QUESTION

One of our clients received DRC 07 for excess ITC claim. Lets say amount of demand is Rs. 100 but the difference as per GSTR 3B and GSTR 2A is just Rs. 40. On what grounds the demand be challenged. (Note - The figures just resembles the proportion of demand and difference)

ANSWER

FACTS OF THE CASE:

ITC was excess claimed in GSTR-3B over and above the amount reflected in GSTR-2A.

LAW APPLICABLE:

1. Rule 36(4) CGST, before its amendment w.e.f 1.1.2022, stated as follows;

" Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37, in FORM GSTR-1 or using the invoice furnishing facility shall not exceed 5 percent of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under sub-section (1) of section 37. "

2. Subsection (3) of section 50 CGST dictates that;

" A taxable person who makes an undue or excess claim of input tax credit under subsection (10) of section 42 or undue or excess reduction in output tax liability under subsection (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council."

INTERPRETATION:

Rule 36(4) mandates that ITC to be claimed in GSTR-3B must be reflected in GSTR-2A (now amended to GSTR-2B), with an excess of 5% amount allowed.

In case you have received a notice from the department for violation of this rule, you must study the difference in ITC reflected and ITC claimed through a reconciliation between GSTR-3B and GSTR-2A.

To provide you with grounds of reply to show cause notice, we would require additional information about your case as detailed below;
1. Period for which the notice is received.
2. Reconciliation between GSTR-2A and 3B for the period in question.
3. Reason for difference in GSTR-2A and 3B. Some of these reasons may be as follows;
- ITC on purchase from vendors who file their GSTR-1 quarterly.
- ITC on import which was not reflected in GSTR-2A
- ITC on inward supply liable to reverse charge which was not reflected in GSTR-2A
- ITC on purchase which was reflected in GSTR-2A of a particular month but goods were delivered at premises in the following months.

CONCLUSION:

Please note we need to know the reconciliation between GSTR-2A and 3B and the reasons for difference between the two amounts to provide you with the grounds to reply. We request you submit the above details so that we can help you better.  (Reply dt. 16/04/2022)