Resolving Negative Liability Statement Issues for GST Composition Dealers

Many composition scheme taxpayers encountered difficulties submitting their CMP-08 challan for the April-June 2021 quarter by the July 18, 2021, deadline. The problem arose from a negative liability statement appearing on the GST portal during CMP-08 filing. This article presents practical solutions to this issue, along with insights from GSTN's advisory issued on July 22, 2021.

Recent Updates on CMP-08 Filing Deadlines

• July 5, 2022: The deadline for filing CMP-08 for the April-June 2022 quarter was extended to July 31, 2022, as per Notification 12/2022.
• May 28, 2021: Following the 43rd GST Council meeting and CBIC notification, taxpayers received interest relief for the January-March 2021 CMP-08 filing. No interest was charged until May 3, 2021; a reduced interest rate of 9% applied for filings made between May 4 and June 17, 2021, with the standard 18% rate thereafter. Additionally, the GSTR-4 filing deadline for FY 2020-21 was extended to July 31, 2021. The maximum late fee for GSTR-4 was also capped at Rs.500 for nil returns and Rs.2000 for other returns.
• May 1, 2021: The GSTR-4 due date for FY 2020-21 was extended from April 30, 2021, to May 31, 2021. For CMP-08 of January-March 2021, which was due by April 18, 2021, interest charges were relaxed: no interest was levied for filings on or before May 8, a 9% interest rate applied for filings between May 9 and May 23, and the regular 18% rate applied afterward.

Understanding CMP-08 and GSTR-4

CMP-08: This is a quarterly statement-cum-challan that composition scheme taxpayers must file. It serves as a declaration of self-assessed tax, consolidating turnover and tax liability for the quarter, enabling tax payments. The filing deadline for CMP-08 is the 18th day of the month succeeding the quarter. Delays in filing incur an 18% annual interest. For example, the CMP-08 for the April-June quarter is due by July 18. The form includes four main sections:

• GSTIN
• Legal and trade names, along with the application reference number and submission date.
• A summary of self-assessed liability, encompassing sales, reverse charge purchases, tax payable, interest, and tax payments.
• Verification.

GSTR-4: This is an annual return that all composition scheme taxpayers must submit by April 30 following the financial year end (e.g., GSTR-4 for FY 2020-21 was originally due by April 30, 2021, but later extended to July 31, 2021). It provides a yearly summary of turnover, tax liabilities, and tax payments. GSTR-4 consists of nine tables, including:

• GSTIN
• Legal and trade names
• Aggregate turnover from the previous financial year, along with the application reference number and filing date.
• Details of purchases subject to reverse charge.
• Auto-populated summary of self-assessed liability from CMP-08.
• GST rate-wise summary of sales and reverse charge purchases for the financial year.
• TDS or TCS credit received.
• Details of tax, interest, and late fees due and paid.
• GST refund from the electronic cash ledger.

Purpose and Significance of the Negative Liability Statement

A Negative Liability Statement, accessible on the GST portal, indicates any negative balance in the CMP-08 for the current quarter. This negative balance is carried forward to subsequent quarters and adjusted against future tax liabilities. The final balance in this statement is determined upon filing GSTR-4 for previous financial years. The reporting of sales and reverse charge purchases in CMP-08 and GSTR-4 should always reflect net values after necessary adjustments. These adjustments account for advances received, credit notes, debit notes, and any invoice rectifications. Relevant tables for this reporting include Table 5 and Table 6 of GSTR-4 and Table 3 of CMP-08. Occasionally, these adjustments result in a negative net value, leading to a negative total tax payable in CMP-08. This negative amount is then carried forward without modification for use in future tax periods, potentially across financial years, to reduce or eliminate current tax obligations.

A common cause for this issue is a taxpayer failing to report details in Table 6 of GSTR-4 for a specific financial year. The GST portal calculates tax payable or liability based on Table 6, while tax paid data in Table 5 is automatically populated from CMP-08 forms. If Table 6 is left unreported, the portal perceives a nil liability against which tax was paid, treating it as an excess payment. Consequently, this excess tax is automatically carried forward as a negative liability to the first quarter of the subsequent year for adjustment. Therefore, the difference in tax values between Table 5 and Table 6 of GSTR-4 for FY 2020-21, for example, would become the negative liability for FY 2021-22. If this negative liability exceeds the tax obligation for the current year's first quarter, no tax payment is required, representing a negative liability adjustment for the taxpayer.

How to Access the Negative Liability Statement

To view the Negative Liability Statement, taxpayers must log in to the GST portal. From the main menu, navigate to “Services,” then select “Ledgers,” and finally click on the “Negative Liability Statement” option.

Reasons for Payment Issues During CMP-08 Filing by Composition Dealers

Numerous composition taxpayers, having already filed GSTR-4 for FY 2020-21, encountered issues because only Table 5 (tax paid) and parts of Table 8 (tax payable) are automatically populated from the quarterly CMP-08 statements. Other tables, including Table 4, 7, interest and late fees in Table 8, and Table 9, require manual entry if applicable. Critically, Table 6, which demands details on supply type (outward or inward under reverse charge), value, and tax rate, is a manual entry field. Some taxpayers overlooked reporting in Table 6 of GSTR-4 for both FY 2020-21 and FY 2019-20.

This omission led the GST portal to incorrectly calculate a negative liability, subsequently carrying it forward. Essentially, the portal did not recognize the actual tax liability declared in the auto-populated CMP-08 summary within GSTR-4. Consequently, when filing CMP-08 for the first quarter of FY 2021-22, this negative liability from the previous year was automatically adjusted against the current quarter's tax obligation. This created a significant inconvenience, preventing taxpayers from accurately filing CMP-08 with the correct tax payment. Since neither GSTR-4 nor CMP-08 can be revised after submission, this oversight presented a substantial challenge for taxpayers who genuinely failed to report Table 6 in their GSTR-4.

Solutions to Rectify and Nullify Negative Liability Adjustments

On July 22, 2021, the GST Network (GSTN) released an advisory addressing this issue. Taxpayers who failed to report information in Table 6 of GSTR-4 for FY 2020-21 or FY 2019-20 are advised to submit a support ticket to nullify the negative liability amount. Alternatively, taxpayers can consider the following solutions, which depend on whether GSTR-4 for FY 2020-21 has already been filed:

• Scenario 1: GSTR-4 for FY 2020-21 is pending.
• Scenario 2: GSTR-4 for FY 2020-21 has already been filed.

Scenario 1: GSTR-4 for FY 2020-21 is Pending

If a taxpayer previously reported Table 6 of GSTR-4 for FY 2019-20, there are no immediate consequences for FY 2021-22. The primary action required is to ensure Table 6 of GSTR-4 is correctly reported when filing for FY 2020-21. However, if Table 6 of GSTR-4 was not reported for FY 2019-20, it will affect FY 2021-22, as the negative liability will appear for adjustment during CMP-08 preparation. To resolve this, when filing GSTR-4 for FY 2020-21, the taxpayer should combine the turnover from FY 2019-20 with FY 2020-21 and report the consolidated amount in Table 6 (GST rate-wise summary of tax liability). This action will counteract the negative liability caused by the earlier non-reporting in GSTR-4 for FY 2019-20. By following these steps, taxpayers can proceed with filing CMP-08 and paying taxes without concerns about negative liability.

Scenario 2: GSTR-4 for FY 2020-21 is Already Filed

If GSTR-4 for FY 2020-21 has already been filed, it cannot be revised. Similarly, the Negative Liability Adjustment cannot be altered when submitting CMP-08. Therefore, the taxpayer should proceed with filing CMP-08, accepting the automatic adjustment of the negative liability. As a primary step, the taxpayer can use Form DRC-03 to voluntarily pay the tax liability for the current quarter that was offset by previous years' negative liability. When filling out DRC-03, the reason for payment should be selected as 'Others,' the financial year as 2021-22, and the explanation should state 'CMP-08 short payment due to technical issues.' This process should be repeated for any subsequent quarters where the previous year's Negative Liability Adjustment persists.

Secondly, the taxpayer needs to report the turnover from FY 2019-20 or FY 2020-21, as applicable, combined with the turnover of FY 2021-22, as an additional entry in Table 6 of GSTR-4 for FY 2021-22. This combined reporting will counteract the impact of tax payments made via Form DRC-03 during the same financial year and help avoid any interest on the tax liability for the affected quarters.