Reconciliation of existing returns under GST - A dire need

Puneet Agrawal, Partner, ALA Legal

(The abovementioned is not an exhaustive list of the possible clerical/ genuine errors)

General Background

The Press Release regarding Data Analytics dt. 10th March 2018 pursuant to the recommendations made during the 26th meeting of the GST Council held in New Delhi on 10th March, 2018 wherein existence of major data gaps between self-declared liability in FORM GSTR-3B and GSTR-1 is acknowledged and the GST Council deliberated that the divergence be further analyzed and adequate action to be initiated accordingly in this regard, has stirred major concerns.

A slight precap to the prevailing system of returns under GST is suggestive that the monthly summary return under GST is to be filed as under FORM GSTR-3B on totals basis, i.e. it is not an invoice-wise return, but simply a consolidated details of outward supply/ inward RCM supply/ Input Tax Credit/ tax due and paid by a taxpayer, to be filed on monthly basis [the return is being filed for the past 7 months (from July 2017 – January 2018)]. No facility to amend this return is available till date. Further, GSTR-1, a return providing details of outward supplies made by a registered person during the tax period, is to be filed much later than GSTR-3B for the respective month. While there is a major delay in filing of GSTR-1, after the filing of GSTR-3B, mutual disparity in the two returns is inevitable – due to unavoidable reasons like submission of supply or input tax credit or tax figures wrongly uploaded due to clerical errors, etc.

The Issue in Analysis

A major problem was faced by the taxpayers, particularly and more often in the initial phase of GST roll-out. A change in tax regime in itself had created an atmosphere of uncertainty amongst the taxpayers, which was added to by lack of knowledge about the procedures and the manner which was to be followed in furnishing returns and payment of tax. Further, the small tax payers (assesses having turnover less than 1.5 crores) bore the brunt with lack of infrastructure and adequately informed manpower to assist in filing returns. Ample probability existed for genuine oversights and inaccuracies. (e.g. GSTR-3B is mistakenly SUBMITTED as a NIL return for the month of August 2017, instead of showing a taxable outward supply).

In order to regulate the situation, Circular No. 26/26/2017-GST dated 29th December 2017 was issued to clarify that ‘as return in FORM GSTR-3B do not contain provisions for reporting of differential figures for past month(s), the said figures may be reported on net basis along with the values for current month itself in appropriate tables … where adjustments have been made in FORM GSTR-3B of multiple months, corresponding adjustments in FORM GSTR-1 should also preferably be made in the corresponding months’. This further raised another issue which can be illustrated with the following example. e.g.: In the preceding example whereby NIL GSTR-3B return was mistakenly SUBMITTED BUT NOT FILED for August 2017, taxable person was forced to FILE the same considering that without filing of the previous return, the GSTR-3B for the next month could not be filed.

Pursuant to the above-mentioned circular, whereby the figures of a previous month can be added to that of the next month, the adjustment for the abovementioned GSTR-3B for August 2017 was done in the GSTR-3B for the month of January 2018. The value of the supply for the month August was added to that of January and GST was paid accordingly. Thus, this resulted in a mismatch of GSTR-3B of 2 months (August 2017 and January 2018). (elaborated in the table below)

Further, GSTR-1 is a return providing details of outward supplies made by a registered person during the tax period, and is to be filed much later than GSTR-3B for the respective month. There are two pertinent situations in this instance:

1. For big taxpayers (assesses having turnover more than 1.5 crores), where GSTR-3B and GSTR-1 are to be filed monthly. E.g. GSTR-3B for January was to be filed by 20th February 2018, while GSTR-1 for the same month was to be filed by 10th March 2018.
2. On the other hand, the situation is worse in case of small taxpayers (assesses having turnover less than 1.5 crores) wherein GSTR-3B is filed monthly, but GSTR-1 is to be filed quarterly. E.g. GSTR-3B for January was to be filed by 20th February 2018, while GSTR-1 for the same month is to be filed by 30th April 2018. As we all know that majority of registered taxpayers are small taxpayers.

Disparity amongst the two returns may, at times, be inevitable. There may be inadvertent errors, or inaccuracies in calculations or uploading the data that exist in the return, like:

• Submitting supply details of one state in another, or
• Input tax credit claimed in excess, or
• Input tax credit claimed under the wrong head (interchangeably between IGST/ CGST/ SGST), or
• Outward supply amount wrongly mentioned, either in excess, or in deficit. (e.g.: the outward supply/ turnover mentioned in GSTR-3B is Rs. 1 Lakh, instead of the actual turnover of Rs. 10 Lakhs, while it is mentioned correctly in GSTR-1). Though, such error may not change the tax liability of a taxable person, but it is an apparent discrepancy in the return.
• Supplies made to interstate registered dealers, mistakenly mentioned as interstate supplies to unregistered dealers. This, again, does not differ the tax liability on the registered person, but is an apparent error in the returns filed.

Our Submission

In the event of genuinely erroneous submission of figures and subsequent short payment of taxes, that dawns upon the taxpayer after filing GSTR-3B and GSTR-1, even if the taxpayer intends to discharge the balance tax liability by payment of the differential amount, he is unable to do so despite making the payment to the electronic cash ledger. The interest burden may continue due to non-appropriation of balance GST liability. The only reason for this is non-availability of revision mechanism of GSTR-3B or of any other mechanism to pay off such liability.

Though GSTR-2 and GSTR-3 would have helped the taxable person to discharge the balance tax liability due to clerical errors, but these forms are unavailable for filing. Thereby leaving no mechanism available with the taxpayer to discharge the excessive differential amount payable, even by making payment in the electronic cash ledger.

Thereby, there is a dire need of a reconciliation or revision of GSTR-3B mechanism whereby a taxpayer can reconcile and explain the differences in his GSTR-1 and GSTR-3B returns filed, and pay the differential tax (if short paid) or claim the same as refund/ carry forward (if excess paid).

Once this system is functional, which should be at the earliest possible, it will undoubtedly be a win-win situation for both, the department as well as the tax payer. It shall save time, energy and resources of the department that shall be consumed in the reconciliation of the returns submitted by the registered person (monthly and more voluminous annual return), and at the same time the registered taxable person will be able to reconciliate, declared and explain any differences in the summary return (GSTR-3B) and outward supply return (GSTR-1) on his own, thereby reducing the valuable time of the department officials; and make adjustments in tax payment accordingly. Additionally, it shall save a humungous volume of litigation.

This situation, thereby demands for a self-declaration reconciliation procedure to be in place for reconciliation at the end of the taxpayer, in order to take note of the apparent conflicting details in the returns in forms GSTR-3B and GSTR-1, reconcile the difference and make tax payment/ take credit of the same or revision of GSTR-3B should be allowed.

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The article has been co-authored by Mr. Vipan Aggarwal, Director and Ms. Venus Mehrotra, Associate

This article was taken from Taxsutra.com