Introduction

‘Change’ has been ‘constant’ under the GST regime. The dynamism has not only been with respect to the legal provisions but also in the matters of compliance. The form GSTR-4 stands as a corroboration to substantiate this point. The composition scheme was always thought and imagined to be a simpler scheme especially from the compliance perspective, while this form in its new ‘avatar’ appears to be a contradiction to this perception.    

Is Form GSTR-4 an Annual Return?

The first misconception that could nest in the minds of the compliers is that GSTR-4 is an annual return specific to this special scheme, more so that it is made  available at the GST Portal under the category ‘Annual Return’. Well! we have seen enough instances where the law depicted in the law book is on one footing, while the portal dominated law implementation is entirely on to the other. This is a fresh ‘addition’ to this ‘edition’.

To analyse, Form GSTR-4 emanates from sub-section 2 of section 39 of The CGST Act. This form has been nomenclated as ‘a return for every financial year’ by clause (ii) to sub-rule 1 of Rule 62 of the amended CGST Rules. To be entitled to be nomenclated as ‘Annual Return’ it must emerge from Section 44 of The CGST Act and ‘Form GSTR-9A’ enjoys this privilege with respect to the composition scheme as it stands this day. Yes!! You guessed it right – for the Financial Year 2019-20, a dual compliance would be necessitated more so that neither there is an exception nor an exemption and also neither a waiver nor an ‘optional filing’ benefit yet.   

If history repeats, no consolation for the disenchantment of the prompt and early birds and those complying belatedly continue to enjoy the ‘rewards’ of waivers, exemptions and relaxations.

The special scheme and the intricacies of its variants

The composition scheme is a special scheme where a flat rate is prescribed in lieu of full rate with respect to various supplies falling under multiple rates. Till 1st February 2019, such liability was labelled as ‘an amount in lieu of tax payable’, but the CGST Amendment Act 2018 pitched in to aid in relabelling it as ‘amount of tax’ not merely any amount, for an amount after rightly getting qualified as tax, will have far reaching implications on certain other legal provisions too.
With the intention of adding more vigour to the scheme and popularising it further to benefit low volume businesses, a new variant was introduced for the FY 2019-20. Let’s get a bird’s eye-view of the intricacies of both these variants.

First variant

Till the FY 2018-19, a set of registrants overwhelmingly relying upon the press release presumed that the aggregate turnover criteria in order to be entailed under this scheme is INR 1.5 crores (in other than the special category states (INR 75 lakhs)). Many a times the press releases of these ‘style’ indicating the implementation of future plans or proposals or reduction in tax rates have done more harm than good, of course fetching goodwill to the administrator but at the cost of repercussions owing to the layman’s inability to distinguish the sanctity brought in by the notifications vis.a.vis the ‘informative’ statements propagated by the press releases.      
Although, for FY 2019-20 one need not worry about this as it was notified and sanctified w.e.f. 1st April 2019, however, the subtle aspect to be reckoned is that the yardstick is that of the preceding financial year and needless to say that the limit surpass in current financial year will also lead to an automatic lapse although action for opting out needs to be assertively undertaken by the complier.

Second variant

What gets added for FY 2019-20 is the new variant to this scheme favouring the ‘service sector’ with a special ‘6% rate’. Initially it was introduced as part of the rate notification so as to speed up the implementation without requiring to wait for the parliamentarian process which is a pre-requisite for incorporating anything into the mother legislation. One of the conditions stated therein required the registrant to imprint a protracted subtitle to the document entitled ‘Bill of Supply’ giving the full reference of the document that gave birth to this scheme, to be prefixed by the name given to the registrant under this special scheme and suffixed by one of the conditions of the scheme. That’s pretty too lengthy a sub-title to ask for, isn’t it?  Alas! the scheme gained entry into the Act from 1st January 2020 and the Finance Act 2019 did this needful but however the same has not gained entry into all the respective state acts and thereby the opting requires to be continued under the rate notification in such states.

Selecting the Right variant

Diligence is expected in the rightful fitment into the appropriate variant of this scheme, for again there is a rate variation implication in case of wrongful fitment. If the ratio of services falls within 10% of the aggregate turnover( mind you its again that of the preceding financial year) or INR 5 lakhs whichever is higher, then one has the entitlement under the first variant itself as amended from 1st February 2019 and accordingly all supplies will suffer only 1% tax including that on services, of course subject to the exception of restaurant services which suffers 5%.
And the icing on the cake is that there is

• no tax on exempt supply of goods (way back from 1st January 2018) and
• the earnings from interest or discount connected to loans/advances given or deposits invested are not to be reckoned for the aggregate turnover either for the purpose of eligibility (this being applicable to both variants) or for the purpose of 10% threshold for services.

The first variant appears to be for those predominantly dealing with the goods barring the exceptional restaurant services which fits into this variant itself. Those who fail the test of the first variant and the business volumes are much lower (within INR 50 lakhs) and have a mix of goods and services where services ratio exceeds 10% and hence not eligible for the first variant, may consider this new variant with a special rate of 6%, but requires discharge on exempt supplies too for the wordings used is turnover (no prefix of taxable) and also there is no specific exemption. This is more beneficial to those having more of unregistered customers or where their registered customers have restriction on credit claims.

Filing requirement and repercussions

The registrants under both these variants need to file this form GSTR-4 and that too by 31st August 2020 as it stands this day after being extended twice. By doing so one can avoid the corresponding repercussions like the late fee under section 47 (INR 200 per day up-to a maximum of INR10,000), notice to non-filers under section 46 in Form GSTR-3A (need to note that GSTR-4 is a return under section 39), after which the due process laid down in Circular 129/28/2019 could be followed by the administrator to issue an order through Best Judgement Assessment, if the notice stated supra is not duly replied to and further if no appropriate course of action is taken the order will crystalize and appeal proceedings would be one of the limited recourses available and the same must be exercised within the permitted timelines. Ah! The repercussions are rigorous, aren’t they?
It just doesn’t end there, one must not forget the implication of general penalty of up to INR 25,000/- not just under the CGST law but also under the corresponding SGST/UTGST law and guess what even the IGST law too. One may wonder what role does IGST law play in composition? The special scheme is not excluded from the reverse charge compliances and hence the discharge of IGST under the Reverse Charge Mechanism could be an absolute possibility and here the IGST Act gets the jurisdiction through the adoption provisions.

Alarming matters

The qualifications for enabling oneself to get entitlement into the composition scheme (few chosen ones by the author) needs special consideration for if casualness or ignorance has taken over to exclude evaluation of the minute aspects, it might land the wrongly opted registrant into deep trouble. Being rightfully qualified for the scheme is very critical as otherwise it’s a ‘double-edged sword’’ leading to implications of payment at full rate (without having collected it) and denial of credit owing to the elapse of time apart from the time measured interest, and penal consequences. One has to be extremely mindful in exercising the choice for this scheme.

Aggregate turnover V. Turnover in state

To establish the eligibility, one needs to mull over ‘aggregate turnover’ which is not specific to the ‘GSTIN’’ under consideration but to ‘all the GSTINs’ emerging from the same ‘PAN’’ which is given an exclusive name under the law ‘distinct persons’. After qualifying through this test, one needs to discharge liabilities reckoning ‘turnover in state’ of the respective ‘GSTINs’, of-course it goes without saying that all distinct persons must go by the same choice of the scheme including the same variant.
Now, why this lengthy preface when we are discussing on Form GSTR-4? The notified form requires reporting of the aggregate turnover for the preceding financial year which was stated to be auto-populated but the portal demands the tax payer to fill this information. This becomes the next ‘addition’ to the ‘edition’ discussed supra. Hence to compute this manually, one needs to understand the consolidation requirement as stated above.

E-commerce transactions

Another qualification for this special scheme be it the first variant or the second is the pre-requisite of non-dealing with the third-party e-commerce operators who are obligated to collect tax at source (although no bar in being an e-commerce operator and supplying own goods/services intra-state).
Table 7 of the Form GSTR-4, (couldn’t circumvent the usage of table reference and the saga continues infra…) provides an automatic mirror reflection of tax deduction and tax collection at source by the deductors or the e-commerce operators as the case may be. One may wonder what role does this information play when this special scheme is not meant for those dealing with e-commerce operators liable to collect the tax at source and the emphasis on the e-commerce transactions is intentional.
This special scheme has won the hearts of most of the restaurant owners and they have fondly opted this. ‘Swiggy’,’Zomato’ and the like have got deeply enrooted in the modern day lifestyle and its very commonly seen that most restaurants are part of this business eco-system but without realising the repercussions, having opted for this special scheme they have even utilised such tax collections at source after they get credited to the electronic cash ledger, to pay off their quarterly outgoes, through the substituted Form CMP-08 which is described as a ‘statement containing the details  of  payment  of  self-assessed  tax’,    yes! you read it right, it’s a statement and not a return.
The plight of such actions is damaging for it makes them ineligible to this scheme outright and this will have a perennial effect on other supplies effected too. Although, the restaurant services bear the same rates of tax be it composition or other-wise in most instances, however they might be providing other supplies or there may be other sectors of business who having opted for composition might have supplies through the e-commerce operators as stated supra and hence diligence is crucial. 

The Nexus with the ‘MRP Tags’

The special scheme comes with another condition-cum-restriction that the registrant opting to this is not entitled to collect tax. What would be the fate of those who have opted for this special scheme and are dealing with the goods tagged with ‘MRP – Maximum Retail Price’ which would be to fulfil the compliances under the Legal Metrology Act, and it means that it’s an all-inclusive price including the taxes too.
Ensuring reduction of taxes from MRP before they collect the money from their customers or opting out from this special scheme are the available two right courses of action. To go for the first course of action, unless there is a huge gross profit margin, would be to sell under loss, while even otherwise claiming credits and discharging at full rates would be the financially feasible course of action in most instances.  

The Informatics

The administrator might use informatics from Form GSTR-4 using it as an instrument for data-analytics to identify the wrongly opted registrants unto this special scheme. Oh boy! diligence is crucial and inevitable for the financial implications are far reaching amidst the business competition getting tougher day by day with the shrinking margins.

Reporting inclusions and exclusions

Let’s get the overview of the form to decipher the deeper aspects embedded to it.

If we observe above, it is imperative that, the whole of the task of compiling the information lies in segregation of Inward supplies in Table 4 and also separation of exempt and rate-wise taxable supplies in Table 6.

Inclusions

The reporting on Inward supplies calls for an annual consolidation supplier-wise(w.r.t registered vendors) but needs rate-wise segregation after incorporating all the rate-specific adjustments be it of credit notes or debit notes or upward/downward adjustments of invoices and if there are no supplies but only credit notes of that particular rate belonging to that particular supplier, the schema allows negative values too but duplication is barred meaning for a specific supplier there can only be one line item of that rate, thereby compelling the complier to compile and report net figures post all adjustments rate-wise. The reporting saga continues and there is requirement to report even procurements from unregistered persons apart from the party-wise reporting of reverse charge transactions both from registered and unregistered suppliers.
If one tries reporting differently, such trials are in vain for the form doesn’t listen to all that. The three years of sailing through the GST law has taught how tech tricks are inevitable and one having grip of these tricks has always sailed through compliance swiftly. ‘Patience’ and ‘Perseverance’ are few of the traits which the law and its compliance has forced into us apart from the inevitable and mandatory tech-upgradation.   
Now comes the questions, the answers to which are not spelt explicitly either in the provisions or in the instructions to the form.
Does one need to segregate and report even the exempt inward supplies for the words used in the form is ‘Taxable Value’? Well! for anything to be exempt first it must be leviable to tax as the levy provisions precede the exemptions. Again, the drop-down provides for a ‘0%’ rate as well (substituted for ‘Nil’). The application of the same analogy might be required even w.r.t procurements from unregistered persons. 

Exclusions

The fortunate ones which get the exclusion from reporting are the import of goods and procurement from composition registered person for there is no designated place for reporting the same. Although import of goods might be reported under the category of unregistered procurements, there is a tax payment associated to it and there is no designated space to report the same. Similarly, the procurements from composition registrants cannot be reported under the ‘0%’ rate for it does not fit there.

Expectations V. Reality

The complier always imagined this scheme to be a simpler one. Had he realised that this scheme calls for so much of compliance he would have probably thought multiple times before opting into this. May be, he has erred in overlooking this notified form which got substituted in lieu of the old GSTR-4 (published way back on 28th June 2019), so that he could have incorporated the methodologies in capturing the requisite information at the grass root level itself to reach the designated outcome.
When the relaxation in maintenance of the detailed books of accounts both with respect to inventory particulars as well as the tax amount bifurcations are excepted with respect to the composition registrants owing to the specific exclusions in Sub-rule 2 and Sub-rule 4 of the Rule 56 dealing with ‘Accounts and Records’ (although no such exception being provided under section 35 but that takes us to a different page of debate), is this form taking away the benefits bestowed by the rules. Is this form defeating the very purpose of providing a simplified scheme?  

GSTR-4 V. GSTR-9A

If both these forms are intended to compile a year specific information, what are the essentials distinctions between the two and what different purpose do they serve? To answer this let’s look at the commonalities as well as the distinctiveness.

Commonalities

Both requires reporting of the aggregate turnover for the preceding financial year, thank goodness one computation will suffice. Both the forms could be used to discharge additional liability (tax or interest), – Table 6 of Form GSTR-4 & GSTR-9A for reporting taxable values and taxes – What a co-incidence both share the common table numbers. Both forms could be used to report the correct information in alignment with the books of accounts (presuming books of accounts are post rectifications) thereby even facilitating the reporting of the excess tax discharged, if any, in order to pave way for making a  ‘refund claim application’, but the process of discharge of the liability stated above is quite different.

Distinctions

Continuing the commonality stated supra, what is different even in this commonality is that while disclosure of additional liability in Form GSTR-4 will auto compute the data to be flown into Table 8 to enable the challan creation process to deposit cash into the electronic ledger followed by the mechanism of the off-set of the liability to enable the filing of the form, the discharge under GSTR-9A needs to be routed through the demand recovery challan series -3 more fondly called as ‘DRC-03’, it doesn’t matter if it is was discharged prior to the filing of the form, during or even after. The payment and off-set process are embedded in ‘DRC-03’ and is independent of filing formalities of GSTR-9A unlike GSTR-4 which is embedded in that form itself.
While GSTR-9A requires summation of the annual data at the broad categories of inward and outward supplies, Form GSTR-4 calls for registered-supplier-wise rate-wise annual summation giving effect to the adjustments stated supra. As far as the outward supplies are concerned only rate wise bifurcations suffice (holy saviour!) of-course including the exempted ones.
While, there is a designated Part IV in GSTR-9A to report the rectifications executed in the succeeding financial year within the permitted timelines, there is no scope for reporting such matters in GSTR-4 for this information auto-flows from CMP-08, where the design of the form do not permit period-bifurcation corresponding the discharge of tax.
Import of goods finds a specific place in GSTR-9A while not in GSTR-4. The other segments which exists in GSTR-9A but not in GSTR-4 are that of Refunds and Demands and also the credit reversals and availments owing to shift-overs between the schemes.

The Missing table

I promise to use the table reference this one last time. While the notified form GSTR-4 contains the Table 9 to facilitate auto-cash ledger refund mechanism with the intention to do away the interaction between the administrators and the tax payers for excess balances in cash ledger which could be reckoned to be an extension of their bank accounts, the boon granted by the ‘Almighty’ appears to have been taken away by the ‘Priest’ and the portal has missed in making this table available online thereby depriving the bestowed benefits and it becomes one more ‘addition’ to the ‘edition’ which the author could identify in the context of this form. Not sure, if anything has got missed. Well! owing to ‘the missing table’ the tax payers have to route their refund claims pertaining to the excess balances in electronic cash ledger through the generic process laid down in this regard which takes a longer course of time comparatively.    

Conclusion

If these meticulous and exhaustive compliances are required to be continued without waivers or relaxations provided, it might be a night-mare as the reporting of the appropriate data as expected would require the re-construction of the books of accounts incorporating the segregations sought for to be traced from the individual vouchers.
Well! as a complier does one decide to be a prompt and an early bird or anxiously look forward for the waivers or relaxations subject to the uncertainty of the outcome of the anticipation, is left to the choice of the complier.

The author is of the view that reporting the information sought for in GSTR-4, on best efforts basis could be an ideal course of action in order to avoid the repercussions of delayed filing or non-filing. In-time compliance might outweigh perfect-compliance in certain scenarios and also the author wonders whether perfect compliance is possible at all! as our learnings are also evolving along with this evolving law. Further, any corrections or rectifications could be an absolute possibility through annual returns which contains high-level information with respect to most of the information sought for here and thus there is scope for voluntary corrections even after filing this form. Of course, the composition registrants must be aware of all these intricate matters. With these thoughts to share, the author signs off here….