With effect from January 01, 2022 mismatches between GSTR 1 and GSTR 3B can have an impact on your working capital. GST officers can initiate various measures such as withholding your GST refunds, reaching out to your debtors to pay them instead of paying you, etc. to try and recover the tax liability to the extent of mismatch or short payment of tax as per your returns.
In this article, we have discussed the relevant provisions which authorize the GST officers to initiate such recovery measures. We have also discussed the instructions issued by the Government in this regard and how they will impact the taxpayers.
An explanation was inserted in section 75(12) of the CGST Act vide Finance Act 2021.
Updated section 75(12) now reads as under –
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 tax remains unpaid, the same shall be recovered under the provisions of section 79.
Explanation.––For the purposes of this subsection, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.
This explanation was made effective by CBIC from January 01, 2022, vide Notification no. 39/2021-Central Tax dated December 21, 2021.
Further, section 79 of the CGST Act authorizes the GST officers to initiate the recovery proceedings by any of the following ways –
- The officer can deduct or may require other concerned officer to deduct the requisite amount from any money which is owed by the department to the taxpayer and is under the control of the officers.
- The officer can recover or may require other concerned officer to recover the requisite amount by detaining and selling any goods belonging to the taxpayer which is under the control of the officers.
- The officer may issue a notice to any other person who is liable or may be liable to pay any money to the taxpayer, to pay requisite amount to the Government from such money due or which will be due for payment.
- The officer can also seize any movable or immovable property of the taxpayer.
- The officer can issue a certificate to the collector of the district of the taxpayer who can then proceed to recover the amount mentioned in the certificate as if it was an arrear inland revenue.
- Officer can also file an application before the Magistrate who will then proceed to recover the amount mentioned in the application in accordance with provisions contained in the Code of Criminal Procedure.
Prior to this amendment, for mismatches between GSTR 1 and GSTR 3B, show cause notices were issued by the concerned officers, and the taxpayer was provided with an opportunity to submit his explanations. On perusal of the amended provision, it was clear that where any tax liability arises on account of a mismatch in the outward supplies as reported in GSTR 1 vis-à-vis as reported in GSTR 3B, or any amount of interest remains unpaid, the officers can directly initiate recovery proceedings against the taxpayers under section 79 without providing any opportunity to the taxpayer to explain the difference.
Instructions issued by CBIC
However, as a relief to the taxpayers, Instruction no. 01/2022-GST is issued by the Central Board of Indirect Taxes and Customs (‘CBIC’) on January 07, 2022. In this circular CBIC acknowledged that there may be some cases where a mismatch between GSTR 1 and GSTR 3B would be due to genuine reasons such as –
- Typographical error – The taxpayer may have made a typographical error or may have wrongly reported any detail in GSTR-1 or GSTR-3B.
In this regard, CBIC mentioned that – such errors or omissions can be rectified by the said person in 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.
- Prior period transactions – 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 correctly by 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.
With regard to such errors, CBIC realizes that directly initiating recovery proceedings under section 79 will cause unnecessary hardship to the genuine taxpayers. Accordingly, CBIC has mentioned in the instructions that an opportunity needs to be provided to the taxpayers for explaining the differences between GSTR 1 and GSTR 3B or for short or non-payment of tax liability or interest before initiating any recovery proceedings.
Communication needs to be sent by the officer to the taxpayer in case any mismatch is identified in accordance with the provision of section 75(12) vide which the taxpayer should either be directed to pay the differential tax amount or interest as applicable or explain the reason for such short payment within a reasonable time.
If the taxpayer is able to justify the reason for such short payment to the officer or pays the requisite amount then there is no requirement to initiate recovery proceedings as per provisions of section 79.
However, if the taxpayer fails to reply to the communication or the officer is not satisfied with the reasons provided in the reply or the taxpayer fails to make payment within the period mentioned in the communication, then the recovery proceedings can be initiated against the taxpayer.
In our view, the explanation to section 75(12) was inserted with an intention to ensure payment discipline by the taxpayer and also to facilitate recipients of a supply to avail of input tax credit in a timely manner. This will also act as a deterrent for the suppliers who generate fake bills and report them in GSTR 1, which is also reflected in GSTR 2A/ GSTR 2B of the recipient but suppresses the turnover in GSTR 3B and in turn make short payment of tax.
Explanation to section 75(12) though provided exorbitant powers to the officers, the aforementioned instruction issued by CBIC is a major relief for the taxpayers. This ensures the taxpayer is at least provided with an opportunity to explain the difference.
It further needs to be noted that while proviso to section 37(3) and section 39(9) provide taxpayers an option to amend returns of the previous financial year till September following the end of the financial year. Accordingly, taxpayers should at least be granted time till September to make corrections, if any, before issuing any communication for a mismatch between returns. Issuing notice before September of next financial year will unnecessarily restrict the time period for amendment which is otherwise provided in the Act and cause unnecessary hardship to the taxpayers.