Authored by Archit Gupta
The government recently came out with stringent rules for GST, where non-compliance would result in the cancellation of a taxpayer’s GST registration. The key objective of the government here is to curtail fraudulent business practices and the wrongful availing of the input tax credit by businesses.
Notification 94/2020 was released on December 22, 2020. This notification has a list of amendments to the Central Goods and Services Tax (CGST) Act and Rules spanning new GST registration, cancellation of registration, payments, returns, e-way bills and more.
New rules regarding fresh registration
Notification 94/2020 has put in place strict conditions, where non-compliance would result in the cancellation of GST registration. Taxpayers applying for a new GST registration will now need to get Aadhaar authentication done, complete with providing both biometrics and a photograph. If Aadhaar authentication is not done at the time of registration, then KYC data along with a photograph and biometric information will need to be provided. The authentication is to be done for one promoter/partner and for the Primary Authorised Signatory, and the facility has already been enabled on the common GST portal.
Along with the aforementioned Aadhaar authentication, the applicant will further require to get the original documents verified, the copies of which were uploaded at the time of registration. This will be required to be done at one of the notified facilitation centres. The government has further made the registration process stringent by giving GST authorities the right to undertake a physical verification of the place of business before granting the GST registration in cases where Aadhaar authentication has not been successfully done, or if the GST authorities deem it fit to be done in certain cases.
The new laws governing new GST registration will curtail the number of fake entities being created and indirectly limit GST fraud. Besides registration, Notification 94/2020 has amended the CGST Rules with regard to suspension and cancellation of registration, in cases of default.
Cancellation of registration for non-compliance with ITC conditions
Section 16 of the CGST Act governs the eligibility and conditions for claiming input tax credit (ITC). Also, a new Rule 86B has been put in place. This rule mandates notified taxpayers to pay 1 percent of their tax liability in cash each time even if they have an input tax credit. Many taxpayers feel this is against the free flow of tax credits and is contrary to the design of GST. According to the amended Rule 21, any input tax credit availed in violation of Section 16 of the CGST Act, or in violation of Rule 86B, or by under-reporting the outward supplies in the GSTR-3B return (when compared with GSTR-1), could result in cancellation of the GST registration.
And that’s not all, a new sub-rule 2A has been inserted under Rule 21A governing the suspension of GST registration. According to this sub-rule, if there are any differences found between a taxpayer’s GSTR-3B return and his GSTR-1 and/or GSTR-2B returns, which indicate that the taxpayer has contravened the provisions of the CGST Act, his registration could be suspended. The department will then issue a notice asking the taxpayer to explain these differences, failing which his registration could be cancelled.
Blockage of filing GSTR-1 where GSTR-3B is not filed
Another major move is the insertion of sub-rule 5 to Rule 59 governing the blocking of filing GSTR-1 returns. According to this sub-rule, if a taxpayer hasn’t filed his GSTR-3B for the preceding two months or preceding quarter, depending on whether he is a monthly or quarterly filer respectively, his GSTR-1 filing will be blocked. This condition also applies to taxpayers who violate Rule 86B that restricts payment of more than 99 percent of the tax liability using input tax credit. Non-filing of returns will result in hefty penalties being imposed for every day of delay.
Blockage of e-way bill facility where registration is suspended
The final blow delivered in Notification 94/2020 is the blocking of e-way bills for those taxpayers whose GST registration has been suspended due to significant differences or anomalies between GSTR-3B and GSTR-1 and/or GSTR-2B. This has been introduced by amending Rule 138E governing the blocking of the generation of e-way bills. The non-generation of e-way bills can adversely hamper business activities, as it could result in goods being detained and penalties being levied.
Government’s no-nonsense approach
These new provisions in the CGST Act and Rules show that the government is following a no-nonsense approach in GST administration. If a taxpayer does not follow the rules, his registration will get cancelled. While these measures may be required to put a stop to the frequent incidents of fraud and tax evasion, the downside is that these stringent laws also affect honest taxpayers who have to pass through these multitudes of compliances.
From the government’s perspective, giving taxpayers the ultimatum that their GSTIN will get cancelled if they do not comply is the last resort and probably the only solution that would work.
But what can honest taxpayers now do that will ensure that they comply with these latest provisions in the GST law? Let’s list down the key measures to remain compliant irrespective of the type or size of the business.
Filing your GST returns on time
Delays in filing the GSTR-3B could now result in GSTR-1 filing getting blocked. Non-filing of GSTR-3B will also result in e-way bill generation getting blocked due to existing restrictions in place. Therefore, timely filing of GST returns can save unnecessary complications and late fees being imposed on your business.
Reconciling your GST returns
It has been stressed enough to reconcile your GSTR-1 and GSTR-3B/GSTR-2B every month to avoid discrepancies in data and demand notices from the tax authorities. Now, the government has gone one step further and introduced the suspension/cancellation of the GSTIN rule. Hence, ensure that your business reconciles the GSTR-3B data every single month with the GSTR-1 and GSTR-2B, before filing the same.
Reconciling your purchase books with the GSTR-2B
Another major exercise to undertake at frequent intervals is the reconciliation of the purchase books with the GSTR-2B statement. The provisional input tax credit has now been restricted to 5 percent, thereby putting pressure on businesses to claim accurate credit and not miss a single invoice, failure of which would only increase cash outflows. Any missing invoices or anomalies should immediately be taken care of with the vendors, to avoid impacting input tax credit claims while filing GSTR-3B.
Without doubt, the newly introduced rules are onerous, and the burden of compliance for taxpayers has increased significantly.
Archit Gupta is Founder and CEO at ClearTax. Views expressed are personal
(Edited by : Anshul)
First Published: IST