Clarification for difference in ITC as per GSTR2A vis-à-vis GSTR3B – Circular 183

[G Praveen]

CBIC have exercised their powers vested as per Section 168 to clarify the difficulties being faced by Trade & Industry in relation to the Departmental Notices being served upon for recovery of tax in relation to the Gap noticed between GSTR-3B vis-à-vis GSTR-2A for the period FY 2017-18 and FY 2018-19. “Act” in general wherever referred in this write up has to be construed as a reference to Central GST Act, 2017 unless mentioned.

In the course of Scrutiny/Audit/Inspection GST officers have been identifying the gap between the ITC availed in GSTR-3B vis-à-vis Form GSTR-2A and gaps if any is being demanded for reversal as Ineligible ITC. Trade & Business have been representing that in the initial phase of GST implementation Form GSTR-2A is not made available for its verification and also many suppliers have not properly disclosed the outward supplies in Form GSTR-1 which resulted in the gaps being noticed by the proper officers under GST. Practical difficulty faced by the officers under GST and trade bodies have been addressed to certain extent in the Circular 183 dtd:27^th Dec’22. In this communique we shall understand below aspects:

1. Guidance provided in the Circular

Availment of Input tax credit on the basis of details furnished by the supplier have been regulated by way of Rule 36(4) from October 2019. Till such point, there has been no specific regulation/guidance by the GST law.

Eligibility to avail input tax credit has been regulated as per the provisions laid out in Section 16 of CGST Act, 2017. Instances where GSTR-2A doesn’t have the details of supplies made by the suppliers, however corresponding tax has been paid by such supplier have been identified as below in the above Circular:

1. Supplier failed to file Form GSTR-1 for a tax period, however Form GSTR-3B has been duly furnished by such supplier
2. Supplier has failed to report a particular supply in the Form GSTR-1 filed. Supplier has filed Form GSTR-1 and Form GSTR-3B for a tax period
3. Supplier has made the supply and issued Invoice with GSTN of recipient. However, supplier has erroneously shown such supply as B2C instead of B2B
4. Supplier has filed Form GSTR-1 and GSTR-3B. however, supplier has erroneously disclosed wrong GSTN of the recipient in his statement furnished

The above Circular has taken into consideration only above instances and not otherwise for giving clarification/guidance to handle the differences noted in GSTR-3B. if there any instances of above sort noted by the Proper officer, below guidance has been recommended:

Step1: to examine the overall compliance requirements of Section 16, 17, 18 of the Act for availment of ITC other than Section 16(2)(c) of the Act

Step2: To examine the compliance requirement as per S.16(2)(c) of the Act, a self-declaration from the supplier where the value of Input tax credit for a particular Financial year is upto Rs.5lakhs and in any other case a Certificate from a CA/CMA shall be required confirming the fAct that tax on such supplies has been duly paid in GSTR-3B. The above Certificate issued by a CA/CMA has to carry UDIN

Step3: The above relaxations are not made applicable to the ITC claimed by any person in Form GSTR-3B in relation to ITC for FY 2017-18 after the period of due date for furnishing return for September 2018 till the due date of furnishing return for March 2019, where supplier has not furnished details of such supply in Form GSTR-1 till the due date of furnishing Form GSTR-1 for March 2019.

It has been mentioned in the circular that above directions are applicable only in relation to ongoing proceedings scrutiny/investigation/audit etc., for FY 2017-18 and FY 2018-19

2. Payment of self-assessed tax

The moot point of examination in the above Circular is on the point of contemplation for payment of taxes due as per Section 16(2)(c) of the Act. This aspect has not been duly elaborated neither under GST Act or Rules formulated till date. Also, GST Council have not made any suitable recommendations in this regard. However, the directions given in 27^th GST council are relevant at the moment, where in directions have been made for recovery of tax from the defaulting supplier other than in extraneous case involving situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.

Section 59 of the Act refers to self-assessment wherein, every registered person shall assess the taxes payable and furnish a return u/s 39 of the Act. Discrepancy noted if any between Form GSTR-1 and Form GSTR-3B shall be sought for explanation if noted by the Proper officer u/s 61 of the Act

Question to ponder here shall be, what if the proper officer doesn’t issue a notice u/s 61 on account of failure to make such demand. Finance Act, 2021 has inserted an explanation u/s 75(12) as below to be effective from 01.01.2022:

Quote:

(12) Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79

Explanation.––For the purposes of this sub-section, the expression “self-assessed tax" shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39

Unquote:

Till insertion of above explanation, there exists a gap in understanding how the term “self-assessed” tax has to be determined. The above explanation creates an artificial demand for self-assessed tax as unpaid if the tax liability declared under section 37 of the Act is in excess of taxes paid as per Return filed u/s 39 of the Act.

The liability arising if any in this regard shall have authority with the proper officer for recovery u/s 79 of the Act. However, such recovery without proper examination of taxes due from a taxable person for a specific period and without exercising the principles of natural justice i.e. giving an opportunity of being heard for determination or ascertainment and then confirming the demand thereupon shall be sub-servient to the Recovery proceedings in most of the cases.

Rule 88C has been inserted in CGST Rules, 2017 w.e.f. 26.12.2022 to enable the recovery of taxes declared in GSTR-1 and not paid duly in Form GSTR-3B. This Rules has enabled FORM GST DRC-01B which has Part-A & Part-B for initiating recovery proceedings. Though, this Rule has a mechanism to initiate the recovery proceedings u/s 79 vide Part-A of FORM GST DRC-01B, it lacks the principles of natural justice when the Proper officer doesn’t get satisfied with the explanation provided by the taxpayer in part-B of FORM GST DRC-01B.

The moot point stands unanswered as of now is in relation to ascertainment of compliance asper Section 16(2)(c) of the Act in relation to a supply.

3. Compliance check for Payment of tax

Section 41 of the Act has been revamped vide Finance Act, 2022 w.e.f. 01.10.2022 to eliminate the concept of availment of Input tax credit on Provisional basis. For ensuring the compliance in relation to default in payment of tax by the supplier in relation to a particular supply the new provision have prescribed the obligation on the recipient to reverse the input tax credit with Interest. However, a detailed mechanism for ensuring such compliance for payment by the supplier has not been defined or identified at each of the supply level.

Rule 37A has been inserted in CGST Rules, 2017 w.e.f.26.12.2022 to detail the compliance in relation to payment of tax by the supplier in Form GSTR-3B. This Rule has mandated the recipient to reverse the Input tax credit on account of default if any by the supplier if the tax is not paid for a particular tax period during which the details of supplies have been furnished by the supplier.  Practical difficulty for ensuring such compliance is that, there exists no proper mechanism laid down under GST Rules as of now. Also, for registered persons who have more supplier’s, verification of GST payment for each tax period has to be verified manually and keeping a track for such non-compliance is going to add burden on to the assess. How, GST authorities are going to verify the compliance under this Rule for proper compliance is not clear as on date. A detailed circular should be provided by CBIC for removing difficulty in this regard

4. Possible exposure for future litigation

For the gaps noted in GSTR-3B vis-à-vis GSTR-2A, if any of the situation prescribed as per Circular 183 are prevalent, will the self-declaration/ certificate from a Professional as prescribed in Para 4 of the above Circular suffice the proper officer to drop the demand for recovery of ineligible input tax credit is definitely not an affirmative answer. There could be a possibility for the Proper officer to deny the declaration or certificate provided for the below mentioned reasons:

• Self-declaration issued by the supplier is found to be irregular
• Recipient has produced the declaration fraudulently
• Any other reason on account of scrutiny

A professional who has to issue a certificate as per the requirement of above Circular 183 shall have to conduct a detailed audit under GST once again for the respective financial year to ensure that the supplies declared as per Form GSTR-1 duly matches with the taxes paid through Form GSTR-3B. It is highly recommended to maintain a detailed check list for the Activity carried by the Professional to ensure remittance of tax by the supplier for the supplies carried out are properly certified and ensure that there is no lapse/mistake in providing assurance for payment of taxes by the supplier concerned.

 

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