GST Annual filing waived off for MSMEs: A Critical Analysis of The Possible Impact

The GST Council, in its 37^th meeting, announced relaxation in filing of annual returns for Micro, Small and Medium Enterprises [whose aggregate turnover in a Financial Year (‘FY’) does not exceed INR 2 crores] for FYs 2017-2018 and 2018-2019. Other taxpayers are required to file GSTR 9 along with the certified GSTR 9C - a reconciliation statement. As per the press release issued by the GST Council, an option has been provided to the taxpayer for filing of Form GSTR 9 ( turnover upto INR 2 crores) and waiver in respect of filing of Form GSTR 9A (for Composition taxpayers). The relevant paragraph of the press release reads as below:

“Relaxation in filing of annual returns for MSMEs for FY 2017-18 and FY 2018-19 as under:

a. Waiver of the requirement of filing FORM GSTR-9A for Composition Taxpayers for the said tax periods; and

b. Filing of FORM GSTR-9 for those taxpayers who (are required to file the said return but) have aggregate turnover up to Rs. 2 crores made optional for the said tax periods.”

In order to give effect to the aforesaid decision taken in the GST Council Meeting, the Central Board of Indirect Taxes and Customs (‘CBIC’) issued a Notification No. 47/2019 - Central Tax, dated 9 October 2019, but with bewildering provision. The Notification made it optional to file annual returns for FYs 2017-2018 and 2018-2019. However, it also stated that if the return is not furnished before the due date, it shall be deemed to be furnished on the due date. The relevant paragraph of the notification reads as under:

“Provided that the said return shall be deemed to be furnished on the due date if it has not been furnished before the due date.”

Based on the above, the following questions may arise from taxpayers -

• Will GST authorities consider GSTR 9 on the basis of the auto populated data appearing from GSTR 1 and 3B and assume it to be final and accept the same accordingly?
  
  
• If the answer to the above question is yes, will taxpayers get an opportunity to rectify the error(s), if any, that might have occurred at the time of filing of GSTR 1 and 3B?
  
  
• What are the chances of a mismatch in the turnover as reported in GSTR 9 and tax return filing done with the income-tax department?  Is there a possibility of Revenue Authorities (i.e. GST or Income-tax) asking the taxpayer to provide reasons, if any, for difference in turnover?

In order to provide clarification with regard to optional filing of annual returns in GSTR 9 / 9A, the CBIC recently issued a Circular No. 124/43/2019, dated 18 November 2019, in order to bring uniformity in the operationalisation of the legal provisions. The Circular provides clarifications which are as under:

• It is clarified that taxpayers, may, at their own option file GSTR 9 for the relevant financial year before the due date. After the due date, the GST portal shall not permit furnishing of GSTR 9 for the relevant financial year. Similar clarification is also provided for the taxpayers under the Composition scheme.
  
  
• Further, it is also clarified that if any registered taxpayer, during course of reconciliation of their accounts, notices any short payment of tax or availed inadvertent ITC, they may pay the same through GST DRC 03.

At this juncture, many taxpayers are skeptical about filing their annual return under GSTR 9 / 9A. The decision for not filing GSTR 9 / 9A may have ramifications vis-a-vis their compliance status. Taxpayers will need to undertake an exploratory analysis, basis below mentioned principles, before deciding whether or not to file the annual returns.

• Evaluate whether there is any error at the time of filing of GSTR 1 and 3B;
• Verify whether relevant taxes, after utilising ITC, has or has not been paid;
• Reconcile ITC availed in GSTR 3B vis-a-vis GSTR 2A; and
• Evaluate the difference, if any, in the numbers reported under GSTR 1 and 3B vis-a-vis audited financial statements.

Basis the above analysis, if taxpayers come across any shortfall in payment of taxes / mismatch in credit, then it will be advisable to file annual returns in GSTR 9 / 9A and pay relevant taxes, if any, alongwith interest, in order to avoid any potential tax litigations.