
lieu of form GSTR-3, rectified its mistake retrospectively vide
Notification No. 17/2017 Central Tax dated 27th July, 2017 and
omitted the reference to return in form GSTR3B being return in lieu of Form
GSTR-3.
The observations of the Gujarat High Court
treating GSTR3B not as a substitute of GSTR-3 but merely as an additional
compliance requirement have widespread ramifications and some of those aspects
are discussed in this article.
IS THERE A DUE DATE FOR CLAIMING INPUT TAX
CREDIT?
While the Gujarat High Court does lay down
that the press release clarifying that the due date of filing the GSTR3B for
the month of September, 2018 to be the due date for claiming input tax credit
is illegal, it does not define any specific date by which the input tax credit
has to be claimed. With the understanding that the return referred to in
section 16(4) is GSTR-3 and not GSTR3B, it may be relevant to once again read
the provisions of section 16(4) to decipher the due date.
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 invoice relating to such
debit note pertains or furnishing of the relevant annual return, whichever is
earlier.
It is evident that the provision prescribes
the earlier of two events as the last date for claiming input tax credit:
(i) Due date of furnishing GSTR-3 for
September, 2018 – which has been extended ad infinitum;
(ii) Due date of furnishing the relevant
annual return – to be filed in GSTR-9 as per the provisions of section 44 read
with Rule 80.
Therefore, in general cases, the input tax
credit has to be claimed before the due date of furnishing the annual return in
GSTR-9. However, it may be important to note that fresh input tax credit cannot
be claimed in annual return but has to be claimed in GSTR3B (in interim) and
the GSTR-2 (in finality, as and when it is operationalised). Therefore, it will
be important to claim the input tax credit in any GSTR3B filed before the due
date of the filing of the GSTR-9.
WHAT IS THE IMPACT OF ROD ORDER EXTENDING THE
TIME UP TO MARCH?
Through CGST (Second Removal of Difficulties)
Order, 2018, the Government inserted a proviso to section 16(4) and purportedly
sought to extend the September deadline to March. However, the decision of the
Gujarat High Court and the verbiage of the said proviso suggests a different
interpretation. Let us look at the proviso once again:
Provided that the
registered person shall be entitled to take input tax credit after the due date
of furnishing of the return under section 39 for the month of September, 2018
till the due date of furnishing of the return under the said section for the
month of March, 2019 in respect of any invoice or invoice relating to such
debit note for supply of goods or services or both made during the financial
year 2017-18, the details of which have been uploaded by the supplier under
sub-section (1) of section 37 till the due date for furnishing the details
under sub-section (1) of said section for the month of March, 2019.
On a fresh reading of the said proviso, one
would notice that the reference to annual return is missing in the proviso. It
merely refers to the return in section 39 (which as per the Gujarat High Court
decision is GSTR-3 and not GSTR3B) and specifies that the credit can be claimed
till the due date of furnishing the return in GSTR-3 of March, 2019. This
absence of any reference to annual return in this proviso effectively means
that the input tax credit can be claimed at any point of time till the
Government notifies the due date for GSTR-3. However, it may be noted that the
proviso is restrictive in nature and covers only cases where the invoices have
been uploaded by the supplier in form GSTR-1 by the due date of filing GSTR-1
for March, 2019.
AMENDMENTS TO GSTR-1
Section 37(3) of the CGST Act, 2017 permits
rectification of any error or omission of the details furnished in GSTR-1. However,
such rectifications are not permitted after the date of furnishing the return
u/s 39 (GSTR-3, as per the High Court interpretation) for the month of
September or furnishing of the annual return, whichever is earlier.
Applying the above observations relating to
input tax credit, the date of furnishing the annual return would be the outer
date before which the amendments to GSTR-1 can be carried out. It may be noted
that unlike section 16(4) which uses the phrase ‘due date’ of return, section
37(3) uses the phrase ‘date’ of furnishing the return.
WHAT IS THE DUE DATE OF PAYMENT OF TAX?
Section 39(7) prescribes the due date for
payment of tax. The said due date of payment of tax is linked to the date of
filing the return (GSTR-3, as per the decision of the High Court). Due to the
introduction of an interim return in GSTR3B, a proviso was inserted in section
39(7) to provide as under:
Provided that the Government may, on the
recommendations of the Council, notify certain classes of registered persons
who shall pay to the Government the tax due or part thereof as per the return
on or before the last date on which he is required to furnish such return,
subject to such conditions and safeguards as may be specified therein.
Apart from this, Rule 61(6) was inserted in
the CGST Rules, 2017 to provide as under:
Where a return in
form GSTR3B has been furnished, after the due date for furnishing of details in
form GSTR-2,
(a) Part A of the return in form GSTR-3 shall be
electronically generated on the basis of information furnished through form
GSTR-1, form GSTR-2 and based on other liabilities of preceding tax periods and
Part B of the said return shall be electronically generated on the basis of the
return in form GSTR3B furnished in respect of the tax period;
(b) the registered
person shall modify Part B of the return in form GSTR-3 based on the
discrepancies, if any, between the return in form GSTR3B and the return in form
GSTR-3 and discharge his tax and other liabilities, if any;
(c) where the amount
of input tax credit in form GSTR-3 exceeds the amount of input tax credit in
terms of form GSTR3B, the additional amount shall be credited to the electronic
credit ledger of the registered person.
The above provisions have to be read along
with Notification 23/2017 prescribing return in form GSTR3B. Para 2 of the said
Notification lays down the condition requiring the discharge of the tax payable
under the Act. The phrase ‘tax payable under the Act’ is defined under clause
(ii) of the Explanation to mean the difference between the tax payable as
detailed in the return furnished in form GSTR3B and the amount of input tax
credit entitled to for the month.
Having reconciled to the position that GSTR3B
is an additional compliance return and not a substitute for GSTR-3, the
following propositions emerge:
(1) GSTR3B is an additional ad hoc
compliance requirement (akin to advance tax requirement under income tax);
(2) As and when the process of GSTR-2 and
GSTR-3 is operationalised, the difference between the tax payable as per GSTR3B
and GSTR-3 shall be payable under Rule 61(6)(b). There is no reference to any
interest payable on such difference and since the due date of the said payment
is not notified, it is not evident whether there is a delay in the said
payment;
(3) Similarly, Rule 61(6)(c) would also
permit the differential input tax credit to be credited to the electronic
credit ledger at that point of time.
THE WAY FORWARD
The Gujarat High Court decision clearly
demonstrates the perils of administering the law through notifications and
bringing about fundamental amendments to processes and compliances without
corresponding legislative amendments. It is important for the Government to
look at this decision as a wake-up call and review comprehensively all such
disconnects in law and practice and propose suitable amendments in the
legislative framework so that the law is aligned to the practices expected of
the taxpayers.
