Service Sector Blames GST Flaw For Interest On Late Returns

The trouble boils down to this: Once an invoice is issued, businesses must pay GST, even if payment has yet to be received. When the payment is eventually made, they are also liable for interest on GST due. Despite numerous appeals from trade organisations to address this anomaly, a resolution remains elusive.

The GST Filing Challenge: Immediate Payment Obligations

Since July 1, 2017, businesses have to file two returns every month: GSTR-1 and GSTR-3B. Rules stipulate that for any sale of goods or services within a month, the GSTR-1 return must be filed by the 11th of the following month, while the GSTR-3B return must be filed by the 13th of the same month. 

This helps keep track of the input credit available from purchases against sales, thereby clarifying the amount of GST to be paid.

The problem arises when a business generates an invoice for a sale and has to report it in GSTR-1, even though, barring exceptions, payments are not cleared immediately, as purchases are mostly done on credit. Consequently, the business is unable to file its GSTR-3B return on time. But regardless of whether a payment is received or not, businesses must pay GST as soon as the invoice is generated, or else cough up 18 per cent interest on the delay.

Hence, when the payment is finally received after 2-4 months, the business files its GSTR-3B, but has to pay an additional 18 per cent interest for the number of days its return was delayed. 

Service sector businesses are affected the most due to this anomaly, as payback time for the sector is longer. Contractors handling large projects, event management agencies, security agencies, manpower supply agencies and other service providers are the most affected by this rule.

Real Stories, Ongoing Struggles

Devendra Vithlani from Lambodar Resources LLP, a service sector business based in Ahmedabad, told The Secretariat that his firm is involved in event management for private companies, and that their payments take 60-90 days to arrive.

When invoices related to events, amounting to lakhs or crores, are generated, they cannot file their GSTR-3B returns until the payments are received. And when they file the returns, they have to pay the requisite GST and also pay 18 per cent interest for the delay. 

Similarly, Bharat Patel of Moksh Enterprise, a manpower supply company based in Surat, shared with The Secretariat that payments in his service sector industry frequently take months to arrive. This prolonged delay disrupts the financial cycle, leading to significant interest charges being levied, in addition to the GST owed.

GST consultant Rakshit Dave noted that many of his clients in the service sector have been facing severe difficulties for the past seven years due to this rule. He explained to The Secretairat in great detail that a sale made by one is a purchase for another.

Businesses must upload their sales details by the 11th of the next month, under the GSTR-1 return. This is the only way for the purchaser to view the details and claim credit. The same system applies to the GSTR-3B return. When the payment cycle is disrupted, it directly affects the GSTR-3B return.

Without the GSTR-3B return, no input credit can be claimed, and the GST must be paid along with the interest. 

To find out if the government has thought of a solution to this problem dogging service sector companies, The Secretariat reached out to the concerned authorities in the state. However, despite the best of efforts we are yet to get a response.