Restructuring of GSTR 3B!

The original return mechanism in GST envisaged electronic filing of returns, uploading of invoice level information, auto-population of information relating to ITC from returns of supplier to that of the recipient, invoice level information matching and auto-generation of monthly returns.

The system verified flow of ITC was envisaged to be achieved through the returns GSTR 1, 2 & 3.

a. It was originally envisaged that suppliers would file invoice-wise details of outward supplies made by them during the month through GSTR-1. The details of outward supplies so furnished by the supplier in GSTR-1 were to be made available electronically to the registered recipients through Form GSTR-2A.

b. Similarly, details of supplies relating to composition taxpayers, Input Service Distributors and Non-Resident taxpayers as well as Tax Deducted at Source (TDS) by Government departments / agencies and E-commerce operators also were to be automatically made available electronically to the recipients.

c. Thereafter, based on details available in Form GSTR-2A, the taxpayer was supposed to furnish form GSTR-2 after including details of other inward supplies.

d. The details of inward supplies added, corrected or deleted by the recipient in his Form GSTR-2 were to be automatically made available to the supplier electronically in form GSTR-1A through the common portal. The supplier may either accept or reject the modifications made by the recipient, and Form GSTR-1 furnished earlier by the supplier should stand amended to the extent of modifications accepted by him.

e. As compared to GSTR-1, 1A & 2A which are invoice level granular returns, GSTR-3 is a monthly return with the details of sales and purchases during the month along with the amount of GST liability. Most elements of GSTR-3 were supposed to be auto-generated from GSTR-1 and GSTR-2 while the taxpayer had to include the details of discharge of liability of tax, interest, penalty, refund claimed from electronic cash ledger and debit entries in electronic cash/credit ledger while filing GSTR-3.

However, owing to the unprepared GST ecosystem and complexity of return forms, the originally envisaged key returns were postponed and a new simpler temporary return, GSTR-3B, was introduced, initially for two months. GSTR-3B was designed as a self-assessed summary return which captured a summary of outward supplies and inward supplies liable to reverse charge. As a result, ITC would now be settled based on these self-assessed summary returns filed by taxpayers. The originally envisaged system verified flow of ITC at the invoice level was kept in abeyance, thus rendering the system more prone to ITC frauds.

New Return mechanism

The GST Council in its 27th meeting (May 2018) approved the broad principles for the design of the new simplified return filing system. In May 2019, a prototype of the offline tool was shared on the GST portal to give the look and feel of the new return forms to the taxpayers and from July 2019, the taxpayers were able to upload invoices on trial basis for familiarisation.

The GST Council in its 28th meeting (July 2018) decided that the new return mechanism would be implemented with effect from 1 January 2019. Later, in its 31st meeting, the GST Council (December 2018) extended the rollout date and decided to implement the new return forms in a phased manner so that from January 2020 onwards, all taxpayers would be filing returns as per the new return mechanism, and Form GSTR-3B, introduced as a temporary return, would be completely phased out. The GST Council again extended the date of roll out of the new return system in its 37th meeting (September 2018) and decided that the new return system shall be introduced from 1st April, 2020 onwards. In the 39th GST council meeting (March 2020), the implementation of the new return system was further deferred up to September 2020.

Subsequently, the GST Council, in its 42nd meeting (October 2020), has decided not to roll out the proposed new return system in one go. The Council has decided to incrementally incorporate the features of the new return system in the present familiar GSTR-1/GSTR-3B scheme. It was envisaged that the new approach would allow the taxpayer to view ITC available in his electronic credit ledger from all sources i.e. domestic supplies, imports and payments on reverse charge etc. prior to the due date for payment of tax, and enable the system to auto-populate return (GSTR-3B) through the data filed by the taxpayer and all his suppliers.

In the last two Audit Reports of Reort No. 11 of 2019 & Report No. 1 of 2021 on Goods and Services Tax, Audit had reviewed the progress made in respect of implementation of the simplified return mechanism and system-verified flow of Input Tax Credit (ITC). Audit observed that owing to continuing extensions in the roll out of simplified return system over the last years, and delay in decision making, the originally envisaged system verified flow of ITC was yet to be implemented despite the lapse of more than three years since the roll out of GST. In the absence of a stable and simplified return system, one of the main objectives of roll out of GST i.e. simplified tax compliance system was yet to be achieved. Accordingly, Audit recommended that a definite time frame for roll out of simplified return forms may be fixed and implemented as frequent deferments were resulting in delay in stabilisation of the return filing system and continued uncertainty in the GST eco-system. During 2020-21, Audit further reviewed the status of implementation of simplified return mechanism and noted the significant progress made in the return system with respect to linking of GSTR-1, GSTR-2B and GSTR-3B.

The salient features of the current return filing system are as follows:

1. Filing of FORM-GSTR-1 to be mandatory before filing of return in FORM GSTR-3B;

2. Filing of GSTR-1 to be sequential;

3. No two-way communication between the supplier and the recipient while filing return;

4. Provision of furnishing of details of inward supplies to be removed, instead FORM-GSTR-2B (invoice level data auto-populated from GSTR1, GSTR-5 and GSTR-6) shall be made available to recipients;

5. Restrictions in ITC to extend where details of the Input Tax Credit of such supplies have not been communicated to the registered persons.

Accordingly, Returns Enhancement and Advance Project (REAP) was undertaken by the Government under which:

• Auto-drafted Input Tax Credit statement in GSTR-2B, based on GSTR-1, GSTR-5 and GSTR-6, had been made available to the taxpayer with effect from August 2020 containing all data regarding ITC available based on B2B supplies received from other registered persons, imports of goods, Input Service Distributer (ISD) and Reverse Charge Mechanism (RCM) supplies.

• Auto-population of ITC and liabilities in GSTR-3B return from GSTR-2B and GSTR-1 had been started with effect from December 2020.

• E-invoice had been made mandatory for taxpayers with turnover more than INR 500 crore with effect from 1st October 2020 (now, applicable over and above INR 10 crores w.e.f. 1-10-2022) for B2B transactions and for export invoices. Data from e-invoice is being auto populated in GSTR-1 of the taxpayer, which in turn is being used to auto-populate GSTR-3B returns.

• Quarterly return with monthly payment (QRMP) scheme for taxpayers having aggregate turnover up to INR 5.00 crore was introduced with effect from 1 January 2021, providing for option for filing of returns on quarterly basis, instead of monthly basis.

CAG examined the current status of return filing system and is of the opinion that additional steps need to be taken to fully address the issue of nonintrusive e-tax system and system-verified flow of ITC based on the principles of invoice matching. The originally envisaged return system provided for electronically generated monthly return (Part A of GSTR-3) of the taxpayers based on tax liability declared by them and system-verified ITC available to them. The current system, although providing for auto-population of tax liability and eligible ITC in the monthly return, allows for changes in the autopopulated amounts without any limit, leaving room for either mistakes or deliberate misstatements by the taxpayers. Further, the filing of GSTR-1 is yet to be made mandatory before filing of GSTR-3B by the taxpayer. As a result, the objective of auto-population of tax liability and available ITC in the monthly return cannot be achieved where GSTR-1 has not been filed. For example, unless GSTR-1 is filed by a taxpayer, his tax liability will not be available for auto-population in his monthly return (GSTR-3B). Similarly, unless GSTR-1 is filed by a supplier, eligible ITC will not be available for auto-population in GSTR2B and monthly return of the recipient taxpayer. Accordingly, Section 39 of the CGST Act, 2017 has been amended vide the Finance Act, 2022 to provide for mandatory requirement of filing of GSTR-1 before GSTR-3B return for a tax period. Further, amendment to section 37 of CGST Act, 2017 has been made vide Finance Act 2022 to make filing of GSTR-1 sequential i.e. a taxpayer will not be able to file GSTR-1 unless the earlier period GSTR-1 returns have been filed. In regard to availment of ITC, as there may be genuine differences between the ITC as per books of the taxpayer and ITC auto-populated in GSTR-3B, the values in auto-populated GSTR-3B have been kept editable. The GST Portal highlights such fields of GSTR-3B and a warning message appears, where a taxpayer avails more ITC than the auto-populated value, to keep a check on mistakes/ misstatement by the taxpayers.

CAG in its Report No. 5 of 2022 has noted the constraints highlighted by the Ministry in making autopopulated tax liability and ITC amounts non-editable in the monthly return (GSTR-3B). Audit, however, is of the view that the Ministry may rely more on preventive checks that are enforced through IT systems, by taking steps to limit editing of auto-populated tax liability/ITC amounts, as originally envisaged, rather than relying on post-facto intervention by the tax offices in safeguarding Government revenue.

Now, a proposal of comprehensive changes in FORM GSTR-3B was deliberated by the GST Council in its 47th meeting held at Chandigarh on 28th and 29th June 2022. The Council recommended that the said proposal may be placed in public domain for seeking inputs and

suggestions of the stakeholders.

Accordingly, the general public and the trade at large has been informed that a detailed Concept Paper on comprehensive changes in FORM GSTR-3B is made available as enclosed. All members of the trade/ stakeholders are requested to kindly furnish their views/comments/suggestions on the Concept Paper latest by 15th September 2022 at gstpolicywing-cbic@gov.in so as to facilitate finalization of the matter.

Concept_paper_on_Comprehensive_changes_in_FORM_GSTR-3B.pdf

Download PDF • 1.28MB