Section 40 of the CGST Act, 2017 plays a pivotal role for newly registered businesses under India’s GST regime by mandating the declaration of all outward supplies made between the date a person becomes liable for registration and the date the registration is granted. This “First Return,” though not filed through a separate form but via regular returns like GSTR-3B and GSTR-1, ensures that transactions during the pre-registration period are reported, allowing recipients to claim Input Tax Credit (ITC) and promoting compliance and transparency.
It also enables businesses to issue revised tax invoices for earlier supplies if registration was applied for within 30 days of becoming liable. By capturing this transitional phase accurately, Section 40 lays the groundwork for smooth and lawful GST operations going forward.
Understanding GST Section 40: The Crucial ‘First Return’ for Newly Registered Businesses
The Goods and Services Tax (GST) regime in India, which came into force on July 1, 2017, brought about a comprehensive overhaul of the indirect tax structure. A cornerstone of this system for new registrants is Section 40 of the Central Goods and Services Tax (CGST) Act, 2017, which mandates the filing of the “First Return.” This section is critical for ensuring that all outward supplies made by a business during the transitional period, from becoming liable for registration until actual registration, are properly declared.
What is Section 40 of the CGST Act, 2017?
Section 40 of the CGST Act, 2017 states:
“Every registered person who has made outward supplies in the period between the date on which he became liable to registration till the date on which registration has been granted shall declare the same in the first return furnished by him after grant of registration.”
This provision became effective from July 1, 2017, via Notification No. 9/2017-Central Tax, G.S.R. 658(E), dated June 28, 2017.
Purpose and Significance of the First Return
The primary purpose of Section 40 is to ensure a seamless transition into the GST framework for newly registered taxpayers. It addresses a specific scenario:
Period of Liability vs. Period of Registration: There can be a time lag between the date a person becomes legally liable for GST registration (e.g., crossing the turnover threshold) and the actual date their GST registration is granted. During this interim period, the business might have already started making outward supplies (sales).
Accountability and Compliance: Section 40 ensures that all such outward supplies, made even before the GSTIN was officially issued, are accounted for and brought under the GST ambit. This promotes transparency and compliance from the very beginning of a business’s GST journey.
Facilitating Input Tax Credit (ITC): By declaring these supplies in the first return, it also helps recipients of these supplies to potentially claim Input Tax Credit (ITC) on the taxes paid during this pre-registration period.
Key Aspects and Implications
- Scope of Declaration: The “first return” under Section 40 requires the declaration of all outward supplies made during the specified period. This includes:
- Taxable supplies to registered persons (B2B).
- Inter-state taxable supplies to unregistered persons where the invoice value exceeds ₹2.5 lakh (B2C large).
- Summary of intra-state and inter-state sales to unregistered persons (B2C small).
- Export invoices and details.
- Any advances received in relation to future supplies.
- Revised Tax Invoices: As per Section 31(3)(a) read with Rule 53 of the CGST Rules, a person who applies for GST registration within 30 days of becoming liable to register can issue revised tax invoices for supplies made during the period between the date of liability and the date of registration. These revised invoices would reflect the GST charged on the supplies. This allows them to collect GST from their customers for transactions that occurred before they had a GSTIN.
- No Separate Form for First Return: There isn’t a dedicated “First Return” form. The details required by Section 40 are typically furnished within the regular GST returns, primarily GSTR-3B (summary return of outward supplies and input tax credit) and GSTR-1 (details of outward supplies), filed after the grant of registration. The system is designed to accommodate the reporting of these pre-registration period transactions within these standard forms.
- Example Scenario:
- Imagine Mr. A’s business crosses the GST registration threshold on July 15, 2024, making him liable for registration.
- He applies for registration on August 10, 2024.
- His GST registration certificate is granted on September 5, 2024.
- During the period from July 15, 2024, to September 5, 2024, Mr. A continued to make sales.
- When Mr. A files his first regular GST return (e.g., for the month of September 2024, or the quarter ending September 2024, depending on his filing frequency), he must include the details of all outward supplies made between July 15, 2024, and September 5, 2024, in that return. He would also need to issue revised tax invoices for these sales.
Importance for Taxpayers
Compliance: Strict adherence to Section 40 is crucial for maintaining GST compliance. Failure to declare these supplies can lead to discrepancies, potential penalties, and issues with ITC claims for the recipients.
Accurate Reporting: It ensures that the tax liability for the entire period of business operations (from liability to registration) is accurately captured and reported.
Smooth Operations: Proper filing of the first return sets the stage for accurate and hassle-free subsequent GST filings.
In essence, Section 40 serves as a vital bridge for newly registered businesses, ensuring that their initial period of operation under GST is properly documented and compliant with the law, laying a strong foundation for future GST filings.
FAQs on Section 40 of CGST Act 2017
What is Section 40 of the CGST Act, 2017?
Section 40 requires newly registered taxpayers to declare all outward supplies made between the date they became liable for GST and the date of registration in their first return.
When did Section 40 of the CGST Act come into effect?
It came into effect on July 1, 2017, via Notification No. 9/2017-Central Tax.
What is the purpose of the first return under Section 40?
The first return ensures that all taxable supplies made before the issuance of GST registration are disclosed, ensuring transparency and enabling input tax credit (ITC) claims.
Who needs to file the first return under Section 40?
Any person who made outward supplies between becoming liable for registration and being granted registration must file the first return.
Is there a separate form for filing the first return?
No, there is no separate form. The details are included in the regular GSTR-3B and GSTR-1 returns filed after registration is granted.
What types of supplies need to be declared in the first return?
Taxable B2B supplies, B2C large inter-state supplies, intra/inter-state B2C small sales, export invoices, and any advances for future supplies must be declared.
Can revised invoices be issued for supplies made before registration?
Yes, if registration is applied for within 30 days of becoming liable, revised invoices can be issued for supplies made during the pre-registration period.
What is the benefit of issuing revised tax invoices?
Revised invoices allow the supplier to charge GST retrospectively, enabling recipients to claim ITC on those transactions.
Does Section 40 apply to inward supplies?
No, Section 40 specifically deals with outward supplies made during the pre-registration period.
How does Section 40 affect the recipient of supplies?
By declaring these supplies, the supplier enables recipients to claim ITC on the GST charged in revised invoices.
What happens if a business fails to report supplies under Section 40?
Failure to report may lead to non-compliance, penalties, and denial of ITC for recipients.
Can a business file GSTR-3B and GSTR-1 without including pre-registration supplies?
They can, but it would be a violation of Section 40 and may result in non-compliance consequences.
What is the time frame covered under Section 40?
It covers the period between the date a business becomes liable for GST registration and the date the registration is actually granted.
Is Section 40 applicable to voluntary registrations?
No, Section 40 applies only to persons who became liable for registration under GST, not to those who registered voluntarily.
What is the legal backing for issuing revised invoices?
Section 31(3)(a) of the CGST Act read with Rule 53 of the CGST Rules allows for revised invoices if registration is applied within 30 days.
How does Section 40 support GST compliance?
It ensures that businesses account for all taxable activities from the start of their liability period, fostering early and accurate compliance.
Can ITC be claimed without revised invoices for pre-registration supplies?
No, ITC cannot be claimed unless GST is charged through revised invoices as per the law.
What role does Section 40 play in GST transition?
It acts as a compliance bridge, bringing pre-registration transactions into the GST fold, thereby facilitating a smooth entry into the system.
Is GSTR-1 sufficient for reporting under Section 40?
GSTR-1 is used to report the detailed outward supplies, but GSTR-3B must also reflect the tax liability during the first return period.
What if registration is delayed beyond 30 days of liability?
If registration is delayed beyond 30 days, revised invoices cannot be issued, and GST may not be chargeable on earlier supplies.
How does Section 40 impact quarterly filers?
Quarterly filers must include pre-registration supplies in their first quarterly GSTR-1 and GSTR-3B return after registration is granted.
Can export supplies be included in the first return under Section 40?
Yes, all export invoices raised before registration was granted must be declared in the first return.
Does Section 40 apply to composition dealers?
No, Section 40 specifically applies to regular taxpayers and not to those under the composition scheme.
What should businesses do after receiving GST registration?
They should identify all pre-registration taxable supplies and issue revised invoices (if eligible) before filing the first return.
Is it mandatory to declare pre-registration advances in the first return?
Yes, any advances received for future supplies during the pre-registration period must be declared in the first return.
How does Section 40 influence future GST filings?
By ensuring correct and complete disclosure initially, it sets a compliant foundation for all future GST returns.
Are there penalties for non-compliance with Section 40?
Yes, non-disclosure may lead to tax demands, penalties, and denial of ITC for the buyers.
Does Section 40 apply to services as well as goods?
Yes, it applies to all outward supplies, whether goods or services, made during the applicable period.
How can businesses ensure compliance with Section 40?
By maintaining proper records of all supplies made during the pre-registration period and issuing revised invoices within the legal timeframe.
Can an unregistered person collect GST before registration?
No, GST cannot be legally collected before registration unless revised invoices are issued post-registration under the permitted conditions.
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