GST: Perils of Tax Administration with Algorithms & Recent Notices in AP

We are all aware of the system generated DRC 01 notices issued by the State Authorities of Telangana in November 2021 (https://taxguru.in/goods-and-service-tax/gst-perils-tax-administration-algorithms-notices.html). It appears that the State of Andhra Pradesh has joined the bandwagon. Recently, many taxpayers in Andhra Pradesh, falling under the administrative jurisdiction of “State Tax authorities” were issued system generated notices in Form ASMT 10 for the period 2017-18 to 2022-23 (Six Financial Years) which can be downloaded from their dashboard on GST portal. The taxpayers have to respond within one month, else it will be presumed that they have nothing to say, and proceedings will be initiated in accordance with the law.

All these notices are system generated, with liabilities on account of discrepancies arrived based on some equations and comparisons from the GSTR 1, GSTR 3B and GSTR 9 returns filed by the taxpayers. The basis for the tax amount in ASMT -10 has been mentioned in the Annexure to the ASMT -10. This Annexure has 17 different “tables” drawing the comparison statements. However, it appears that these equations and algorithms are written without basic understanding of the information provided in the returns, causing a lot of inconvenience to the taxpayers as they have to file explanations to these notices for six-year period in 30 days’ time for no fault of theirs.

The following are some issues where flawed logic has been applied.

Some issues where flawed logic has been applied in issue of Notices under GST

Table No 1: Comparison of turnovers and tax as per GSTR-1 and GSTR-3B

This Table compares the liability declared in GSTR 1 and the tax paid in GSTR 3B. In respect of RCM supplies, the registered suppliers like GTA etc, will report their outward invoices in B2B of GSTR 1 by selecting “Whether supplies attract reverse charge” – YES. These invoices are reflected in GSTR 2B of the recipient and RCM liability is auto populated in Table 3.1(d) of GSTR 3B. The supplier does not pay any GST and file nil GSTR 3B. However, all this turnover is considered in the Table 1 as taxable in the hands of supplier and ASMT -10 created demand against the supplier.

There is another issue. Any amendments made to invoices reported for earlier tax periods have not been considered while drawing the comparison statements in Table 1. Because of this, while the liability comparison table from the taxpayer’s dashboard (i.e., Infosys dashboard) shows no difference, there is short payment in ASMT-10 generated by the department. What an innovative software to confuse the taxpayer!

Table No. 2: Tax liability under reverse charge declared in GSTR-3B Vs ITC claimed on tax paid under reverse charge:

This Table compares tax paid under RCM as per 3.1(d) and ITC availed on RCM payment in 4A (3) of GSTR 3B. But the formula is devised in such a manner that when a taxpayer paid Rs. 1,000/- GST in Table 3.1(d) under RCM, but did not claim any ITC in 4A(3), the ASMT-10 is creating a liability of Rs. 1,000/- GST. {it appears the formula applied is  3.1(d) minus 4A(3)}. When no ITC was availed in the first place, why there should be demand?

Table No. 5: ITC accrued as per GSTR-2A Vs ITC availed as per GSTR-3B

This Table compares the ITC as per 2A Vs ITC availed as per GSTR 3B. Taxpayers declare ineligible ITC in Table 4D(1) or (2) in GSTR 3B. The comparison table considered even the ITC declared in Table 4D as ineligible as if it is “ITC claimed in GSTR 3B”. Further, for the FY 2022-23, the comparison has to be drawn with GSTR 2B, but not GSTR 2A.

Table 6: Comparison of turnover and tax as per E-waybill and GSTR-3B:

This Table compares e way bill turnover and turnover reported in GSTR 3B. e way bills are required to be issued if there is movement of good by reason of “supply” or “for reasons other than supply” – (Ref Rule 138). Then how both will tally? Further, if the invoice is generated on 30^th of month and movement of goods takes place on 1^st of next month, how the figures of e waybill and GSTR 3B will tally for a particular month?

Table No 9: Restriction and Reversal of ITC u/s- 42,43 of the AP GST Act 2017:

This Table apportions ITC based on percentage of exempt supplies.

The Table adopted value of “exempted supplies” and disallowed proportionate input tax credit under Rule 42. This is not correct, as many taxpayers have income like “interest on deposits” which is declared as an exempt supply, but there is no requirement to reverse proportionate credit on such income. Further, as per Rule 42, only “common credit” used for exempted and taxable supplies has to be apportioned, but the Table apportioned “Total ITC declared in GSTR 3B considering it as “common ITC”.

Table 10: Interest payable on delayed filing of GSTR-3B Returns u/s 50 of AP GST Act 2017:

This table quantified the interest liability due to delay in filing GSTR 3B. For the year 2020-21, due to covid -19, some relaxations were given to interest payment for taxpayers falling under less than 5 Cr category and taxpayers having aggregate turnover of more than 5 Cr category. The ASMT -10 appears to have not considered these relaxations.

Table 13:  Comparison of Tax payable as per GSTR-3B and GSTR-9:

This table is intended to compare GST liability in GSTR 9 and GSTR 3B, but the tax payable as per GSTR 9 is shown as Nil in all cases.

Table 15: Verification of ITC as per Table 8(D) of GSTR-9:

Table 8(D) of GSTR 9 is nothing but ITC as per GSTR 2A Vs ITC claimed in GSTR 3B. Table 5 also compares the same.

Table 16: Comparison of turnover as per TDS credits accrued in GSTR-7 and Taxable turnover as per GSTR-3B:

This Table compares tax liability as per TDS statement in GSTR 7 and tax paid in GSTR 3B. TDS is deducted under Sec 51 by the Govt Departments etc. when “payment” is made to the taxpayer while taxpayers file GSTR 3B on “accrual” basis when the invoice is issued. How will tally for a tax period?

These are some of the issues faced while going through the notices. Readers may also share their experiences with “Artificial non-intelligence”.

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Disclaimer: Views expressed are personal.