After notification No. S.No.851 [No.38/2023-Central Tax] Dated August 4, 2023, CGST Rule 88D was amended and a mechanism was outlined for system-based notification in the cases where the excess ITC claimed in GSTR-3B was compared to that shown in GSTR-2B. The department gave an intimation through DRC-01C under Rule 88D for the behind-the-scenes ITC mismatch between GSRT-2B and GSTR-3B. The department is asking for some explanation on the reason for the excess ITC claimed along with GST plus interest. In this article, we discuss some points regarding how to face it and what we should do, but we start by understanding what Rule 88D is.
What says Rule 88D?
Where the amount of input tax credit availed by a registered person in the return through GSTR-3B for a particular period exceeds the input tax credit available to such person in accordance with auan auto-nerated statement containing the details shown in GSTR-GSTR-2B,he case may be ,bybe,uc amount and such percentage as may be recommended by the council, Department electronically on the common portal, and a copy of such an intimation shall be sent to his email for amendment from time to time, highlighting the said difference, and directly to:
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Pay an amount equal to the excess input tax credit availed in the said GSTR-3B, along with interest payable under Section 50, through DRC-03, or |
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The registered person furnishes a reply with proper reasons through Part B of the DRC-01C within 7 days. |
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If a registered person does not pay the amount specified in the intimation and does not furnish any explanation or reason, |
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If the proper officer is not satisfied with the reply furnished by the taxpayer due to an explanation or reason not found acceptable, the said amount shall be liable to be demanded in accordance with the provisions of Sections 73 or 74, as the case may be. |
How to Respond
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If taxpayers excess claim ITC, then they are likely to receive an intimation in Form DRC-01C under Rule 88D asking for an explanation of the reason for the excess ITC availed or payment of the amount of ITC that is availed in excess of the GST auto-populated in GSTR-2B along with appropriate interest. |
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If you received an intimation First of all, we need to reconcile ITC for the particular month shown in the intimation and determine the reason for availing excess ITC as compared to GSTR2B. |
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If there is any excess claim for ITC due to a mistake or an error on your part, Then we need to reverse the ITC with applicable interest, file DRC-03, and file a reply in Part B of DRC-01C by providing the ARN of DRC-03 for payment of tax and interest. |
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If the ITC claimed is taken due to a valid reason, then file a response in Part B of DRC-01C giving the accurate reason for availing excess ITC. Select one of the mentioned reasons as provided in the response tab of Part B of DRC-01C. |
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If the reason is found to be satisfactory, then you will not need to do anything else. However, if the reason stated by us is not found to be satisfactory, we have to pay the amount of excess ITC availed along with interest, and proceedings under 73 or 74 can be initiated. |
Some general reasons for the mismatch
ITC mismatch occurred due to many reasons that have been found in the last seven years since the GST start, but we are touching on in this article some important GST mismatch reasons as per below: -
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Input tax credit not claimed in previous tax period due to non-receipt of purchased goods or services in that tax period. It could also include cases of receipt of goods in the next few months. |
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Input tax credit on import of goods that is not reflecting in GSTR-2B. |
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ITC claimed inward supplies from SEZ, which do not appear in GSTR-2B. |
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The taxpayer filed a GSTR-3B return with incorrect details and will amend the details in the subsequent tax period. The error in GSTR-3B could be due to typographical errors, charging the wrong tax rate, or any other reason, as the case may be. |
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There can also be other reasons for a mismatch due to wrong or inaccurate filings by the supplier, such as the supplier furnishing incorrect figures (bookkeeping error or GST rate error) in his GSTR-1 and therefore reflected mistakenly in GSTR-2B, and as a result, there is a mismatch. |
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The supplier has wrongly reflected the transaction(s). Instead of business-to-business (B2B), the transaction is reflected as business-to-customer (B2C), which accordingly does not reflect in GSTR-2B for the recipient, hence the mismatch. |
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The supplier has filed quarterly GST instead of monthly, but the buyer claims ITC as per the received material and invoice. |
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The supplier has not filed GSTR-1 before the due date and filed it after the due date. The ITC input is not shown in 2B in the particular month shown in the next month. |
Special Point Noted
- Explain the reasons for the aforesaid difference in input tax credit on the common portal within a period of seven days.
- A registered person will not be allowed to file the next return of supplies of goods and services before filing a response in Part B of Form DRC-01C to the intimation.
- However, once a taxpayer files a response in Part B of Form DRC-01C, the status will be updated automatically, and you will be able to file the returns as soon as the response is filed.
Conclusion
In conclusion, under the amendment to CGST Rule 88D as outlined under this revised rule, the mechanism mandates taxpayers to either pay the excess amount of GST ITC claimed, along with applicable interest, or to send a satisfactory explanation through reply as per the particular way mentioned for the variance through the specified procedure within 7 days.
This article has helped us understand the steps a taxpayer should take upon receiving an intimation in Form DRC-01C. If the discrepancies are due to genuine reasons, such as delays in invoice processing or clerical errors, taxpayers must provide a logical and detailed explanation through the prescribed channels. The taxpayers can ensure compliance with the regulations and avoid potential penalties or legal complications. The procedural framework established by Rule 88D aims to streamline ITC claims, enhance transparency, and reduce fraud within the GST system. It is advisable for businesses to maintain strong internal controls and undertake periodic reviews of their tax filings to align with the updated regulatory requirements and to safeguard against any chance of non-compliance. This article is only for informational and educational purposes; however, it is advisable to consult with a tax professional for specific issues and challenges.
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