Recently, a new rule 88D has been introduced in GST law to deal with mismatches between Input Tax Credit (ITC) auto-populated in GSTR-2B and that reported in GSTR-3B by the taxpayer. The rule basically provides for as under:
Where amount of ITC availed in GSTR-3B exceeds ITC available in GSTR-2B, a system generated intimation in Form DRC-1C of such difference shall be given to taxpayer.
On receipt of DRC-1C, registered person shall within a period of 7 days, either pay such excess ITC availed with interest or file a reply incorporating reasons in respect of amount of excess ITC remained to be paid.
Where neither the mismatched ITC is paid back nor reply is filed or where reply is not found to be acceptable by officer, the amount of mismatch shall be demanded vide show cause notices.
It was discussed in the recent 50th GST Council Meeting that a difference of more than 20%, as well as more than INR 25 lakhs, may be considered for the purpose of intimation to the concerned registered person under rule 88D. However, no notification to the said effect has been issued so far. Therefore, a question arises whether intimations issued basis the council recommendation would be valid without any corresponding notification by Centre and States.
Moreover, there could be various genuine reasons for such differences in ITC such as ITC not availed in earlier tax periods due to non-receipt of inward supplies, ITC availed in respect of import of goods and services, and other reverse charge liabilities, which are not reflected in GSTR-2B, genuine re-availment of ITC on account of several reasons. Many but not all of these find mention in Form DRC-1C. The above threshold is quite insignificant and therefore, a large number of taxpayers might expect the system generated intimation every month.
One more amendment has been made to restrict filing of GSTR-1 for a subsequent tax period unless taxpayer has either deposited the differential amount specified in intimation or has filed a reply explaining the reasons. GSTR-2B and GSTR-3B reconciliation has become a time-sensitive exercise with a limited window of 7 days without any provision for extensions to either make payment or reconcile the difference. The inaction would not only trigger demand proceedings by the department but also block the filing of GSTR-1 for the subsequent periods. However, it is unclear whether the filing of GSTR-1 would be blocked in those cases where no reply is filed or those cases where reply is filed but the same is not satisfactory to the officer. Notably, there is a mandate in law for the sequential filing of GSTR-1 and GSTR-3B. Therefore, upon this default of mismatch, GSTR-3B can also not be filed for subsequent periods unless this difference is sorted. In case, a default in filing GSTR-1 or GSTR-3B continues for one more tax period, filing of E-way bill will also be restricted. Effectively, no goods can be moved, and the entire business chain is halted.
Earlier Rule 88C was introduced on similar lines with a draconian provision for direct recovery in case of difference in liability reported in GSTR-1 and that reported in GSTR-3B by taxpayers following the route of DRC-1B. Now a new rule has been introduced to provide for issuance of notice of recovery which implies that the proper officer would directly initiate recovery proceedings without passing any speaking order. It leaves the taxpayer with no option to challenge the order before appellate forums.
This poses a serious question where the only remedy with the registered person would be to rush to the High Courts for stay of recovery action.
The newly inserted rules are set to result in flood of system-generated intimations thrown on taxpayers in the coming months. In fact, the businesses have already started receiving intimation in form DRC-1B. The only recourse for businesses seems to be challenging the provisions before the appropriate forums.
Surbhi Premi is a Partner at Lakshmikumaran & Sridharan.