Recently, the government has deferred all kinds of GST compliance until June 2020. This was notified by the Central Board of Indirect Taxes and Customs (CBIC). However, the taxpayers continued to face particular challenges in understanding these notifications with regards to subordinate GST compliance.
Taxpayers had no clarity on the treatment of certain transactions under GST in the wake of nation-wide lockdown due to the COVID-19. Yesterday, the board issued the CGST Circular no. 137 to resolve certain confusions regarding the applicability of these notifications.
Firstly, the circular refers to the advance payments made to the service providers for any future services that later got cancelled due to lockdown. Let’s understand this with an illustration:
Two parties have agreed for a future service before the lockdown. The buyer has paid an advance amount to the service provider. But later on, the contract gets cancelled for any reason, including the lockdown. The service provider could have acted in either of the two ways:
1. The service provider may have issued a tax invoice for the entire transaction value and deposited the GST amount with the department before lockdown.
Now, he must issue a credit note to the recipient for the same value, including the GST. The credit note must be declared in GSTR-1 of the month in which the note was issued and subsequently adjusted for in GSTR-3B.
Supposedly, there is no sufficient outward tax liability in GSTR-3B against which the credit note can be adjusted. In such cases, form RFD-01 can be filed to claim this GST by selecting “Excess payment of tax if any”.
2. The service provider may have issued a receipt voucher acknowledging the advance amount received by him, without raising any tax invoice. He would have also deposited the GST amount with the department.
In such a case, after the contract gets cancelled, he must issue a refund voucher to the recipient for negating the transaction effect. Subsequently, he can claim the GST refund by filing form RFD-01 under the category “Refund of Excess Payment of Tax”.
Secondly, the circular clarifies the GST treatment of sales returns, where the tax invoice has already been issued. Similar to the first case mentioned above, the supplier must issue a credit note, declare the same in GSTR-1 and GSTR-3B of the relevant month in which the credit note was issued. Any tax adjustment which is not possible in GSTR-3B shall be claimed as a refund in Form RFD-01 by choosing the category as “Excess Payment of Tax if any”.
Thirdly, the circular states that the validity of the Letter of Undertaking (LUT) stands extended for the FY 2019-20 until a fresh LUT is filed for the FY 2020-21. In other words, the exporters who intend to export without paying Integrated GST can continue to do so in the current financial year.
They must quote the LUT reference number of the previous fiscal year, i.e. FY 2019-20 in their export documents. The time limit to file LUT for the FY 2020-21, which previously expired on 31 March 2020, has been deferred up to 30 June 2020.
Fourthly, any Tax Deducted at Source (TDS) under Section 51 of the CGST Act and is due to be deposited between 20 March 2020 and 29 June 2020 can be deposited with the government by 30 June 2020. No interest shall be charged if the TDS is deposited and Form GSTR-7 is filed on time.
The same rule applies for Tax Collected at Source (TCS) under Section 52 of the CGST Act. Hence, even the e-commerce operators get an extended time limit to deposit TCS with the government and file the return in Form GSTR-8.
Lastly, the circular spoke of the extension of the two-year time limit for claiming GST refund that expired on 31 March 2020. The circular explicitly states that such taxpayers may apply in Form RFD-01 by 30 June 2020 and not 29 July 2020.
Although most of these clarifications are dictated in the GST Law, these times of crisis may leave businesses, especially the MSMEs in a pool of doubts. Accordingly, the circular acts as ready-reference material to help the companies make decisions quickly and with minimum professional help. We can expect more of such clarifications from the CBIC in the days to come.
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Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.