What happens if GST returns are not filed correctly?

Why GST department sends notice

GST return is one of the important aspects in compliance with the GST Act, the data submitted in the monthly or quarterly GST return filing provides important information to the department for assessment of GST tax liability payable by the dealer.

To understand the complications and resulting action from the department, in case of incorrect submission of GST return filing data or non-filing of GST returns, let us first understand what data is transmitted to the GST department through GST return filing and how it is processed by the department.

What are the data which are transmitted to the GST department in GST returns?

  • Invoice details of outward sales made to customers having GST registration number, SEZ, exports, and interstate sales to unregistered dealers where the invoice value is greater than Rs.2,50,000.
  • Rate-wise consolidated details of supplies made to unregistered dealers within the state and interstate sales for invoice value up to Rs.2,50,000.
  • Details of credit notes issued to registered and unregistered dealers.
  • Details of advances received in the current period.
  • Particulars of adjustment in total outward supply due to advances received in earlier periods.
  • HSN wise summary
  • Starting and ending serial numbers of documents issued, such as invoices, credit notes, debit notes, payment vouchers, refund vouchers, etc.
  • Details of the amendments made to particulars of previous periods.
  • Input tax credit available and input tax credit utilized.
  • Breakup of Payment of taxes, interest, fees, and penalties through electronic cash ledger or electronic credit ledger

How the GST return filing data is processed and used by the GST department?

  • The data and other information submitted by the dealer in GST return filing are used to assess the tax payable by the dealer and the tax to be paid by the others.
  • The invoice data of supplies made to registered dealers are used to pass credit to the other registered dealer with a high level of accuracy, which reduces the chances of false or incorrect claims of input tax credit by the dealers.
  • Credit will be passed to the customers in the same period only when GSTR-1 or IFF is filed on or before the due date.
  • Return Data submitted by e-commerce operators, tax collectors, and tax deductors is used to identify the tax payable by the other dealers from whom tax is deducted or collected.

General procedures and calculations made by the GST department with data submitted in the GST return to send GST notices.

  • GST Notice U/s 61 for scrutiny of returns is the first process in the GST assessment procedure, it will be initiated based on the returns filed and other available data.
  • The input tax credit claimed by the dealer is compared with the input tax credit available from purchase data and data declared in GSTR-3B.
  • The value of taxable supplies is verified with purchase data, turnover patterns, data submitted by e-commerce operators, tax collectors, etc.
  • Where the dealer failed to file GST returns for the period and if the officer has reason to believe that activity of supply had taken place during the period from data such as purchases, and returns submitted by the tax collector, and tax deductor, the best judgment assessment U/s 62 will be initiated.
  • In case of any discrepancies found, the same will be intimated to the dealer with the amount of tax payable and interest and penalty.
  • Where the response to intimation and notice is not provided on time or the reply is not satisfactory, action U/s 73 or U/s 74 will be initiated.

How to avoid GST notices for tax demand?

  • In case of an Input tax credit mismatch between auto-populated data, and data available with dealer, prepare input tax and purchase reconciliation data to identify the difference.
  • The difference in input tax credit arises mainly due to the late filing of GST returns by the suppliers
  • There may be instances where a credit note is issued by the supplier which will have an impact on the input tax credit, the same shall be considered while preparing re-reconciliation statements.
  • Avoid the practice of suppressing B2C sale value, it is a general fact that sale value will be always higher than purchase under normal circumstances, GSTN network is equipped with advanced and automated check systems to identify these practices.
  • There is a misbelief that business transactions using UPI or savings accounts are not required to be billed under GST, all bank accounts for the same PAN will be considered for calculation of turnover in advanced stages of scrutiny U/s 73 or 74.
  • Be aware that the GST department gets information through multiple sources, so the GST department will send demand notices even if a return is not filed or registration is not applied.
  • If auto-populated data is incorrect as per the reconciliation statement try to provide accurate data wherever possible, because, at the time of auto-population, there may be some technical issues, so in the future, there will be differences between the data available with the GST department and data submitted in the GST returns.
  • In case GST registration is to be applied as a composite taxpayer, it is recommended to get the support of a GST registration consultant to understand the eligibility, conditions, and rate structure.
  • The input tax credit is restricted to certain items, in case ITC is availed on ineligible items then notice may be issued for reversal of the same.
  • Data submitted in GSTR-1 should match with data submitted in GSTR-3B.
  • Do not edit late fees or interest auto-calculated unless the same is not correct.
  • File details of outward supplies for the tax period in the respective GST return filing period, the practice of filing nil return and adding it to the succeeding month to avoid late fees will invite scope for GST notices.

Finally, in case any discrepancies are noticed by the dealer it is recommended to make voluntary payments and taxes and take corrective measures to rectify the discrepancies, this can be done by amending details of outward supplies, reversal of ITC, etc.

What to do after receiving GST notices?

  • If GST notices are received for the shortfall of interest, it is recommended to pay immediately and respond appropriately
  • In case a notice is sent for a difference in tax payable, it is advised to ascertain accurate data with supporting records before submitting the contention.
  • Time limits play a vital role in responding to GST notices, therefore it is recommended to provide appropriate replies on time to avoid escalation to the next process by the department.
  • Get support from a GST expert to save on-demand amounts and tackle GST notices professionally.
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