Introduction
In accounting terms, ‘Reconciliation’ is a process in which two set of records are compared to ensure that the results are accurate and consistent. Needless to mention, reconciliation plays a vital role in ensuring that records maintained by an enterprise are accurate and free from any errors which affect the accuracy of data.
However, the role of reconciliation is not limited for accounting but has similar role in preparation and maintenance of tax records also.
Brief background
In GST, the importance of reconciliation has increased multi-fold due to the compliance process that law brings in along with its legal provisions. The compliance process in GST generally requires filing of multiple returns by the taxpayer.
Whereas a normal taxpayer is required to file a Statement of outward supplies during the tax period in Form GSTR-1 and a consolidated statement of outward supplies, Input tax credit availed on Inward supplies and tax payable thereon during the tax period in Form GSTR-3B, an Input service distributor or a Government taxpayer or an e-commerce operator is required to furnish an ISD return or return for tax deducted at source or return for tax collected at source respectively on monthly basis.
Compliance in GST and filing of these multiple returns not only require furnishing the data to the Tax Authorities but also requires the taxpayer to ensure that reporting is accurate and free from defects to avoid any confusion to the Tax Authorities while conducting the assessment of returns filed by the taxpayers.
In order to meet this objective, the taxpayer is required to perform various reconciliations to ensure that the taxpayer has duly complied with all the regulations and has furnished appropriate data to the Tax Authorities. But here, the question that arises is whether consistency and data reconciliation is required in every aspect of GST compliance or in limited aspects only.
The reason this question arises is because the Tax Authorities are seeking explanation is respect of every data point wherever a mismatch is noticed irrespective of the fact that ideally there is no or very limited correlation between such data points.
In this note, we shall be discussing the homework that a prudent taxpayer needs to complete at the time of filing of returns to be prepared for questions from the Tax Authorities. Further, we shall also be discussing the surprises that the taxpayer may get from the Tax Authorities and how the same needs to be handled during assessment, audit or enquiry proceedings.
Reconciliations required to be maintained in GST
A normal taxpayer having annual aggregate turnover above 5 crores or a taxpayer having turnover below the threshold but opting to file return on monthly basis is required to furnish 2 returns i.e. GSTR-1 and GSTR-3B on monthly basis. Additionally, such taxpayer is required to furnish annual return in Form GSTR-9 and Reconciliation Statement in Form GSTR-9C for each financial year. In order to ensure correctness of data, a taxpayer would be broadly required to undertake following reconciliations:
- Reconciliation of outward supplies as per GSTR-1 and GSTR-3B-This reconciliation needs to be carried out to ensure that outward supplies reported in GSTR-1 are in consonance with supplies being reported in GSTR 3B. Due to difficulties faced by the taxpayers, the Government intervened and has introduced Form GSTR-1A, a facility to amend data in form GSTR-1 to ensure uniformity in data reported in Form GSTR-1 and GSTR-3B.
- Reconciliation of Input Tax Credit (ITC) available per GSTR-2B and availed as per GSTR-3B– A reconciliation which needs no introduction or explanation being one of the key challenges faced by the taxpayer. As per the amended legislation, a taxpayer is entitled to avail ITC only to the extent of input supplies reflecting in GSTR-2B subject to fulfilment of other conditions prescribed as per the law. Therefore, a taxpayer is required to reconcile his purchase data with data reflecting in GSTR-2B and avail ITC accordingly. Further, proper records are required to be maintained in respect of unreconciled data carried forward to claim ITC in future tax periods.
- Reconciliation of data filed on month basis with the annual data: At the end of each financial year, the taxpayer is required to furnish an Annual Return in form GSTR-9 and ensure that all the outward supplies made during the year are reported in GSTR-9. This is the last chance available with the taxpayer to disclose any supplies omitted to be reported by the taxpayer in the returns. For filing Annual Return, taxpayer is required to reconcile data of returns furnished on the monthly basis with annual data available with the taxpayers to ensure that there is no deviation in reporting.
- Reconciliation of annual data with books of accounts/financial statements: It is not necessary that everything recorded in books of accounts is liable to tax/reportable in GST returns and vice versa. There may be a case of deemed supply under GST, a case of accrued income in respect of which time of supply has not yet arisen and hence books of accounts would not match with GST returns. Therefore, a proper reconciliation is required to be maintained and reporting needs to be done in GSTR 9 and GSTR 9C respectively to ensure that no supplies have been missed from reporting in the returns.
As we discussed before, this is the list of reconciliation which an ordinary taxpayer is required to maintain to ensure appropriate reporting in GST returns. However, the list does not end here for other taxpayers. By other taxpayers, we mean taxpayers required to register as Input Service distributor, taxpayers required to deduct tax at source while making payment to the supplier and taxpayers registered as E-commerce operators and required to collect tax at source.
An input service distributor needs to ensure that all the credit is distributed appropriately and credit notes are also taken care off in due course. However, taxpayers requiring to deduct or collect at source also need to ensure that necessary is compliance has been duly taken care of and the values do reconcile with each other.
Challenges for the Industry
The expectations with which GST was introduced have not met with reality as of now. Not only burden of compliance has increased multi-fold, but the poor taxpayers are also facing various challenges such as regular changes in process, Departmental enquiries, disputes on various tax positions and unwarranted departmental enquiries.
Whereas this is neither exceptional nor something new which has evolved, recently one of the taxpayers faced an enquiry from the Tax Authorities in respect of non-reconciliation of e-way bill data with the details of GSTR-3B.
On this enquiry, there could be two sides of the coin, one would say it is definitely fine for the Tax Authorities to enquire from the taxpayer wherever they notice any discrepancy. On the other end, the other side would like try to answer why such actions are unjustified.
The reason for seeking justification for validity of enquiry is because every enquiry no matter how miniscule it is, which the Tax Authorities undertake consume the resources of the taxpayer either in the form of time or money as the case may be and enhances compliance burden for future as the taxpayer maintains working not only as per present requirements but future requirements as well.
Before going into this justification, let us try to understand the objective and relevance of GSTR-3B returns and E-way bill data. GSTR-3B returns contains summary of outward supplies made by the Company and Input Tax Credit (ITC availed by the Company). It is necessary to understand that GSTR-3B returns need to capture every transaction undertaken by the taxpayer and the taxpayer cannot even miss to report even a single rupee transaction undertaken by the taxpayer as the same could be viewed as a non-compliance at the end of the taxpayer.
In nutshell, GSTR -3B would contain details of all the outward supplies undertaken by the taxpayer and ITC availed by the taxpayer. However, the case is not same in case of e-way bill.
On the other hand, an e-way bill is the document which is required for the movement of goods by a taxpayer and it is not necessary that e-way bill will only be generated in a case where a taxpayer undertakes to supply such goods or services. In other words, all the E-way bills generated by the taxpayer would not necessarily form part of transactions required to be captured in GSTR-3B return.
Let us try to understand the legal provisions which require generation of E-way bill. Section 68 of CGST Act contains enabling provisions which require the person in charge of the vehicle to carry documents as may be prescribed while carrying consignment of any goods. Further, Rule 138 of CGST Rules prescribes the documents to be carried and provides as follows:
(1) Every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees-
(i) in relation to a supply; or
(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person,
shall, before commencement of such movement, furnish information relating to the said goods as specified in Part A of FORM GST EWB-01, electronically, on the common portal along with such other information as may be required on the common portal and a unique number will be generated on the said portal:
From a plain reading of the above provisions, it can be ascertained that the E-way bill is:
a. required to be generated by the person causing movement of goods irrespective of the fact whether he is the supplier, recipient, job worker, agent or any other person dealing with such goods.
b. movement can relate to reasons other than outward supply such as goods moved for job-work, goods sent on approval basis, goods moved for provision of services, goods moved for receiving the goods at the taxpayer’s premises where the supplier does not undertake liability for delivery of goods etc.
c. not required to be generated where the goods involved in the movement does exceed the threshold prescribed under the law.
From an understanding of the above provisions, it could be quite clearly established that the data available on the E-way bill portal would not reflect the quantum of outward supplies undertaken by the taxpayer during the relevant period but would contain the data of goods moved by the taxpayer beyond the prescribed threshold.
Considering the above factual position, a taxpayer cannot be entrusted with the responsibility to undertake an additional exercise to reconcile the data available on E-way bill portal with data of outward supplies merely because the Tax Authorities have access to particular sets of data and they have observed variation in that data. Since the objective of both the data sets are different, they should not be expected to match.
Whereas it is the responsibility of the taxpayer to comply with the laws and generate E-way bill as per the legal requirements, the taxpayer should not be expected to reconcile the data and provide a report of non-compliance to the Tax Authorities as self-incriminating evidence. It is the humble duty of the Tax Authorities to trace the non-compliance and seek an explanation for the same.
In a recent case of M/s VE Commercial Vehicles Ltd. vs UOI (2025-VIL-67-JHR), a similar question came up before Hon’ble High Court of Jharkhand wherein the petitioner was issued ASMT-10 seeking explanation for variance in E-way bill data and data furnished as per GSTR-3B.
Replying to the ASMT-10, the petitioner contended that the petitioner has not understood the basis of comparing taxes paid in GSTR3B with e-way bill data as technically the base information of both the statements is different.
The petitioner further contended that comparison of GSTR-3B and e-way bill, document, taxes is not possible for certain reasons enumerated therein. However, the Respondent(s) confirmed the demand simply stating that reply of the petitioner is not satisfactory.
Aggrieved by the order passed by the Respondent(s), the petitioner approached the Hon’ble Court seeking appropriate relief. After listening to the arguments of the petitioner, the Court mentioned that as follows:
1. Since the purpose of issuing ASMT-10 is to invite a reply and then consider the said reply. We fail to understand why the 5th respondent did not aver to the contention raised in the reply filed by the petitioner and brushed it aside by simply saying it is not satisfactory.
2. Therefore, the impugned order dt. 31.08.2024 is set aside, and the matter is remitted to the 5th respondent who shall furnish to the petitioner the basis of making the demand i.e. breakup as to how the difference amount was arrived at; such information be furnished within two weeks from today; petitioner is permitted to file a reply thereto within four weeks from the date of furnishing of the said information by the 5th respondent; personal hearing shall be afforded to the petitioner; and then a reasoned order be passed after considering the reply of the petitioner and the same shall be communicated to the petitioner.
As mentioned in the order, the hon’ble Court has also asked the respondent(s) to furnish the basis of making the demand and pass a reasoned order after following the principles of natural justice.
Conclusion
The above order clearly reflects on the hardships a taxpayer has to face on daily basis while facing such issues. Therefore, it is necessary that there should exist a proper application of mind before raising such objections and seeking response from the taxpayer.
Raising an objection without reasoned basis and expecting a detailed response for the same from the taxpayer not only causes undue harassment to the taxpayers but also hinders the taxpayer’s efficiency to run the business. In addition to same, it causes an unwarranted escalation in compliance and litigation cost.
Nevertheless, the taxpayers should also prudently address the objections raised by the Tax Authorities. This would only be possible in a case where the taxpayer is well aware of its rights and duties as per the law.
Whereas it is necessary to assist the Tax Authorities in properly conducting the assessment, however, the same should not impose the unnecessary burden on the shoulders of the taxpayers unless prescribed by the law.
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