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In a yet another moves to ensure timely compliances and to mitigate the cases of GST frauds, the CBIC made Rule- 59(6) of CGST Rules effective from 01st September 2021. This can be seen as a big technical measure of the Government to curb the tax evasion. We all are aware that every GST registered person is required to file GSTR-1 return on monthly/ quarterly basis. GSTR-1 is furnished by the registered person in respect of outward supplies of taxable goods or services made by him/her. Further, the registered person is also required to pay their taxes on monthly basis by filing of GSTR-3B.

Earlier, the filing metrics (mechanism) of GST returns was misused by tax evaders. It was seen in many instances that certain taxpayers were filing GSTR-1 declaring outward supplies made by them but were not filing GSTR-3B. This led to the situation where such taxpayers escaped from paying taxes while they were able to pass the benefit of input tax credit to their customers. This led to increase in the cases of bogus GST billing and tax evasion.

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The CBIC took several measures to restrict such practices including the automatic blocking of E-way Bill generation facility for those taxpayers who defaulted in filing of GSTR-3B. This was however found as insufficient by the GST Department. So, the CBIC came out with a Notification on the very first day of the year 2021 inserting sub-rule (6) after sub-rule (5) of Rule 59 of CGST Rules vide Notification No. 01/2021- Central Tax dated 01st January, 2021. Sub-rule 59(6) is intended to restrict the defaulting taxpayers from filing of GSTR-1 if they fail to furnish GSTR-3B. However, the sub-rule 59(6) couldn’t be made effective from that date as GST portal was not technically updated for the same.
Read Notification No. 01/2021 dated 01st January, 2021: https://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-01-central-tax-english-2021.pdf

 

However, the sub-rule 59(6) has now been made operational from 01st September, 2021. In this regard, GSTN issued an advisory dated 26th August, 2021 for informational purposes. In next section of the article, advisory issued by GSTN is reproduced as below:

“Rule 59(6) of CGST Rules, 2017; inserted vide Notification No. 1/2021 dated 1st January, 2021, provides for restriction in filing of GSTR-1 in the following cases:

(a) A registered person shall not be allowed to furnish the details of outward supplies of goods or services or both under section 37 in FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for preceding two months;

(b) A registered person, required to furnish return for every quarter under the proviso to sub-section (1) of section 39, shall not be allowed to furnish the details of outward supplies of goods or services or both under section 37 in FORM GSTR-1 or using the invoice furnishing facility (IFF), if he has not furnished the return in FORM GSTR-3B for preceding tax period;

 

This Rule will be implemented on GST Portal from 1st September, 2021. On implementation of the said Rule, the system will check that whether before the filing of GSTR-1/IFF of a tax-period, the following has been filed or not:

(a) GSTR-3B for the previous two monthly tax-periods (for monthly filers),

OR

(b) GSTR-3B for the previous quarterly tax period (for quarterly filers), as the case may be. The system will restrict filing of GSTR-1/IFF till Rule-59(6) is complied with.

 

This check will operate on clicking the SUBMIT button of GSTR-1 and the system will give an error message of the condition of Rule-59(6) is not met. It may be noted that records which have been saved in GSTR-1 will remain saved and filing of such records will be permitted after Rule-59(6) is complied with.

 

Implementation of Rule-59(6) on the GST Portal will be completely automated, similar to the blocking & un-blocking of e-way bill as per Rule-138E and facility for filing of GSTR-1 will be restored immediately after filing of relevant GSTR-3B. No separate approval would be needed from the tax officers to restore the facility for filing of GSTR-1.

 

To ensure no disruption in filing GSTR-1/IFF, taxpayers who have not filed their pending GSTR-3B, especially from period November 2020 and afterwards may do so at the earliest.

Source: www.cbic.gov.in

 

Analysis:

Rule-59(6) states that in case of monthly filers of GSTR-1, GSTR-1 filing facility on the GST Portal shall be automatically blocked if they fail to furnish two preceding monthly GSTR-3B.
In case of quarterly filers of GSTR-1/IFF facility users, GSTR-1/IFF filing facility on the GST Portal shall be automatically blocked if they fail to furnish the preceding quarterly tax period.
The defaulting taxpayer shall be allowed to fill the data in GSTR-1 facility on the GST Portal but when he/she will click on ‘SUBMIT’ button, an error message will be displayed reminding him/her of non-compliance of Rule-59(6).
However, the data filled by the taxpayer will remain saved and will not be lost. He/she can remove the default by filing GSTR-3B. As soon as the GSTR-3B is filed for default period, GSTR-1/IFF facility will be un-blocked without interference of any tax official.

Restriction in filing GSTR-1 will be implemented w.e.f. 01st September, 2021.

Rule-59(6) of Central Goods & Services Tax Rules, 2017 (‘CGST Rules, 2017’) was inserted vide Notification No. 1/2021 Central Tax dated 01-01-2021 w.e.f. 01-01-2021, provides for restriction in the filing of GSTR-1 in certain cases. It is also noted that earlier, this rule was numbered as sub-rule (5) vide Notification No. 94/2020-Central Tax, dated 22-12-2020, w.e.f. 22-12-2020. New Rule 59(6) of CGST Rule, 2017 has come into force w.e.f. 01-01-2021 but could not be implement on portal. Now, it has been confirmed on the GST Portal that the provisions of this rule in enforcing the restrictions will be implemented on Common Portal from 1st September, 2021.

New Rule 59(6) of CGST Rule, 2017 provides restriction in filing Form GSTR-1 electronically in the following situation

a) a registered person shall not be allowed to furnish the details of outward supplies of goods or services or both under section 37 in FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for preceding two months;

b) registered person, required to furnish a return for every quarter under the proviso to section 39(1), shall not be allowed to furnish the details of outward supplies of goods or services or both under section 37 in FORM GSTR-1 or using the invoice furnishing facility (IFF), if he has not furnished the return in FORM GSTR-3B for preceding tax period;

c) a registered person, who is restricted from using the amount available in electronic credit ledger to discharge his liability towards tax in excess of ninety-nine present (99%) of such tax liability under rule 86B, shall not be allowed to furnish the details of outwards supplies of goods or services or both under section 37 in Form GSTR-1 or using the invoice furnishing facility, if he has not furnished the return in Form GSTR-3B for preceding tax period.

After implementation of the said Rule, the system will check whether before filing of Form GSTR-1, the following has been filed or not-

a) Form GSTR-3B for previous two months (in case of monthly filing);

b) Form GSTR-3B for previous quarter (in case of quarterly filing).

We know that every registered person (other than an input Service Distributor, a non-resident taxable person and a person paying tax under the provisions of section 10 or section 51 or section 52) under section 37 of the CGST Act, 2017 shall furnish, electronically, in Form GSTR-1, the details of outward supplies of goods or services or both effected during tax period on or before the tenth day of the month succeeding the said tax period. Accordingly, every registered person is liable to file this Form GSTR 1 even there is no supply or transaction during tax period.