Jan’22 GST Return Legal Changes and Precautions

There are many amendments proposed from 1^st January 2022. Among them, the most crucial two which would impact all taxpayers are related to the legal changes for availing ITC and filing GSTR-1 and GSTR-3B which have been notified vide Notification No 39/2021-Central Tax dated 21^st December 2021. In this article, we will discuss the said two amendments and how the taxpayers shall prepare for the changes from the coming return filing for the period Dec’2021.

CHANGES FOR AVAILING INPUT TAX CREDIT FROM 1st JAN’22:

It is important to mention that the Apex Court very recently in the case of UNION OF INDIA Vs BHARTI AIRTEL LTD & ORS answered cardinal questions as follows:

1. A taxpayer can avail of ITC on the booked maintenance and records as per the provisions of the CGST Act, 2017 (Section 16).
2. RTP is obliged to do a self-assessment of ITC u/s 59.
3. RTP reckon its eligibility to ITC and of output tax liability including the balance amount lying in cash or credit ledger primarily on the basis of his official record and books of accounts.
4. The common portal is only a facilitator to feed or retrieve such information and need not be the primary source for doing self-assessment.

The said judgment has been reversed w.e.f. 1^st January 2022 as Section 16 of The CGST Act has been amended to insert Clause 16(2)(aa) whereby adding the 5th condition to claiming ITC –

Section 16(2)(aa) states as follows –

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless–

⁵[(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;]

Inserted vide the Finance Act, 2021, dated: 28.03.2021, w.e.f. 01-01-2022, made effective w.e.f. 01.01.2022 vide Notification No. 39/2021 – Central Tax dated 21.12.2021.

Hence from the above, it can be concluded that the entire GST period shall for the purposes of availing ITC through GSTR-2A be divided into two parts –

1. 1^st July 2017 – 31^st December 2021 – During this period the ITC could be on the basis of the purchase register.
2. 1^st Jan 2022 onwards – ITC has to be availed only on the basis of GSTR 2A.

Further Implications of the amendments for Tax Payers are as follows –

1. From 1^st January 2022, Five conditions have to be satisfied to claim ITC –
   1. The recipient must possess The tax invoice/ Debit Note.
   2. The recipient must have received the goods/services
   3. The Tax charged must be actually paid to the Govt.
   4. The recipient must file its GSTR 3B
   5. The supplier must file its GSTR-1 and communicate the details to the recipient vide GSTR 2A

2. Rule 36(4) would be amended and not applicable going forward which requires that excess to the extent of 5% may be availed over and above the value of GST reflected in GSTR 2A/2B –

²[(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been ⁵[furnished] by the suppliers under sub-section (1) of section 37 ⁶[in FORM GSTR-1 or using the invoice furnishing facility], shall not exceed ⁷[5 per cent.] of the eligible credit available in respect of invoices or debit notes the details of which have been ⁵[furnished] by the suppliers under sub-section (1) of section 37 ⁶[in FORM GSTR-1 or using the invoice furnishing facility].]

3. The above amendment is prospective and hence from January 2022, i.e while filing the GSTR 3B of December 2021 taxpayers will only be allowed to avail that much ITC which is available in GSTR 2A.
4. Explanation to Rule 69 of CGST Rules 2017 has notified GSTR 2A as the return for matching ITC between suppliers and recipients –

Explanation to Rule 69 states as follows –

Explanation.- For the purposes of this rule, it is hereby declared that –

(i) The claim of input tax credit in respect of invoices and debit notes in FORM GSTR-2 that were accepted by the recipient on the basis of FORM GSTR-2A without amendment shall be treated as matched if the corresponding supplier has furnished a valid return;

5. In case there is a difference between GSTR2A & GSTR 2B, i.e. suppliers file their GSTR1 belatedly, still on the basis of Rule 69, the ITC may be availed on the basis of GSTR 2A.
6. It is important to note Section 42(3) regarding Matching of Input Tax Credit which is mandatory for the department. Recovery proceedings against the recipient cannot be started immediately but the deficiency should be communicated to ‘both’, supplier and recipient. Section 42(3) states as follows –

Sec 42(3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.

7. At the end of the year, i.e. while filing the return for Sept’2022, the ITC for FY 2020-21 will only be allowed only to the extent of GSTR 2A Balance.
8. What happens when the suppliers file their returns or amend the invoices post the recipients filing GSTR 3B for Sept 2022? In this regard, it is our legal submission that still incases the GSTR 1 is filed by the suppliers and it reflects in the GSTR2A of the recipients, then ITC should be available.
9. As laid down by the Hon’ble Calcutta High Court in the case of M/s LGW INDUSTRIES LIMITED & ORS. that there is a statutory obligation of taxpayers to verify the identity of the suppliers. The text is as under –

… also consider the compliance of statutory obligation by the petitioners in the verification of the identity of the suppliers (RTP).

Hence, we advise that the recipients should lay down procedures to prove that steps have been taken to ensure that suppliers are identifiable.

GSTR 1 AMENDMENTS –

Explanation to Section 75(12) has been added as follows –

Section 75 General provisions relating to the determination of tax

Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

¹[Explanation.–For the purposes of this subsection, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.]

Section 79 on recovery of tax States that where any tax payable is not paid, the proper officer shall proceed to recover without issuing of a Show Cause Notice by deducting from refunds, detaining and selling goods or immovable property, collecting from debtors,

The precautions thus to be taken from January 2022 are as follows –

1. File the GSTR 1 so that on outward tax liability which as per GSTR-1 is the actual tax liability. Any mistake in filing GSTR-1 and its consequent difference with GSTR-3B may lead to recovery proceedings u/s 79 of The CGST Act without the issuance of an SCN.
2. Be careful in uploading Credit notes. In the case of a CN which is not uploaded in the GSTR-1, there may be a difference between GSTR-1 and GSTR-3B. This may lead to recovery proceedings u/s 79 of The CGST Act without the issuance of an SCN.
3. In case of a major difference between GSTR 1 and GSTR 3B, one may represent before the Jurisdictional officer as to the reasons for the difference so that recovery proceedings may not be initiated.
4. Another option would be to pay the excess tax this month and adjust it in the GSTR 3B of the next month to prevent any recovery proceedings.