Case: When a vendor has raised an invoice but did not receive payment for several months. He still must show invoice in GSTR1 and accordingly pay GST amount in GSTR3B
Because GSTR1 & GSTR3B cannot be mismatched as per common understanding amongst people and CA’s (as registration will be canceled by the department).
So, the general practice is, they issue an invoice and in the preceding month they issue a credit note against that invoice and claim back the ITC. Let us address this issue:
Section 31 of CGST Act 2017- The department has made clear that issue of tax invoice is mandatory. Now as per the credit note circular issued by CBIC, there is no mention of delayed payment. Prima facie the circular caters to situations where terms and conditions for a transaction were not satisfied and led to breach of contract.
The practice of issuing credit note in subsequent months may be interpreted as not issuing tax invoice, which violates section 31 & can be indefensible in the long run.
However,
Section 50(1) of CGST Act 2017 specifically states “Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council.”
Interest rates are given in notification no. 13/2017 – Central Tax dated 28th June 2017, read with section 50(3), in case of reduction of output tax liability shall be 24% p.a. Further, the interest shall be calculated from the day succeeding the day on which such tax was due to be paid.
However, the amount to be considered for calculation of interest is debatable and disputed in courts.
Also, if the department was of the mindset that GSTR1 and GSTR3b cannot be mismatched, why would it ask you to give invoice details in 1 and pay tax liability separately in 3b?
The whole purpose of bringing Annual return 9, is to match tax liability for the financial year as a whole.
As far as notice and assessments are concerned, proper replies with calculation of interest can be provided to the department. Issuing credit notes however seems to be a no way out, as general understanding goes it might buy you some time but could become a real issue in the long run.
Also, at managerial level, the clients shall be categorized based on past experiences of payment clearance & accordingly shall be the treatment of GST amount.
Taking advance of about 20% could become a norm.
The above article is just an opinion. Kindly use your own discretion for compliances.