DRC-01C- Manner of dealing with mismatch of ITC in GSTR-2B/3B and Introduction of DRC-01C (Rule-88D)

In recent months, numerous discrepancies have arisen where more credit has been claimed in GSTR-3B than the ITC available in GSTR-2B. These mismatches have been a matter of concern, leading to the introduction of Rule-88D.

GSTR 2B is value reported by the supplier in his GSTR-1 under section-37 which is autogenerated in form GSTR-2B of the Recipients. In view of these differences, and earlier in spite of Rule-88C (Form DRC-01B) which is related to mismatch in liability GSTR-1 introduced vide GST notification No-26/2022-Central Tax, dated-26/12/2022. After the above rule, a new rule 88D has been introduced via notification 38/2023 Central Tax dated 04st August 2023.

Rule-88D- Manner of dealing with difference in input tax credit available in auto-generated statement containing the details of input tax credit and that availed in return. 

Sub Section-(1) Where the amount of input tax credit availed by a registered person in the return for a tax period or periods furnished by him in FORM GSTR-3B exceeds the input tax credit available to such person in accordance with the auto-generated statement containing the details of input tax credit in FORM GSTR-2B in respect of the said tax period or periods, as the case may be, by such amount and such percentage, as may be recommended by the Council, the said registered person shall be intimated of such difference in Part A of FORM GST DRC-01C, electronically on the common portal, and a copy of such intimation shall also be sent to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said difference and directing him to—

Then Rule-88D has been inserted by the CBIC in August 2023

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This provision will be applicable where Input Tax credit availed in GSTR-3B is exceeds then the ITC available in GSTR-2B (Auto generated Statement as per Section-38) by such amount and such percentage as may be prescribed by the GST council. Such mismatches will be considered under the provisions of Rule 88D.

GSTN shall issue Intimation to Taxpayer in Form-DRC-01C.

• The registered person shall be intimated of such difference in Part A of FORM GST DRC-01C.

• FORM GST DRC-01C would be uploaded on the common portal, and a copy of such intimation shall also be sent to his e-mail address as provided at the time of registration Registration or as amended from time to time,.

• The said form would highlight the difference between GSTR-3B and GSTR-2B.

Applicability as like Rule-88C

1. Regular Tax Payer (Monthly or QRMP)
2. SEZ Developers/Units
3. Casual Taxpayers
4. Composition Dealers

Content Available in DRC-01B

The registered person (shall

(a) Pay an amount equal to the excess input tax credit availed in the said FORM GSTR-3B, along with interest payable under section 50, through FORM GST DRC-03, or

(b) Explain the reasons for the aforesaid difference in input tax credit on the common portal, within a period of seven days.

Upon receipt of intimation at common portal, Taxpayer

(a) Pay an amount equal to the excess input tax credit, as specified in Part A of FORM GST DRC-01C, fully or partially, along with interest payable under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01C, electronically on the common portal, or

(b) Furnish a reply, electronically on the common portal, incorporating reasons in respect of the amount of excess input tax credit that has still remained to be paid, if any, in Part B of FORM GST DRC-01C, within a period of seven days.

Non-Compliance of Rule-88C

A registered person, to whom an intimation has been issued on common portal under Rule-88D in respect of a tax period, as per Rule-59(6e) he 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 for a subsequent tax period, unless he has either deposited the amount specified in the said intimation or has furnished a reply explaining the reasons for any amount remaining unpaid, as required under the provisions of sub-rule (2) of rule 88D.]

Recovery of Amount mentioned in DRC-01C

In cases when the taxpayer’s response is deemed to be unsatisfactory, direct recovery proceedings under Section 79 of the CGST Act, 2017 are to be executed against the taxpayer.

Section 79 of the CGST Act, 2017 permits merely for the recovery of the amount liable to be paid by the individual.” The words any amount payable” would be interpreted in context, where the same would be utilised and the liable amount to be paid (until considered) could merely reveal via executing the adjudication procedure as mentioned under Section 73 or 74 of the CGST Act 2017.

Additionally, Section 75(5) guarantees that an opportunity will be needed if a written request is made or whenever a negative decision is anticipated for the individual in question. Any demand or recovery that is raised because of a mismatch between GSTR-3B and 2B falls under this category.

Rule 88D is not yet effective.

The said rule gets triggered only where the difference between GSTR-3B and GSTR-2B would exceed a certain amount and percentage as may be prescribed. Since the amount and percentage have not yet been notified, the rule cannot be implemented until the amount and percentage are notified.

Read More: A Complete Overview of GSTR 2A Reconciliation

After thorough analysis of Rule- 88D, Rule-59(6e) and Section-75(12) there is a possibility if any difference arises in GSTR-3B and GSTR-2B may lead to unnecessary burden/liability on the registered person. while some other case may be on account of genuine errors and does not have any impact on tax liability. But to prove identification of the error, one requires to submit an explanation by the registered person at the common portal in Part-B of Form DRC-01C.

CBIC rolls out Automated Return Scrutiny Module for GST returns for FY 2019-20 onwards

CBIC has rolled out the Automated Return Scrutiny Module for GST returns in the ACES-GST backend application for Central Tax Officers as a non-intrusive means of compliance verification. This module will enable the officers to carry out scrutiny of GST returns of Centre Administered Taxpayers selected on the basis of data analytics and risks identified by the System. Implementation of this Automated Return Scrutiny Module has commenced with the scrutiny of GST returns for FY 2019-20 and the requisite data for the purpose has already been made available on the officers’ dashboard.

What is Scrutiny of Returns under GST?

As per section 61 of the CGST Act, 2017 read with Rule 99 of the CGST Rules, 2017, the proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

Where any return is selected for scrutiny, the proper officer shall scrutinize the same with reference to the information available with him, and in case of any discrepancy, he shall issue a notice to the said person in FORM GST ASMT-10, informing him of such discrepancy and seeking his explanation thereto within such time, not exceeding thirty days from the date of service of the notice or such further period as may be permitted by him and also, where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy.

Thus, scrutiny of returns filed by a tax payer is undertaken by the proper officer and discrepancies, if any, found during such scrutiny is intimated to him. The tax payer is required to reconcile the discrepancies and provide an explanation to the proper officer within 30 days of such intimation. In case the proper officer is satisfied with the reconciliation and the explanations, he may drop the proceedings, else he may initiate appropriate action including those under section 65 (audit) or section 66 (special audit) or section 67 (inspection, search and seizure) or proceed to determine the tax and other dues under section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts) or section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts).

Selection of returns for scrutiny

Selection of returns for scrutiny is to be based on specific risk parameters. For this purpose, the Directorate General of Analytics and Risk Management (DGARM) has been assigned the task to select the GSTINs registered with Central tax authorities, whose returns are to be scrutinized and to communicate the same to the field formations from time to time through the DDM portal (to the Nodal Officer of the Commissionerate concerned) for further action.

For convenience of field officers, DGARM would also provide some relevant data (along with likely revenue implication) pertaining to the returns to be scrutinized through the DDM portal. It may be noted that the data provided by the DGARM is generated at a particular point of time which may undergo change at the time of scrutiny of returns by the proper officer due to subsequent compliances carried out by the taxpayer or by the suppliers of the taxpayer. The proper officer shall, therefore, rely upon the latest available data

Differences that may be scrutinized

Notice of discrepancy calling for explanation must be issued in FORM GST ASMT-10 by stating the discrepancy in simple and plain language without lengthy discussion about it. The format provided on GST portal must be used by the Department. Examples of discrepancy includes clerical as well as analytical errors such as;

• FORM GSTR-3B containing turnover vastly different from turnover in FORM GSTR-1 for the same tax period;

• TDS-TCS credits appear in FORM GSTR-3B/FORM GSTR-4 but nil outward supply reported;

• Credit appearing in FORM GSTR-2A/2B is lower than credit taken in FORM GSTR-3B contrary to rule 36(4) of the CGST Rules;

• Difference in outward supply or tax reported in GSTR 1 and E Way Bill portal;

• Differences in outward or inward supply reported in GSTR 3B, GSTR 1 and GSTR 9/ 9C;

• ITC availed from suppliers whose registration has been cancelled;

• ITC availed wherein the place of supply if outside the State;

• ITC availed from suppliers who have not filed GSTR 3B and hence not paid the tax;

• Differences in payment of tax on reverse charge mechanism as reported in GSTR 2A/ 2B and GSTR 3B; and

• Differences in invoices reported in GSTR 1 and the e-invoice portal.

Read More: CHANGES IN INCOME TAX LAW REGARDING MSMEs: PAYMENT COMPLIANCE & DEDUCTIONS

These are examples of discrepancies that may be picked up by the system and explanation/ reconciliation may be asked from the registered taxpayer.

Conclusion

Thus, scrutiny of GST returns is a non-intrusive method of ascertaining differences filed by the taxpayer in various returns. The system may also compare the data filed in GST system with that on the Income Tax portal, MCA portal and other similar Government portals. This will ensure that in case difference data is filed by the taxpayer on difference sites, the same gets identified and due explanation is sought from the taxpayer. Taxpayers must ensure that in case their return is picked up for scrutiny, any notice received should be attended with highest priority and reply within time should be submitted. This will ensure that the taxpayer utilises his opportunity to file his reply, else it may become more and more difficult to defend his case in future proceedings. This may also lead to complications and increased litigation, which can be avoided by complying with the directions of law.