Automated Notice Under GST Regime

Introduction:

Just like under the Income Tax Act where basic level processing is done by the CPC under section 143(1), GST has also introduced system for automated intimation of discrepancies to the taxpayer. Restrictions have also being placed on filing of returns where such discrepancies are not dealt with. This step can go a long way in moving towards digital processing of cases and might even lead to lower scrutiny by the department as a large chunk of the issues might be dealt with by the system itself. The Income Tax Department has now established a near perfect system to carry out basic processing and thus it is expected that GST shall also move on similar lines and provide a transparent and effective system for managing disputes.

Legal Provisions-

Rule 88C-

[Rule 88C. Manner of dealing with difference in liability reported in statement of outward supplies and that reported in return.-

(1) Where the tax payable by a Registered person, in accordance with the statement of outward supplies furnished by him in FORM GSTR-1 or using the Invoice Furnishing Facility in respect of a Tax period, exceeds the amount of tax payable by such person in accordance with the return for that period furnished by him in FORM GSTR-3B, 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-01B, 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-

(a) pay the differential tax liability, along with interest under section 50, through FORM GST DRC-03; or

(b) explain the aforesaid difference in tax payable on the Common portal,

within a period of seven days.

(2) The registered person referred to sub-rule (1) shall, upon receipt of the intimation referred to in that sub-rule, either,-

(a) pay the amount of the differential tax liability, as specified in Part A of FORM GST DRC-01B, fully or partially, along with interest under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01B electronically on the Common portal; or

(b) furnish a reply electronically on the Common portal, incorporating reasons in respect of that part of the differential tax liability that has remained unpaid, if any, in Part B of FORM GST DRC-01B,

within the period specified in the said sub-rule.

(3) Where any amount specified in the intimation referred to in sub-rule (1) remains unpaid within the period specified in that sub-rule and where no explanation or reason is furnished by the Registered person in default or where the explanation or reason furnished by such person is not found to be acceptable by the proper officer, the said amount shall be recoverable in accordance with the provisions of section 79.]

[Introduced vide CGST (Fifth Amendment) Rules, 2022 dated 26.12.2022 w.e.f. 26.12.2022]

Rule 88D-

“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.-

(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—

(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.

(2) The Registered person referred to sub-rule (1) shall, upon receipt of the intimation referred to in the said sub-rule, either,

(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 the period specified in the said sub-rule.

(3) Where any amount specified in the intimation referred to in sub-rule (1) remains to be paid within the period specified in the said sub-rule and where no explanation or reason is furnished by the Registered person in default or where the explanation or reason furnished by such person is not found to be acceptable by the Proper officer, the said amount shall be liable to be demanded in accordance with the provisions of section 73 or section 74, as the case may be.”.

[Inserted by CGST (Second Amendment) Rules, 2023 dated 04.08.2023 w.e.f. 04.08.2023[

Analysis-

Rule 88C-

2. Rule 88C is not currently in effect. Only when the difference between GSTR-1 and GSTR-3B form would surpass a specific amount and percentage as may be stipulated would the aforementioned regulation is activated. The regulation cannot be put into effect until the amount and percentage are notified since they have not yet done so.

3. Rule 59(6) of the CGST Act, 2017 also got inserted vide Notification No. 26/2022-Central Tax dated 26th December 2022. The aforementioned regulation prohibits the filing of GSTR-1/IFF for a future Tax period when the taxpayer does nothing after the issuance of DRC-01B. Here, neither the taxpayer nor

(i) Pays the sum due in accordance with DRC-01B nor

(ii) Submits any answer for any amount remaining unpaid in Part B of FORM GST DRC-01B

The regulation does not call for blockage of GSTR-1 or IFF where the provided response was deemed unsatisfactory by the tax authorities. Only recovery actions under section 79 of the CGST Act, 2017 will be initiated in cases where the reply was provided but later judged to be unsatisfactory. The blockage of GSTR-1/IFF and the beginning of recovery proceedings under section 79 of the CGST Act, 2017 would occur in cases where no measure was taken to stop issuing DRC-01B.

Guidelines for recovery of such amount has been laid down vide Instruction No.01/2022-GST Dated: 7th January, 2022 for ready reference-

1. Sub-section (12) of section 75 of the CGST Act, 2017 (hereinafter referred to as “the Act”) provides that notwithstanding anything contained in section 73 or section 74 of the Act, where any amount of self-assessed tax in accordance with the 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. An explanation has been added to sub-section (12) of section 75 vide section 114 of the Finance Act, 2021 with effect from 01.01.2022 to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39.

2. Doubts are being raised by the trade and the field formations regarding modalities for initiation of the recovery proceedings under section 79 of the Act in the cases covered under the explanation to sub-section (12) of section 75 of the Act. In view of the above, the following guidelines are hereby issued with respect to the recovery proceedings under section 79 of the Act in such cases.

3.1 Sub-section (12) of section 75 of the Act is reproduced hereunder for reference:

“(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 lax 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 lax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.”

From the perusal of the above provision, it is clear that where the tax payable in respect of details of outward supplies furnished by the Registered person in GSTR-1, has not been paid through GSTR-3B return, either wholly or partly, or any amount of interest payable on such tax remains unpaid, then in such cases, the tax short paid on such self-assessed and thus self-admitted liability, and the interest thereon, are liable to be recovered under the provisions of section 79.

3.2 There may, however, be some cases where there may be a genuine reason for difference between the details of outward supplies declared in GSTR-1 and those declared in GSTR-3B. For example, the person may have made a typographical error or may have wrongly reported any detail in GSTR-1 or GSTR-3B. Such errors or omissions can be rectified by the said person in a subsequent GSTR-1/ GSTR-3B as per the provisions of sub-section (3) of section 37 or the provisions of sub-section (9) of section 39, as the case may be. There may also be cases, where a supply could not be declared by the Registered person in GSTR-1 of an earlier Tax period, though the tax on the same was paid by correctly reporting the said supply in GSTR-3B. The details of such supply may now be reported by the Registered person in the GSTR-1 of the current Tax period. In such cases, there could be a mis-match between GSTR-1 and GSTR-3B (liability reported in GSTR-1> tax paid in GSTR-3B) in the current Tax period. Therefore, in all such cases, an opportunity needs to be provided to the concerned Registered person to explain the differences between GSTR-1 and GSTR-3B, if any, and for short payment or non-payment of the amount of self-assessed tax liability, and interest thereon, before any action under section 79 of the Act is taken for recovery of the said amount.

3.3 Accordingly, where ever any such amount of tax, self-assessed by the registered person in his Outward supply statement GSTR-1 is found to be short paid or not paid by the said person through his GSTR-3B return in terms of the provisions of sub-section (12) of section 75 of the Act, the Proper officer may send a communication (with DIN, in terms of guidelines issued vide Circular No. 122/41/2019-GST dated 5th November 2019) to the Registered person to pay the amount short paid or not paid, or to explain the reasons for such short payment or non-payment of self-assessed tax, within a reasonable time, as prescribed in the communication. If, the concerned person is able to justify the differences between GSTR-1 and GSTR-3B, or is able to explain the reasons of such short-payment or non-payment of tax, to the satisfaction of the Proper officer, or pays the amount such short paid or not paid, then there may not be any requirement to initiate proceedings for recovery under section 79.

3.4 However, if the said Registered person either fails to reply to the proper officer, or fails to make the payment of such amount short paid or not paid, within the time prescribed in the communication or such further period as may be permitted by the Proper officer, then the proceedings for recovery of the said amount as per provisions of section 79 may be initiated by the Proper officer. Further, where the said Registered person fails to explain the reasons for such difference/ short payment of tax to the satisfaction of the Proper officer, then the Proper officer may proceed for recovery of the said amount as per provisions of section 79.

Introduction of Form-DRC-01D-

Vide Second Amendment rules 2023 rule 142B has been inserted to provide for recovery of amount determined in accordance with rule 88C and its recovery under section 79. The same is reproduced as under-

“142B. Intimation of certain amounts liable to be recovered under section 79 of the Act.-(1) Where, in accordance with section 75 read with rule 88C, or otherwise, any amount of tax or interest has become recoverable under section 79 and the same has remained unpaid, the Proper officer shall intimate, electronically on the Common portal, the details of the said amount in FORM GST DRC-01D, directing the person in default to pay the said amount, along with applicable interest, or, as the case may the amount of interest, within seven days of the date of the said intimation and the said amount shall be posted in Part-II of Electronic Liability Register in FORM GST PMT-01.

(2) The intimation referred to in sub-rule (1) shall be treated as the notice for recovery.

(3) Where any amount of tax or interest specified in the intimation referred to in sub-rule (1) remains unpaid on the expiry of the period specified in the said intimation, the Proper officer shall proceed to recover the amount that remains unpaid in accordance with the provisions of rule 143 or rule 144 or rule 145 or rule 146 or rule 147 or rule 155 or rule 156 or rule 157 or rule 160.”.

Rule 88D-

CBIC has implemented a significant change through Notification No.38/2023-Central Tax, dated 4th August,2023, based on the Council’s recommendation. This change pertains to the inspection of Rule 88D after Rule 88C, titled “Manner of dealing with the difference in Input tax credit available in auto-generated statement containing the details of Input tax credit and that availed in the return.” These changes will be effective from August 4th, 2023. These modifications hold important implications for taxpayers and aim to streamline the process of claiming Input tax credit seamlessly.

According to Rule 88D of the CGST Rules,2017, the GSTN Portal will now compare the Input tax credit available in Form GSTR-2B with the Input tax credit availed in Form GSTR-3B. If a taxpayer claims excess Input tax credit in Form GSTR-3B compared to the Input tax credit available in Form GSTR-2B, exceeding the prescribed amount and percentage as recommended by the Council, the taxpayer will receive an intimation of this variation through the GSTN Portal and their registered email address in PART-A of Form DRC-01C.

Upon receiving this intimation, the taxpayer has two options to address the variance in ITC between Form GSTR-2B and Form GSTR-3B.

Option 1: If the taxpayer verifies their books of accounts and documentary evidence, and finds a variation between Form GSTR-2B and Form GSTR-3B, they must rectify the excess claimed Input Tax Credit by using Form DRC-03, along with interest as per section 50.

Option 2: If the taxpayer has thoroughly reviewed their books of accounts and GSTR returns for the respective Tax periods (Form GSTR-3B vs. Form GSTR-2B), and is confident in the accuracy of their records and documentary evidence, they can provide a reasonable explanation along with the supporting documentation. This should be submitted through PART-B of Form DRC-01C via the GSTN Portal within 7 days from the date of receiving the intimation, or by mailing it to the concerned officer.

These changes represent a significant step towards ensuring accurate Input tax credit claims and fostering better compliance within the GST framework. Similar to rule idiot no amount or percentage has been prescribed yet but it is expected that 20% may be taken as the amount of difference to notice informed DRC-01B/C.

Through the Second Amendment rules 2023 another clause has been inserted to rule 59 where in provisions for blocking of filing of GSTR-1 has been prescribed where the taxpayer does not comply with the intimations issued as aforementioned. The same is reproduced as under-

“(e) a Registered person, to whom an intimation has been issued on the Common portal under the provisions of sub-rule (1) of rule 88D in respect of a Tax period or periods, 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 paid the amount equal to the excess Input tax credit as specified in the said intimation or has furnished a reply explaining the reasons in respect of the amount of excess Input tax credit that still remains to be paid, as required under the provisions of sub-rule (2) of rule 88D”

Formats of both form can be found on our website.