Meaning of Full compliance under GST

Posted on 10 June 2022 Category : GST terms

What is Full compliance under GST

Full compliance

The details about Full compliance are explained here.

Introduction

The Constitution Amendment Bill on Goods and Services Tax (GST) has received Presidential assent post its passage in both the houses of Parliament and ratification by over one-half of the State Legislatures. The GST Council, headed by the Union Finance Minister with all the State Finance Ministers as members, is in the process of finalizing and recommending model GST law and allied rules, rate of tax, threshold limits, exemptions, dispute resolution mechanism, etc. Based on the recommendations of the GST Council, the Parliament would pass two Bills for levy of Central GST and Integrated GST by the Central Government and each of the State Legislatures would pass a Bill for levy of State GST.

For successful implementation of GST, necessary Information Technology (IT) infrastructure is required to be put in place by the Government for ensuring smooth transition from the existing indirect tax structure into the GST regime. The portal being developed by Goods and Services Tax Network (GSTN) will act as a common interface between tax payers, tax authorities, banks and the Reserve Bank of India for exchange of information. While the GSTN is working relentlessly to ensure that the above authorities get the best of IT infrastructure for efficient administration of GST, the Government is also progressing promptly by imparting GST training of its officials at the Central and States. The Government also intends to kick start Vyapak Abhiyan towards the end of the year to bring awareness about GST among the public at large.

The burden now shifts on to the taxpayers to assess their level of preparedness in studying the impact of the new law to their transactions and analyze if their IT infrastructure matches the compliance requirements of the new regime. The GST proposes to create a common national market by reducing the cascading effect of tax on the cost of goods and services. It therefore calls for a change in the tax functions (including tax structure, tax computation, tax payment, tax incidence, credit availment and utilization) of existing businesses. It will also have an impact on other functions of the organization such as IT, Finance, Marketing, Supply chain, Legal, etc. It is therefore imperative for us to introspect where we stand and how well we are prepared to comply with the provisions of the proposed GST law. In this article, we intend to throw some light on the compliance requirements in filing of various returns and broad concepts of matching of input tax credit, based on the information presently available in public domain.

Basic overview on GST Returns

While all the returns under GST would be required to be filed electronically, the details of Central and State taxes would be consolidated together for the purpose of reporting the details of outward and inward supplies, Input Tax Credits (ITC), tax payments, etc. A normal registered taxable person is required to file two basic forms in a month, namely GSTR-1 and GSTR-2. These forms represent details of outward supplies and inward supplies of goods and services effected in a particular tax period. A normal registered taxable person is also required to file a return in form GSTR-3 on a monthly basis, consolidating the details of outward and inward supplies, ITC availed, Tax payable, Tax paid and other particulars. A general overview on the flow of information through various returns is depicted in the form of a flowchart hereunder:

In addition to the above returns, a registered taxable person is also required to file an Annual Return in form GSTR-9 (not GSTR-8, as provided under the report of the Joint Committee on business process on GST Return, in October 2015). Specific provisions have been made for filing the First Return by every assessee. Further, returns have also been prescribed for a Composition taxpayer (in form GSTR-4), Non-resident foreign taxpayer (in form GSTR-5), Input Service Distributor (in form GSTR-6) and TDS deductor (in form GSTR-7). A registered taxable person is also required to file a Final Return in case of cancellation of registration. There is no provision for revising the returns, but rectification of errors/omissions is allowed upto a prescribed time period. It may be noted that levy for late fee for delay or non-filing of returns are prescribed.

Outward and Inward Supply

Outward supplies include details relating to zero-rated supplies, inter-state supplies, return of goods received in relation to/in pursuance of an inward supply, exports, debit notes, credit notes and supplementary invoices. The details of outward supplies for a tax period must be filed on or before 10th day of the month succeeding such tax period, in form GSTR-1. The model law contemplates that the details of each of the outward supply made during a month must be communicated to the recipient within a specified time frame. In our view, the communication to the recipient would be routed through GSTN as such the details would be auto-populated in the concerned tables of GSTR-2 of the recipient. No rectification can be carried out in form GSTR- 1 after filing form GSTR-3 for the month of September of the subsequent financial year (FY) or after filing form GSTR-9, whichever is earlier.

A normal registered taxable person is required to verify, validate, modify or delete details relating to his inward supplies. He may also provide details of his inward supplies received by him, which have not been declared by supplier in his Return. He must furnish details of inward supplies of taxable goods/services, including inward supply of services on which tax is payable on reverse charge and inward supply of goods/services taxable under the IGST Act, received during a tax period on or before 15th day of the month succeeding such tax period in form GSTR-2. Just like form GSTR-1, no rectification can be carried out in form GSTR-2 after filing form GSTR-3 for the month of September of the subsequent FY or after filing form GSTR-9, whichever is earlier.

An assessee is required to enter invoice level details for each of his transactions. Entering invoice level details is necessary for reconciliation of tax deposits and end-to-end reconciliation of ITC. Invoice level detailing would also help the Government in determining the share of tax attributable to destination state in case of an inter-state supply. This is going to be a cumbersome process for both small and large scale dealers. Small assessee may find it difficult to manually enter the details of invoices month on month and large assessee may face infrastructural bottleneck in uploading huge volume of data. The industry has raised some concern on the reconciliation of ITC at invoice level detail, calling it cumbersome and impractical. However, in our view, in order to ensure compliance at all levels of the supply chain, and to eradicate evasion of tax and fraudulent transactions, the requirement of entering invoice level details would be imperative and worth the effort.

Consolidated Return

A consolidated return in form GSTR-3 providing details of inward and outward supplies of goods/services, ITC availed, Tax payable, Tax paid and other relevant particulars are required to be filed by registered taxable person on or before 20th day of the succeeding month. A registered taxable person shall not be allowed to furnish form GSTR-3 for a tax period if valid return for any previous tax period has not been furnished by him. It may be noted that the tax for the relevant tax period should be paid on or before the due date of filing of form GSTR-3. Furnishing of GSTR-3 without payment of full tax due as per such return shall not be treated as a valid return for allowing ITC in respect of supplies made by such person. The consequences of such conditional provision for allowing ITC are discussed in greater detail in later part of this article, under ITC matching.

Filing of GSTR-3 on monthly basis is mandatory whether or not any supplies of goods/services have been effected during such month. No rectification can be carried out in form GSTR-3 after due date of filing form GSTR-3 for the month of September or 2nd quarter of the subsequent FY or after filing form GSTR 8, whichever is earlier. A Composition taxpayer must furnish form GSTR-4 for each quarter or part thereof within 18 days after the end of each quarter. An ISD must furnish form GSTR-6 within 13 days after the end of the month. A registered taxable person deducting tax at source must furnish form GSTR-7 and pay tax so deducted within 10 days after the end of the month.

Annual Return

Form GSTR-9 is required to be furnished by every registered taxable person, other than ISD, TDS deductor, Casual taxable person and Non-resident taxable person on or before 3 1st December following the end of the FY. Persons required to get their accounts audited must also furnish annual return along with audited copy of annual accounts and reconciliation statement, reconciling the value of supplies declared in annual return with annual financial statement.

The Model GST law contemplates that a taxable person cannot take the credit of tax paid on goods and/or services after filing GSTR-3 for the month of September following the end of financial year to which such invoice pertains or filing of the relevant Annual Return (3 1st December), whichever is earlier.

First and Final Return

The concept of filing a First Return and Final Return have been newly introduced. These returns play an important role of providing details of the assessee at the time of entry into and exit from the GSTN. The First return is required to be furnished by every registered taxable person on whom the levy of GST applies. It contemplates for providing the details of:

outward supplies from the date on which he became liable to registration till the end of the month in which the registration is granted, and
in-ward supplies from the effective date of registration till the end of the month in which the registration is granted.

A Composition taxpayer is required to furnish the First Return for the period starting from the date on which he becomes a registered taxable person till the end of the quarter in which the registration is granted. Every registered taxable person applying for cancellation of registration shall furnish a Final Return within 3 months of the date of cancellation or date of cancellation order, whichever is later.

The compliance schedule for filing of returns under GST can be summarized in the form of a table as under:

Penal Provisions Relating to Returns

If a registered taxable person fails to furnish form GSTR-9 or Final Return, he shall be served with a notice requiring him to furnish such the Return within a statutory timeframe. Any registered taxable person who fails to furnish form GSTR-1, GSTR-2, GSTR-3 or Final Return within the due dates, shall be liable to pay a late fee of Rs. 100 per day during which such failure continues, subject to maximum of Rs. 5,000. Similarly, any registered taxable person who fails to furnish form GSTR-9 within the due date, shall be liable to a late fee of Rs. 100 per day during which such failure continues, subject to maximum of an amount calculated @ 0.25% of his aggregate turnover.

Matching, Reversal and Reclaim of ITC

The concept of matching of ITC may not be new to the taxpayers, especially for the dealers who are currently operating under the Value Added Tax (VAT) regime. However, the same is alien or relatively new to non-VAT taxpayers and hence there is a need to understand the concepts of ITC matching, ITC reversals and re-claim of ITC in GST regime.

Before discussing the concept of ITC matching, it is imperative to understand the concept of Debit Notes in GST regime, as it has a bearing on reclaim of ITC.

Re-claim of ITC

Re-claim of ITC refers to taking back the ITC reversed in the Electronic Credit Ledger of the recipient by way of reducing the output tax liability. Such re-claim can be made by the supplier only in case the supplier declares the details of invoice and/or Debit Notes in his valid return within the prescribed timeframe. In such case, the interest paid by the recipient shall be refunded to him by way of crediting the amount to his Electronic Cash Ledger.

However, it may be noted that no refund of interest would arise in case the excess ITC reversed was on account of duplication of ITC claim, as the same would be considered to be contravention of the GST provisions, where refund is allowable.

Compliance Rating under GST

GST proposes to bring in a new system of compliance rating score for every taxable person, based on the record of compliance with provisions of law. This score shall be determined on the basis of certain parameters such as timely furnishing of returns, accuracy of data furnished, timely payment of taxes, etc. The GST compliance rating score is somewhat similar to the concept of the Denied Entities List (DEL, earlier called ‘Black List’) under the provision of Rule 7 of the Foreign Trade (Regulation) Rules, 1993, wherein a total of 14 conditions have been described for invocation DEL before a company can be refused a license by the Directorate General of Foreign Trade.

The GST compliance rating score shall be updated at periodic intervals and intimated to the taxable person and also placed in the public domain. A prospective customer/client can view his supplier’s GST compliance rating score and take appropriate decisions whether to deal with a particular supplier or not. It is therefore important for every taxable person to ensure adequate level of compliance, which will not only facilitate ease of doing his business, buy will also have a bearing on his reputation.

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