GST Return Filing for Businesses With No Sales but Purchases

Introduction

A business may incur significant purchases before generating any sales. This is common in pre-revenue startups, businesses in the setup phase, and companies building inventory. The question that arises is: How should a business file GST returns when it has purchases but no sales?

This guide explains the GST return filing requirements, the treatment of ITC, and the refund options available.

Legal Framework: Section 39 and Section 54 of the CGST Act, 2017

Filing of Returns

Under Section 39, the business must file GSTR-1 (nil, if no outward supplies) and GSTR-3B (reporting the ITC on purchases) for every tax period.

Accumulation of ITC

The ITC on purchases is credited to the electronic credit ledger. Where there is no output tax liability, the ITC accumulates.

Refund of ITC

Under Section 54, a refund of unutilised ITC can be claimed in the following cases:

Exports: Where goods or services are exported without payment of tax.
Inverted Duty Structure: Where the input tax rate is higher than the output tax rate.
Excess Balance: Where the accumulated ITC exceeds the output tax liability.

Filing GSTR-1 and GSTR-3B

GSTR-1

Where there are no outward supplies, file a nil GSTR-1.

GSTR-3B

Report the ITC on purchases in GSTR-3B. The ITC is credited to the electronic credit ledger. If there is no output tax liability, the ITC accumulates.

Refund Options

Refund Under Inverted Duty Structure

Where the business has accumulated ITC due to an inverted duty structure, it can apply for a refund in FORM GST RFD-01.

Refund for Exports

Where the business exports goods or services without payment of tax, it can claim a refund of the accumulated ITC.

Refund of Excess Balance

Where the accumulated ITC exceeds the output tax liability, the business can apply for a refund.

Best Practices

File returns on time, even if they are nil or show only ITC.
Maintain accurate records of all purchases.
Monitor the accumulation of ITC.
Apply for a refund when eligible.
Seek professional assistance for refund applications.

Conclusion

A business with no sales but purchases must file GST returns and report the ITC. The accumulated ITC can be used against future liabilities or claimed as a refund. Timely compliance is essential to avoid penalties and to preserve the ITC benefit.

Business with no sales but purchases? Anuj Desai & Associates provides expert guidance on GST return filing, ITC accumulation, and refunds. Contact us today.

Contact us:

Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230

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