Demystifying the reasons for mismatch between Supplier’s GSTR – 1 and Recipients GSTR – 2

It is almost 120 days after the rollout of GST and we are yet to file the first month returns, i.e., for the month of July 2017. Is technology the main culprit for this delay? The answer is “Yes” and “No.” Yes, in case of taxpayers who have a large number of invoices and becomes really tough to match the data entered and filed by the supplier and match it with the inward supplies. This is applicable in cases where the inward supplies are more than 500+ transactions per month. The answer in case of “No” is lack of understanding of the GST Law and implementation of the same. In either case, we do not have a choice but to file a valid return.

Some of the common reasons for the data mismatch are

  1. Invoicing Date – the goods or services might have been billed or shipped at the fag end of the month. This could have resulted in the tax invoices not reaching the finance/accounts department.
  2. Goods not yet received – this also could be one the reasons, the supplier must have shipped the goods, but the same is not yet received by the recipient on account of distance, longer travel time or breakdown of the vehicle or some reasons beyond the control of both the parties.
  3. Wrong GSTIN – there could be cases where the supplier must have entered the GSTIN of the recipient wrongly. In such cases, the data will not be reflected in the actual recipient’s GST return. The date entry issues are caused as there might not be a proper accounting or ERP software with interfaces for the filing of returns, and manually data has to be entered. Manual data entry sometime lead to errors.
  4. Material received but not accounted – This is one of the most common cases, in many manufacturing organizations, there is a time lag between the receipt entry or creation and accounting in finance. Personal experience shows that it will take about 20 – 45 days minimum for the Material Receipt Note (MRN) or Goods Receipt Note (GRN) to reach finance/accounts department. If this time lag is reduced, it will definitely ease the pressure on working capital requirements of the organization. It also helps the recipient to process the payments to suppliers as most of the recipients pay from the date of accounting in the books of accounts for the purchases / inward supplies.
  5. Improper accounting of invoices/debit notes/credit notes – this is another major reason for the mismatch between the supplier’s and recipient’s records. Normally in our country, we account for the net amount payable to the supplier and thereby causing the mismatch. Under GST the provisions are very clear that supplier of goods or services only issues the debit note or credit note. Under GST, the recipient has to account for the full amount of the invoice issued by the supplier and then take it up for the differential amount on account of shortages/breakages / quality issues or price differential.
  6. GSTR – 1 of the supplier, is not submitted – it is also observed that many of the suppliers are not aware of the process of filing of the GSTR – 1 or in some cases the erstwhile tax regime returns have not be filed, as a result they were not able to carry forward the closing balances, or C forms are pending from the customers. Some of the taxpayers are not filing the same as they have to pay the differential amount for the non-receipt of C forms or other forms. This is also causing the hardships in the GST return filing process.
  7. GSTR – 1 of the supplier is not filed as GST is a new system many of the vendors or suppliers in the MSME sector are not fully aware of the GST and process of filing of returns. As a result of this, it is observed that in some case, the supplier of goods or services has only submitted the return but not filed, this will lead to a mismatch between the records. In some cases, it is observed that the GSTR – 1 has been only submitted not filed.
  8. Accounted as imprest or in IOU – it is a normal business process to have inward supplies of goods or services through imprest basis at factories or at sites. Normally they are submitted at periodic intervals to the head office or any other office, for reimbursement. Purchases from a registered taxpayer are made in one month, and the statement is submitted in the subsequent month, this also causes the mismatch between the records.
  9. Software upgradation – As GST is a new tax regime and most of the accounting or ERP’s are not upgraded to carter the requirements of GST. This has also caused some issues in the initial days of data capturing and updates. In some cases, it is also observed that the upgrades have been done, but the solutions are not developed. As a result, some gaps are there.
  10. Knowledge of GST – As it is a new system many of the suppliers and recipients in the MSME segment are not fully aware of the GST and its implications. There is also a lack of trained manpower on GST, and some organizations have implemented on their own with understanding issues. This also has resulted in some wrong filing and mismatch of records. Frequent changes in the new law is also causing some understanding issues, to avoid this, professional should be engaged.
  11. Frequent Changes – as it is a new law and everyone is in the learning process and based on the feedback of the trade and industry there are some changes. The changes are in tax rates or process of GST or on reverse charge front etc.,
  12. Not fully operations GSTN Software – the GSTN software is not operational fully and few bugs are also observed, this is also causing some issues in the filing of the GST returns.
  13. Wrong data entry – as the return filing process is at the transactional level, there are understanding issues, and data is being entered wrongly in the returns, this has also resulted in a mismatch of the records. Like invoice amount being entered in the taxable amount columns or tax amounts entered wrongly at the time of filing of returns.

The above are some of the major reasons for the mismatch between the supplier’s returns and recipient’s returns. In view of the above challenges, the government is also responding and extending the due dates of filing of returns from time to time. One thing we all should keep in mind is that the for matching of the returns there is a window period of two months and not required to be matched in the same month/period of return filing.  As it is a new system, it takes time to stabilize and also for the taxpayers to understand the same. No new system is stable, and change is also difficult to adopt either for the taxpayers or for the consumers or for the tax officials. The recent experience in Malaysia where GST was rolled out on 1st April 2015, took one year for the same to stabilize and for us, only four months have passed after the rollout. One good thing in our country is all the stakeholders are responding positively to the changes and striving for the successful implementation.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

GST Tip – 303

As per Rule 10 of the CGST Rules, if the application for registration is accepted by the GSTN, certificate of registration is issued in FORM GST REG-06 containing the principal place of business. The GSTIN issued will be of 15 digits to the applicant.

GST Tip – 131

In Annexe 1 of GSTR – 9B, the effective turnover per state has to be furnished and it is derived like this
Total Turnover as per Financial Statements
Less : Turnover of other states
Add : Inward Stock Transfer
This is to be computed for each GSTIN and filed along with the annual return GSTR – 9.

GST Tip – 121

Annual Return GSTR – 9 has to be prepared, from the audited results of the tax taxpayers. A reconciliation statement for the inward supplies and outward supplies for each registration number along with expenses for each GSTIN (GST registration number) basis of the audited financial statements has to be filed.

Prototypes – Retruns & Payments

The work at the GSTIN is going at the speed of light for making the reporting seamless and online under GST. A few days back the GSTIN has released the list of selected GSP’s (GST Suvidha Provider) and now they have released the screenshots of the screens under GST for Returns and Payments. The basic reason for them to release these screens is to give a basic idea of the screens under GST and how simple and ease it will be for the tax payers.

The mock-up screens can be viewed from here

GST Tip – 62

Under GST, input credit is available on payment and matching of the seller and buyers data in the following sequence GSTIN of the supplier, GSTIN of the recipient , Invoice/Debit Note date, Invoice/Debit Note number ,Taxable value & Tax amount.

GST Tips

54 – As per the revised GST Law, while determining the turnover, supply of non-taxable goods and services is excluded, previously the same was included in determining the turnover.

53 – Composition levy under revised Model GST Law has been redefined and as per this, if the tax payer is having any interstate supplies or  supplies to e-commerce operators, he will not be eligible to be registered as a composite tax payer.

52 – In the revised Model GST Law, the definition of input has been simplified, it says “means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;” means any input used directly or indirectly for furtherance of business will be eligible for input tax credit. The usage of the word furtherance of business reduces litigation’s in future.

51 – As per the provisions of the revised Model GST Law, GST is not applicable or not to be levied on free goods.

50 – Input tax credit in case of telecommunication tower fixed to earth by foundation or structural support including foundation and structural support and pipelines can be taken in three equal installments spreading over a period of  three years.

49 – The definition of Captial goods has been widened and made simple, now as per the Revised MGL Captial Goods means, the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business; This replaces the existing definition of Captial goods as per Cenvat Credit Rules 2002 in the first draft of the Model GST Law released in June 2016.

48 – As per section 65 of the revised Model GST Law, the Comptroller and Auditor General is also empowered to call for information through its authorized representative.

47 – Service tax reversal provision is back in the revised Model GST Law, if the supplier of goods and services is not paid within three months, the input tax credit availed has to be added to the output tax liability.

46 – In the revised Model GST Law, the time limit for matching for provisional credit has been increased to three months from two months.

45 – As per the revised GST Law, the time limit for return of goods from the job worker has been increased from 180 days to one year for inputs and for capital goods from two years to three years.

44 – In the revised GST Law put in the public domain, securities have been dropped from the definition of Goods, it means on sale and purchase of securities GST will not be applicable and existing Securities Transaction Tax continues to be levied.

43 – In the revised Model GST Law, in the time of supply for the goods continuous supply of goods and supply of goods on sale or approval provisions have been dropped.

42 – In the revised draft CGST Bill, a new cause Anti Profiteering clause has been added… It mean the reduction of tax rate benefit and uninterrupted input Tax Credit benefits have to passed on. More clarity is awaited on how it works…

41 – Time of Supply under Revesre Charge for Services is earliest of the following dates, Date Of Accounting, Date of Receipt of services  or date of payment.

40 – Time of Supply of Services is the earliest date of the following dates, date of issue of invoice or date of receipt of payment if invoice is issued within 30 days of completion of service.

39 – The time of supply for services under forward charge or regular services  will be the earliest of the following dates, date of completion of service, date of issue of the invoice within 30 days or date of completion of service or the date on which the recipient shows the receipt of services in his books of account.

38 –  If goods are removed on sale or approval basis, the time of supply shall be at the time when it becomes known that the supply has taken place or six months from the date of removal, whichever is earlier.

37 – In the case of continuous supply of goods like piped gas etc the time of supply will be the earliest date of issue of invoice or payment. In the case of issue of the statement of account, the date of expiry of the statement of account or payment date whichever is earlier.

36 – Time of supply for the reverse charge of goods is the earliest of the following dates 1. date of receipt of goods 2. the date on which payment is made, 3. date of receipt of invoice  and 4. date of debit in the books.

35 – Time of Supply for the supply of goods under forward charge is earliest of the following dates, 1. issue of tax invoice, 2. moment of goods, 3. receipt of the advance, 4. making goods available to the buyer and 5. buyer shows the goods in his books of accounts.

34 – Time of Supply for Goods is divided into three categories broadly first is regular supply or forward charge, second is reverse charge and third is miscellaneous provisions.

33 – The time of supply for goods and services is different, but the overall logic is very simple, time of supply is the earliest of all the dates of the transaction like issue of invoice, supply of goods, completion of service, receipt of money etc.,

32 – Time of Supply is the event during which the supply of goods or services takes place or deemed to take place and at this point, the tax invoice has to be issued and the tax liability has to be accounted.

31 – The officer may grant cancellation of registration within 30 days and the tax payer has to pay all the amounts due like interest, penalty etc along with the tax amount based on computation for input credit or capital goods whichever is higher and in case of capital goods based on the process defined in law.

30 – If a tax payer has to cancel registration under GST, he has to file FORM GST REG-14 and also Final Return Form GSTR-10, which shows details of input tax on closing stock, market value of the goods and tax on it.

29 – Registration Number under GST is required under the following cases irrespective of turnover, All tax payers registered under the current tax regimes  Any person who is required to pay tax under reverse charge mechanism, Any person marking interstate supplies, Casual taxable person, Non-Residential taxable person, Person needed to deduct tax under Sec 37, A person who provides goods or services on behalf of a principal has to be obtained irrespective of the threshold, Input service distributor & E-Commerce operators.

28 – Threshold limit under GST as per the GST Council is Rs 20 lacs across India expect north eastern states where it is Rs 10 Lakhs.

27 – The concept of payment of tax on  manufacture of goods, on sales, provision of service is replaced by a single tax point called “Time of Supply”  in GST.

26n – Under GST,  Unique Identifaction Number (UIN) has to be obtained by bodies registered under United Nations and foreign embassies for claiming refund of GST on their purchases.

25 – For imports SAD and CVD is replaced by IGST and importer can avail full credit of IGST.

24 – Cancellation of Registration under GST is very complicated. The taxpayer has to file an application for cancellation along with the closing stock and pay all the taxes due and file valid returns for cancellation of application to be accepted.

23 – The portal for GST registration is allowing only one GST registration per PAN, in case if anyone has multiple businesses under same PAN have to approach their concerned Jurisdictional Authority.

22 – Suo moto registration – During survey, search, inspection, enquiry if an concerned officer finds business is not registered, he can issue temporary registration number and this process is called suo moto registration under GST.

21 – A Tax Payer can have up to 35 registration numbers in the same state based on his line of business / business vertical

20 – According to Draft Registration Rules, all registered tax payers have to display their GST Registration Number i.e GSTIN on the name board in all the locations of the place of business.

19 – Under GST each and every location of business has to be registered as an additional place of business. Registration number has to be displayed in a prominent place for each place of business.

18 – Three basic requirements for obtaining registration under GST are, PAN Number, e-mail id and mobile number. PAN will be validated online for information with CBDT Servers, Mobile number is required for sending OTP (one-time password) and email id for verification through a separate OTP

17 – For existing tax payers under Central Excise, VAT or Service Tax the data will be migrated and the tax payer will be given 6 months for furnish all the required information.

16 – Registration Number under GST is called GSTIN and it is 15 digit number,the  first two digits are for the state code, next 10 digits PAN, 13th digit is for business vertical, 14th digit is blank and 15th digit is check digit.

15 – Under GST there is no concept of a manufacturer, first stage dealer,registered dealer, service provider etc., anyone who registers under GST is called a tax payer.

14 – Under GST all tax payers have to file single return for the state and the central taxes (SGST, CGST & IGST)

13 – In India we have adopted dual GST i.e the Central Government and the State Government will be levying and collecting taxes due to constitutional provisions in our constitution.

12 – GST is a destination based tax i.e taxes will go to the state where the goods are consumed.

11 – Under GST there is no concept of Tax on Tax like VAT computed on item price + Excise duties

10 – Under GST there is uninterrupted input tax credit in the supply chain process i.e input tax credit can be taken in each and every stage

9 – GST Is applicable to whole of India including Jammu and Kashmir

8 – Under GST, Goods and Services share the same taxes

7 – Integrated Goods and Service Tax (IGST) will replace Central Sales Tax for all inter-state transactions under GST

6 – Taxes which are not subsumed  under SGST are Stamp Duty, Electricity Duty,Vehicle Tax, Royalty, State taxes on petroleum and alcoholic products and Entertainment Duty levied by local bodies.

5 – State Goods and Service Tax (SGST) – taxes merged with SGST are Value Added Tax, Entry Tax, Purchase Tax, Luxury Tax,Entertainment Tax,Octroi, Various Surcharges & Cess

4 – Taxes which are not subsumed under CGST are Basic Customs Duty, other import duties, excise duties on petroleum products and tobacco products

3 –  Central Goods and Service Tax (CGST) to replace Central Excise, Service Tax, Additional Excise Duty, Special Additional Customs Duty (SAD), Countervailing Duty (CVD) along with various cesss and surcharges

2 – There are three taxes under GST ; Central Goods & Service Tax (CGST), State Goods & Service Tax (SGST), Integrated Goods and Service Tax (IGST).

1 – under GST, there is only one registration number per state called GSTIN – Goods and Service Tax Identification Number