The Department has already started sending the notices for the mismatch of the filed GSTR 3B or GSTR 9 annual return and Input reflected in GSTR 2A which was filed by the Suppliers. We have just completed four years of the GST on July 1st, 2021 still we are facing a lot of issues in the GST either on the Site maintenance or at the department functioning. The GST council has issued more than 1000 Notification and Circulars since the inception of the GST. This is unfortunate to say that many times Rules business and professionals become the victim of the continuous changes. Even after four years of the GST we are expecting the stability of the GST act and hope for the same.
Today’s article is specific to defend the notices received for the Mismatch of GSTR 3B and GSTR 2A.
A) Original Law got never implemented
Original law never implemented fully where GSTR 1, GSTR 2 and GSTR 3 return will be filed and matched into each other. Due to the system and law understanding issues it was never implemented and the department introduced GSTR 3B which is never replaced by the GSTR3 which is a final return of the period. Section 42 of CGST Act provides for matching, reversal and reclaim of ITC and prescribes a mechanism for matching of ITC claimed by the recipient with the Input tax liability as declared by the supplier. The mechanism for matching of input tax credit as per GST law is designed to be carried out by combined filing of Forms GSTR-1, GSTR-2 and GSTR-3.
The mechanism given under section 42 that Supplier will file GSTR 1 where his outward supply is filled and the same will be made available to the recipient under GSTR 2, under which option of the acceptance, rejection or modification can be done and then final return will be filed in form GSTR 3.
However, Form GSTR 2 and GSTR 3 has been suspended since the inception hence there was no matching since. Legally GSTR 2 has not been replaced and the Department brought GST 2A that is in the authority of view by the recipient and there is no option available to correct it or add the additional invoices which was not reported by the supplier. GSTR 3 replaced the GSTR3B which is a summered format.
B) Implementation and validity of Rule 36(4) of MGST Rules, 2017:
Matching of GSTR 2A with GSTR 3B has been introduced vide Rule 36(4) of CGST Rules, 2017 on 9 October 2019, reiterated as follows:
As stated earlier, mechanism provided under Section 42 r/w Rule 69 for matching of ITC is not into effect. Further, Section 43A provides for procedure of a ailment of credit in a prescribed manner (manner to be provided by Rules). Rule 36(4) was inserted w.e.f. 09.10.2019. Thus, effectively no matching of ITC was required up to 08.10.2019;
Further, in one of the press releases by CBIC dt. 18.10.2018, it was clarified that:
“Furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis”.
Rule 36(4) inserted w.e.f. 9th October 2019 and is applicable on the invoices on which credit is availed after the said date. Presently as per Rule 36(4) Input Tax Credit can be availed upto 105% of GST paid on inward supplies the details of which are uploaded by Supplier on GSTN Portal and reflected in GSTR 2A/2B of the recipient in a tax period;
Summarizing the above, it is to be noted that Section 43A provides for only PROCEDURE of availing credit in a prescribed manner. It does not empower the Government to provide any restrictions on availment of ITC through Rules. Also, the matching of invoices under Rule 36(4) is not applicable for the period prior to 09 October 2019 i.e. 2017-18 cannot be considered under preview of Rule 36(4);
C) Recovery Mechanism and Doctrine of Impossibility
Department has every mechanism of the recovery from the defaulters under section 73, 78, 79 etc. Department can attach the bank account or property of the defaulter following the due procedure.
Here as the receipt has no control over the supplier and Receipt cannot force the Supplier what to do neither receipt has any legal mechanism of recovery of the defaulter supplier. Department shall make the party to the defaulter in the recovery notice and recover all the default liability as possible.
The law cannot compel the Recipient to do the impossible, i.e., to ensure that the Supplier has paid the tax to the Government. It is unjust to deny credit to the Recipient on failure on part of Supplier to furnish details on the same in time.
ITC cannot be denied in the absence of collusion between supplier and recipient
Perhaps the most blatant flaw in Section 16(2)(c) is the fact that it imposes an unreasonable burden on a recipient who might otherwise be bonafide. It makes the recipient responsible for the actions of the supplier, even where the two of them may be unrelated. Thus, it penalizes the recipient for the fault of a third party, i.e. the supplier, even in the absence of collusion between the two. the Madurai Bench of the Madras High Court in the case of M/s. D.Y. Beathel Enterprises v. The State Tax Officer (Data Cell) held that the approach taken by the revenue authorities in reversing the Input Tax Credit (“ITC”) availed by the recipient without properly enquiring the sellers is incorrect and ordered for fresh enquiry in this matter.
Closing Remarks:
Considering the above facts and references, the department shall recover the default GST liability from the defaulters and not from the receipt which will be the additional burden to the genius taxpayer. In the Initial days, system was not properly implemented and also confusion over various provisions of the acts, due to which there are chances that Supplier might have paid the GST under B2C head due to which it is not reflecting in GSTR 2A of the recipient, if department recovers it from the recipient then double tax on a single transaction will be paid. Department shall make available the facilitation of generation of electronic credit ledger for a certain period which was implemented by the Maharashtra VAT department.
By CA Vijaykumar Gutte | You can also reach me at cavijaygutte@gmail.com
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