A return is a mirror reflection of the state of financial affairs of an assessee for a specified period. It serves as an important link between the taxpayer and tax administration inasmuch as it aids the compliance verification program of tax administration by providing necessary inputs for taking policy decision, management of audit, anti-evasion programs and finalization of the tax liabilities of the taxpayer in a timebound manner.
One of the key business processes in the GST regime would be the return process. GST regime is expected to be system driven with minimal human intervention and the return process suggested by the Joint Committee in its report submitted in the month of October, 2015 is a testimony to it.
The paper writers have attempted to discuss certain key aspects of GST return process, challenges therein and suggestions to make it more tax payer friendly so that the compliance burden could be minimised.
Key Aspects – analysed:
1. Every registered taxable person is required to file returns online only and there is no option to file returns manually. There would be a facility offered to fill the return in offline mode and then submit the same in the GST portal. The returns would be common for CGST, SGST, IGST and Additional Tax.
2. There would be separate returns for different categories of taxpayers:
- Normal/Regular andCasual Taxpayer (GSTR – 1, 2, 3 & 8).
- Compounding Taxpayer (GSTR – 4 & 8).
- Foreign Non-Resident Taxpayer (GSTR-5).
- Input Service Distributor (GSTR-6).
- Tax Deductor (GSTR-7).
3. Returns by a normal/casual taxpayer are to be filed in a sequential manner with different cut-off dates to allow auto-population of return and automated matching of invoices.
4. Payment of tax due is a must for filing a valid return. Although the portal would permit filing of a return even if there is short/non payment of taxes it shall be treated as invalid. The same will not be taken into account for invoice matching and inter-Government fund settlement. That means the counter party or purchaser would not be able to avail the credit, if the supplier has not paid the tax before filing the return. It also means that the customer may not pay the tax or the bill itself!!
5. There would be no provision for revision of return. The information furnished in earlier return could be revised by capturing differential Tax liability through debit note / credit note/ supplementary invoices / correction mechanism.
6. GST network would maintain electronic cash ledger, ITC ledger and tax liability ledger in respect of each of the registered taxable person.
7. The timelines for filing of returns by different tax payers would be as follows:
|Type of Return||When to be Filed|
|GSTR-1||10th day of succeeding month for uploading supply invoice details.|
|GSTR-2||15th day of succeeding month: last date for auto-population and uploading purchase details.|
|17thday of succeeding month||Last date for finalizing supply and purchase details.|
|GSTR 3||20th day of succeeding month having details of supply, purchases and other adjustments.|
|GSTR-4||Compounding tax payers to file quarterly return: by 18th day of succeeding month of the quarter.|
|GSTR-5:||Foreign Non-resident Taxpayers to file monthly return: within 7 days after expiry of registration.|
|GSTR-6:||Input Service Distributors(ISD) taxpayers to file monthly return: by 15th day of succeeding month.|
|GSTR-7:||Tax Deductors to file monthly TDS return: by 10th of succeeding month.|
8. Uploading of sales details in GSTR -1:
i. In case supplies made to B2B – All invoices without any limit.
ii. In case supplies made to B2C – if taxable value per invoice is equal to or more than Rs.2,50,000/-, then the same needs to be uploaded. For others only the aggregate summary with HSN / SAC code and state-wise (by mentioning state code) needs to be uploaded.
iii.In case the invoice value is more than or equal to Rs.50,000/- mandatorily it should have buyer’s details. If the buyer’s details are not mentioned the same would be considered as intra-state transaction even if in reality it may be an inter-state transaction.
9. HSN code for goods – invoice level:
i. 4-digit HSN Code mandatory for taxpayers having turnover above Rs. 5 crore in last financial year.
ii. 2-digit HSN Code for taxpayers with turnover between Rs. 1.5 Crores and Rs. 5 Crores in the preceding financial year – optional in 1st year and mandatory from 2nd year onwards.
iii. 8-digit level mandatory for exports and imports.
10. Accounting Codes for services – invoice level:
i. Mandatory for those services for which Place of Supply Rules are dependent on nature of services.
ii. Mandatory for exports and imports.
11. B2B supply information given by the supplying taxpayer in GSTR-1 will be auto-populated into GSTR-2 of the counter party/ purchaser.
12. Purchasing taxpayers will be allowed to add invoice details in GSTR-2 and avail credit if they are in possession of a valid invoice and have received ‘supply of goods or services’.
13. Counter party registered taxpayers shall have a 2-day window to reconcile invoice information among themselves prior to filing of GSTR-3.
14. Credit availed on unmatched invoices shall be auto-reversed in the next to next return period (e.g. mismatched ITC for April to be auto-reversed in return for June).
15. Return to be filed by taxpayer a tGSTCommon Portal either:
i. By himself logging on to the GST system using his own user ID and password; or
ii. Through his authorized representative using the user Id and password (allotted to the authorized representative by the tax authorities) as chosen at the time of registration, logging on to the GST System.
16. Filing may be done through TRPs/FCs also.
17. Filing may be done either directly or by using Applications developed by accounting companies / IT companies which will interact with GST System.
1. It has been provided that the selling dealer would be declared blacklisted for certain defaults in filing of return and the buyer shall not be allowed to take credit of tax charged by the blacklisted dealer. This would mean unfair treatment to the buyer, who would be penalised for the wrongdoing of supplier. In the present cenvat context, judicial forums have taken a view that the buyer should not be held responsible for the wrong doing of the supplier. Hence it is recommended that there should be a proper recovery provision for collection of tax from the supplier instead of denying credit to the buyer. The law enforcement agencies cannot shirk responsibility by not taking action on the supplier and later pounce on the buyer to deny credit as he has no means to ensure proper tax compliance by the supplier.
2. Though it is a welcome move that there would be no human intervention in the entire chain of return filing yet the system has been designed on a flawed assumption that human beings are perfect and commit no mistakes. This is evident from the fact that no provision has been provided for revising the return. As the popular saying goes “to err is human, to forgive is divine”. While the law would have adequate safeguards to punish the guilty who indulge in deliberate defiance of law, there should be a mechanism for rectification of genuine mistake by way of filing of revised return or in some other form.
3. As provided for in the draft report, in case the ITC invoice of purchaser is not matched with GSTR-1 of supplier, then the ITC would be auto reversed after two months. However no solution is provided if the same is rectified after two months. There should be a suitable process to take care of this aspect.
4. A mechanism for revision of returns may be required for correcting erroneous disclosure of values (i.e. manual error or typographical errors while disclosing the turnover etc.). Such erroneous disclosures may not always be corrected by means of a debit note or credit note. Further, revision of return may also be required on account of erroneous mention of the HSN code for goods or accounting code for services. Accordingly, it is recommended that revision of returns is allowed. Time limit for revision of 6 months or 3 months from the end of the financial year could be provided.There should also be a provision for filing belated returns with late filing fees.
5. It is generally expected that there would be lesser compliance burden in GST regime but looking at the return process, it appears that it is other way around. This is because every registered taxpayer would be required to file three returns each month. Taking a scenario where a company is registered in 10 states, the number of returns required to be filed would be (10*3*12)= 360 returns which indicates manifold increase in compliance burden. Imagine the plight of small tax payers, who have limited human resources. It is going to be a big burden despite auto-population method. Further the process of reconciliation of various returns with the annual return and books of accounts would be cumbersome and herculean.
6. Even casual dealers would be required to file the same number of returns, which a normal taxpayer would be required. There should be simplified mechanism for allowing filing of return by casual dealer which should be based on submission of relevant information.
7. It is provided in the return that a person exclusively dealing in nil rated goods or services would neither be required to obtain registration nor required to file returns under the GST law. This would pose problems for exporters in claiming refund of credit. Hence a separate mechanism is required to be evolved for goods or services exporter.
8. It is provided in the report that taxpayers, who have turnover below the limit of Rs. 1.5 crore will have to mention the description of goods/service. However it is noticed that no separate column is given in the return format provided.
9. As per the business process, HSN/SAC information is to be provided against goods/services supplied. In a given case, the same bill/invoice may have different goods/services classified under different HSN/SAC. This may be a hurdle as the same bill should be entered again and again for individual HSN/SAC goods or services. The same problem may occur in respect of invoices having different places of supply.
10. It is provided that in respect of taxable outward supplies to a consumer where supplier is located (Inter-state supplies) and Invoice value is more than Rs 2.5 lakh, the transaction will be recorded on HSN/SAC basis. The paper writers are of the view that different codes for a single state will create problem for multi-state and multi-product taxpayers. Small retailers having intra-state supplies would be in an advantageous position.
11. In case a consolidated invoice is raised for both goods and services supplied, then there may be problem with respect to recording HSN/SAC code.
Conclusion: The paper writers are of the view that the system envisaged for filing of multiple returns in a month would lead to substantial increase in compliance burden. It appears that medium and large size organisations would have to engage few more employees dedicated only for preparing and filing returns. Small size assesses would also have to depend largely on external professionals for making compliance. It would be better if the compliance is simplified in line with the avowed policy of “ease of doing business”of the Government.