Late Fees GST Amnesty Scheme: Clearing the Air

By Taxscan Team - On September 15, 2021 8:13 pm

Background

In its 43^rd meeting, the GST Council paved way for the much-awaited GST amnesty scheme. The scheme has permitted taxpayers who haven’t filed their GSTR 3B for any tax period which lies between July 2017 to April 2021, to file their returns with reduced fixed late fees. The late fees were also rationalized for prospective periods.

While the move is largely welcomed by the industry, there are certain aspects to it that need to be delved upon in order to truly understand the implications of the scheme.

For understanding the said implications, it is necessary to delve deeper into Section 16 of the CGST Act, 2017. Section 16(2) stipulates the following conditions for availing ITC:

The recipient should be in possession of the tax invoice/ debit note;
The recipient should have received the goods and/or services;
The tax in respect of the supply under question should have been deposited with the Government;
The recipient should have furnished the return u/s 39.

Further, Section 16(4) prescribes that no registered person shall be entitled to avail ITC in respect of any invoice/ debit note after the due date of furnishing of return under section 39 for the month of September following the end of the financial year to which such invoice pertains to or furnishing of annual return, whichever is earlier.

Thus, it can be surmised from the above that a recipient of goods and/or services would be entitled to avail input tax credit if the tax charged by the supplier has been deposited with the Government and the recipient has filed the return u/s 39 of the CGST Act, 2017. Further, the law has prescribed a timeline to avail such credit, which is the due date to file the GSTR 3B for the month of September following the end of the financial year to which such supply pertains.

In this article we neither wish to discuss the lawfulness of the GSTR 3B as a return (as it was GSTR 3 which was earlier envisaged as the return under section 39), nor do we intend to deliberate on the constitutional validity of Section 16 from the perspective that a recipient cannot be made to suffer for the default of the supplier. This write-up aims to discuss the GST late fees amnesty scheme and its impact on ITC eligibility in various scenarios.

What is the confusion?

In the present case, considering that the late fees on filing delayed GSTR 3B have been waived, can it be said that the due date to file GSTR 3B has been extended? This question is important to answer as it will also determine whether the capability of the recipient to avail credit has been extended or not. There are various discussions around the same. To clear the air, we have envisioned various scenarios and provided our comments below:

Supplier has filed returns i.e., GSTR 1 and GSTR 3B on time; however, the recipient failed to file GSTR 3B of September following the end of financial year before the due date and hence was not able to avail certain credit – In such case, the late fees amnesty scheme would not act as an enabler for the recipient to avail the past credit, the timeline of which has already lapsed. Even if the recipient does file GSTR 3B as a part of the amnesty scheme, the only benefit that can be realised is the waiver of late fees and not restoration of the credit that has already lapsed.

Supplier has filed GSTR 1, however, the tax has not been paid and GSTR 3B has not been filed. Nonetheless, the recipient has filed GSTR 3B on time – In practical scenario, no recipient waits for the supplier to file his/her GSTR 3B. Once the supplier declares his output supplies in GSTR 1 and the same is reflected in the recipient’s GSTR 2A, credit is availed. The recipient has no mechanics to find out whether the tax has been paid by the supplier or not. Therefore, the condition mentioned in Section 16(2)(c) of tax being deposited before availing credit cannot be verified by the recipient and hence is difficult to adhere to. Pragmatically speaking, if a defaulting supplier has filed his/her GSTR-1 timely, and has only defaulted in payment of tax and filing of GSTR 3B, the recipient would not have even realised that his/her credit is under a threat of being challenged. Therefore, the recipient, in all probabilities must have availed such credit in books and returns after reconciling with GSTR 2A.

Supplier has not filed either GSTR 1 or GSTR 3B. Therefore, tax has also not been deposited. The supplier shall now use the amnesty scheme to file his pending returns. Nonetheless, the recipient has filed all his returns on time – In a situation where a supplier has defaulted in filing both, GSTR 1 and GSTR 3B, the recipient must have written off the input tax credit after the return for September following the financial year to which such credit pertains, is filed. Therefore, the recipient may not be able to reinstate the credit back, even if it were permitted (owing to other restrictions from statutory audit perspective). Also, Notification no. 19/2021-CT dated 1 June 2021 provides for an amnesty scheme for late filing of GSTR 3B; it does not give any indication for an amnesty of filing GSTR 1(the credit of the recipient is always linked with GSTR 1 and not GSTR 3B). Moreover, the time limit prescribed by Section 16(4) for availment of credit has not been relaxed by the Government and thus, it has lapsed.

Recipient has not filed GSTR 3B and therefore credit has not been availed – In this case, if such return pertains to FY 2020-21, the recipient may still file GSTR 3B and avail such credit before the return for September 2021 is filed. However, if the GSTR 3B pertains to an older period, the recipient may file GSTR 3B as a part of amnesty scheme; however, the time limit to avail the credit would have lapsed and therefore, such credit would not be available now.

It needs to be borne in mind that the waiver of the late fee has been extended; this certainly does not mean that the due date to furnish returns is extended. This is also evident from the fact that the interest liability on delayed payment of tax still persists. Therefore, this opportunity is only to reduce the late fees exposure and does not in any manner help the supplier to wash his sins or regularize his compliance status.

Conclusion

From the above discussion, it is crystal clear that by any stretch of the imagination, it cannot be contended that this amnesty scheme also opens the door to the recipients to claim past credit. An argument can be extended that in case the recipient has not availed credit due to non-filing of GSTR 1 by the supplier, should be allowed to do so as the Government has received its dues from the supplier. The thought is noble, nonetheless, there is no machinery to do so. In fact, there are no mechanics to let the recipient even know that the credit written off by him on account of a defaulting supplier is now eligible, if not for Section 16(4).

The tyranny of the regime is such that only the recipient is made to suffer for the turpitudes of a supplier. The Government may catch hold of a supplier and collect their dues; nonetheless, the recipient is the one who will lose credit for no fault of theirs. Much has been written and spoken about this but there seems to be no reaction from the GST Council on this. Nevertheless, the taxpayers are still expecting relief on this front as ‘Hope is the last thing ever lost.

[The authors are Jigar Doshi, Founding partner, and Sagar Shah, Associate Director at TMSL – a tax, technology firm. The views are personal. They can be reached at jigar.doshi@tmsl.in]

Mr. Jigar Doshi

Jigar is a Chartered Accountant with over 17 years of work experience in the field of indirect taxation. His domain of expertise includes GST, Customs, erstwhile Indirect Taxes, and UAE VAT legislation.

Mr. Sagar Shah

Sagar is a Chartered Accountant with over 12 years of work experience in the field of indirect taxation. His domain of expertise includes Business Advisory, Tax Technology in Indirect Taxes, and handling the back-office operations team for GCC.

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