Right time to start preparation of GST Annual return for the financial year 2017-18

[Ganeshan Kalyani]

Section 44 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) provides that “every registered person other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year.

In view of the above cited provision, a registered person shall furnish annual return for the financial year 2017-18 (consisting of nine months period starting from 1^st July 2017 to 31^st March 2018) by 31^st December 2018. However, due to unavailability of the electronic system in government portal through which the annual return is to be filed the registered person could not furnished the annual return. Therefore on the recommendation of the GST Council, the Central Government, has extended the due date to 30^th June 2019. The due date is extended vide Order No.03/2018-Central Tax dated 31^st December, 2018.

The format of the GST Annual Return in FORM GSTR-9 and reconciliation statement with certification in FORM GSTR-9C is given in the Notification No. 74/2018-Central Tax dated 31^st December, 2018. The return requires various details to be furnished in reference to GSTR-3B, GSTR-1 and books of accounts of the registered person. The task involving significant efforts in preparation of the information to be furnished in the annual return and reconciliation statement is discussed below:

1. Classification of Input Tax Credits into Inputs, Capital Goods and Input Services: In point no. 6 of the GST annual return the classification of Input Tax Credits into Inputs, Capital Goods and Input Services is required to be furnished. The Input tax credit claimed in GSTR-3B in Table 4 (A) (1) to (5) need to be classified into the above three categories and furnished in the annual return. The classification may be carried out based on the name of the supplier of service. The purchase department in an organization can classify a supplier into supplier of goods and supplier of service. The list of such supplier supplying services can be used to classify the credit in to goods or services. Also, the accounting software in an organisation has a unique serial number for supplier of service's account number. The same could be useful to do the classification. Though it seems to be an easy task a considerable time will be required to carry out the task of classification of input tax credit in to inputs, capital goods and input services. Thus, one must start the activity immediately.
2. GSTR-2A reconciliation with the input tax credit taken by the registered person in GSTR-3B: The second big task which is going to take considerable time is GSTR-2A reconciliation with the input tax credit taken by the registered person in GSTR-3B. Though the registered person would have taken utmost care in not leaving any eligible credit pending to be taken. But by oversight some credit would have been missed to be claimed. The same would come to knowledge only while the reconciliation is being carried out. It might also happen during the course of carrying out the reconciliation the input tax credit taken is found to be ineligible and which needs reversal. This gives a registered person an opportunity to reverse that credit along with the payment of applicable interest before the same is been detected by the authority at the time of scrutiny or assessment. Since the time period to claim input tax credit pertaining to the input tax credit of the financial year 2017-18 is being allowed to be claimed up to the filing of GSTR-3B for the month of March 2019. The registered person must carry out this activity right now so that the missed out credit can be claimed in the GSTR-3B of March 2019. The time period is being extended vide Order No.02/2018-Central Tax dated 31^st December, 2018.
3. HSN (Harmonized System of Nomenclature) summary of outward supplies and inward supplies: This is yet another time taking task.
   1. Outward supplies: Every registered person would have furnished the HSN summary of the outward supplies in Table 12 of GSTR-1. The same would be readily available to them for disclosing it in annual return. However, it is suggested to registered person to have a relook at the details before furnishing the same in the annual return. It is possible that some HSN may have skipped to be furnished in the GSTR-1 return. Hence, it is necessary to recheck the HSN summary with the outward supplies.
   2. Inward supplies: secondly, the HSN summary of inward supplies is required to be furnished in point no. 18 of the annual return. It is given in the instruction no. 17 &18 in the Notification No.74/2018 which states that in respect of inward supplies, HSN of those supplies which in value independently account for 10% or more of the total value of inward supplies is only required to be furnished. This give great relief to the registered person who otherwise would end up furnishing the details of HSN of all the inward supplies which would have proven a humongous job. Thanks to the GST Council for bringing this change in the GST annual return. The registered person must now work out HSN summary of those inward supplies which account for 10% or more of the total value of inward supplies. The preparation of said details should be started immediately.
4. Supplies received from composition taxpayers, deemed supply under section 143 and goods sent on approval basis but not returned. These information are required to be furnished in point no. 16 of the annual return.
   1. The identification of the supplies received from composition taxpayers seems possible only on the basis of the type of invoice issued by the suppler. It is bit challenging to compile such details because in the first year many registered person were opting in and out of the composition scheme.
   2. Second requirement is regarding deemed supply under section 143. Section 143 of CGST Act, states that a registered person, with due intimation and conditions as prescribed, may send any inputs or capital goods to a job worker without payment of tax and from there to another job worker and so on. However, the said inputs must be received back by the principal within a period of 2 years (1 year up to 31.01.2019) and in case of capital goods within a period of 5 years (3 years up to 31.01.2019). The said time period is increased as mentioned w.e.f. 01.02.2019 vide CGST (Amendment) Act, 2018 which is made effective by Notification No. 02/2019-Central Tax dated 29^th January, 2019. If the inputs and capital goods are not received back by the principal within the said time period then it would be deemed that those inputs and capital goods were supplied by the principal to the job worker and the applicable tax would become payable. In the table no. 16 of annual return, such details of inputs and capital goods which are not received back within the stipulated period need to be furnished. Therefore, registered person must start working to arrive at such inputs or capital goods which are sent but not received back within the stipulated time.
   3. The third requirement is furnishing of information of goods sent on approval basis but not received back. The proviso to sub-section 12 of section 142 of CGST Act, provides that if a recipient person returning the goods after a period of six months from the receipt of goods on approval basis then he has to pay the tax. And second proviso to the said section state that the tax shall be payable by the person who has sent the goods on approval basis if such goods are liable to tax under the CGST Act, and are not received within a period of six months from the month in which goods was sent initially. Such detail is required to be furnished in point no. 16 of the annual return.
5. Particulars of Demands and Refunds: The information as regard total refund claimed, total refund sanctioned, total refund rejected, total refund pending, total demand of taxes, total tax paid as against the demand of taxes and total demand pending is required to be furnished in point 15 of the annual return. The registered person must start compiling such information so as to disclose it in the annual return.
6. Details of ITC reversed and ineligible ITC for the financial year: The details of the Input Tax Credit reversed through Table 4(B)(i) & (ii) and ineligible Input Tax Credit furnished in Table 4(D) (1) & (2) of GSTR-3B need to be furnished in the point no. 7 of the annual return. The input tax credit so reversed could be of the GST credit or it can be transitional credit i.e. the credit claim u/s 140 of CGST Act read with rule 117 of the CST Rules, 2017. The reversal of transitional credit may have arrived at by own detection of credit being wrongly taken or on detection by the assessing officer in the course of verification of transitional credit claimed through GST TRAN-1 and GST TRAN-2.
7. Late fee payable and paid: The details of late fee payable and paid during the financial year 2017-18 need to be furnished in point no. 19 of the annual return.
8. Reconciliation of turnover declared in audited Annual Financial Statement with turnover declared in GST Annual Return in GSTR-9: The turnover from the audited financial statement can be derived by considering “revenue from operation” i.e. revenue from sale of goods and services in which the company is engaged into. This can be found from credit side of the trading / profit and loss account in the financial statement. The “other income” also need to be considered which may consists of scrap sales details. The branch transfer transaction on which GST is applicable as per Schedule I of CGST Act is not found in the books of account. This is because the balance sheet, profit and loss account i.e. books of accounts are prepared for a company as a whole. The branch transfer of goods from one branch to another branch does not reduces or increases the stock in a company. Further, the asset transfer from one branch to another branch in another state also need to be consider for the purpose of arriving at the turnover because GST is applicable on the asset transfer. GST is also applicable on notice pay recovery from an employee who does not want to serve full notice period days. In this way the turnover of the annual financial statement to be arrived at in order to match it with the turnover as furnished in the annual return. If there is any difference, the explanation need to be furnished in point no. 6 of GSTR-9C. Similarly the taxable turnover to be arrived at and furnished in point no. 7 of GSTR-9C.
9. Reconciliation of taxes paid and additional amount payable:  Reconciliation of rate wise liability and amount payable thereon need to be furnished inn point no. 9 of GSTR-9C. Additional amount payable arrived at during the reconciliation of turnover need to be furnished in point no.11 of GSTR-9C.
10. Reconciliation of Input Tax Credit declared in Annual return in GSTR-9 with Input tax credit taken on expenses as per audited financial statement or books of account need to be furnished in point no. 14 of GSTR-9C. The expense head such as purchases, freight/carriage, imported goods (including received from SEZs), rent and insurance, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples, royalties, bank charges etc. need to be reconciled and furnish with the value, amount of input tax credit and amount of eligible input tax credit availed in GSTR-9C. This is tedious job as each expense in debit side of trading and profit and loss account need to be reconciled and the input tax credit portion in that expense ledger need to be classified as total input tax credit involved and input tax credit taken. There are various ledgers in the books in which the GST part is accounted. Those many ledgers need to be extracted from the accounting software and need to be compared with input tax credit taken in GST-3B. This seems to be simple job but it is sure that if one starts reconciling the depth of the task will be understood. Thus the registered person should immediately start preparation for this requirement.

The instruction given in the GSTR-9 and GSTR-9C is very clear in terms of information to be furnished. The instruction given in the Notification no. 74-2018 to be referred before preparing for the annual return. It can be viewed that before auditor is being called the existing accountant in the company who looks after GST compliance need to carry out the above task. This would cover ninety percent of the annual return task. New return format is expected to come from 1^st of April 2019. Thus a registered person must start the annual return preparation. Thanks.