Few Challenges in reporting of ‘Electronic Credit Reversal and Re-claimed Statement’
As we all are aware that, a new ledger named as ‘Electronic Credit Reversal and Re-claimed statement’ (hereinafter referred to as “RCL / Reclaimable Credit Ledger”) was recently introduced on the GST Portal. GSTIN has issued an advisory providing details of RCL.
As per said advisory, purpose of RCL is to facilitate correct and accurate reporting of ‘ITC Reversals and Reclaiming’ thereof. The said advisory provides for a one-time procedure to be followed by taxpayers in time bound manner to report accumulated balance of ITC Reversed amount (i.e. temporary reversals) which would be re-claimed in subsequent periods.
Background:
- The format of Table 4B of GSTR-3B was amended vide Notification No. 14/2022 – Central Tax Dated 05.07.2022. Post amendment, the revised format of Table 4B is reproduced below:
Further, CBIC vide Circular No. 170/02/2022-GST, dated: 06/07/2022 has prescribed methodology for reporting of input credit and reversal thereof in Table 4 of GSTR-3B which is as below:
- As per revised format of Table 4, since ITC (eligible and in-eligible) as per GSTR-2B gets auto-populated in Table 4(A) of GSTR-3B. Hence, Taxpayers need to report reversal of ITC which are absolute or final or un-claimable, such as under Section 17(5) of CGST Act, Rule 38, 42, 43 etc of CGST Rules in Table 4B(1) of GSTR-3B.
- Whereas, in Table 4B(2) of GSTR-3B, Taxpayers need to report reversal of ITC which is temporary in nature and can be re-claimed in future for e.g. under Section 16(2)(b), 16(2)(c) of CGST Act, Rule 37 of CGST Rules. Such ITC reversal may be reclaimed in Table 4(A)(5) of GSTR-3B on fulfilment of necessary conditions. Further, all such reclaimed ITC shall also be shown in Table 4(D)(1) of GSTR-3B.
- Reversals of ITC which was availed in earlier period because of some inadvertent mistake, can also be shown at Table 4B(2) of GSTR-3B.
- ITC not available due to time limitation as per Section 16(4) of CGST Act or recipient of intra-state supply is located in different state may be reported in Table 4D(2) of GSTR-3B.
As per above referred Circular and advisory issued for RCL, the mechanism to report opening balance (i.e. accumulated ITC reversed) in RCL would be as under:
1. Taxpayers to report balance of ‘Re-claimable reversal’ in RCL. Currently, the facility to report opening balance in RCL is enabled on the GST portal.
2. For compiling details of cumulative amount of ‘Re-claimable reversal’, ITC which was reversed earlier and reported in Table 4B(2) of GSTR-3B in earlier periods needs to be scrutinised.
3. Once accumulated balance is reported by Taxpayers in RCL, then this balance will get increased by an amount reported in Table 4B(2) of GSTR-3B on monthly basis. And this balance will get reduced by an amount reported in Table 4(D)(1) of GSTR-3B on monthly basis.
Therefore, it is essential to report current ITC reversals to be re-claimed in future precisely in Table 4B(2) and Reclaimed ITC in Table 4(D)(1) of GSTR-3B. Otherwise, RCL will not provide the accurate balance. Further, mis-match of ITC reclaimed with RCL may invite scrutiny/enquiry from the tax authorities.
Practical scenarios:
Looking to divergent practices followed by Taxpayers in reporting of ITC availment and reversals, following issues may arise while computing the re-claimable reversal:
1. Circular No. 170/02/2022-GST, dated: 06/07/2022 clarifies that, only temporary reversals need to be reported in new ledger as these will be re-claimed in future. As per said Circular, Table 4B(2) of GSTR-3B to be used for reporting ITC reversals which are temporary and which can be re-claimed in future like under Section 16(2)(b), 16(2)(c) of CGST Act, Rule 37 of CGST Rules. And in Table 4B(1) of GSTR-3B, reversals which are permanent in nature such as under Section 17(5) of CGST Act, Rule 38, 42, 43 of CGST Rules are to be reported.
However, there is no reasoning provided in the said Circular for determination of credit reversed into a final or temporary. Therefore, (without going into legality of such classification) issues may arise where taxpayers have inter-changed the reporting of reversals in GSTR-3B filed, i.e. temporary reversals reported under heading of final reversals and vice versa.
2. ITC reversal (which are temporary in nature) have been done through DRC-03
The said Circular classifies reversal done due to Section 16(2)(c) of CGST Act to be a temporary reversals hence to be shown in RCL.
Section 16(2) of CGST Act reads as under:
“(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
…..
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and”
…
There are cases where Taxpayers have reversed ITC through DRC-03 where tax authority have initiated inquiry where suppliers have not paid tax.
In those cases, since ITC reversals have not been reported in GSTR-3B – Table 4B(2) but in DRC-03; hence question arises whether this reversal can be reflected in RCL as Circular treats it as a temporary reversal? If yes, whether an amount reversed through DRC-03 can be re-claimed in the RCL?
3. ITC reversed (which is temporary in nature) through Electronic Cash Ledger:
In certain cases, temporary reversals of ITC were done from Cash Ledger instead of Credit ledger. This was done may be; due to the non-availability of ITC balance at that time or Credit Ledger was freezed by the tax authorities. In these cases, question will arise as to treatment of these reversals in RCL.
4. Credit reversals done indirectly:
In certain cases, it is observed that taxpayers do reversal of ITC by netting off reversal amount against fresh input credit for that period and only net balance (i.e. Gross ITC for that period less ITC to be reversed) is reported in Table 4A(5) of GSTR-3B.
In this case, balance of ‘re-claimable reversals’ which is to be reported in RCL will not directly match with GSTR-3B filed but it needs to be derived indirectly.
5. Reversal reported in Table 4B(2) may not be always reclaimable:
CBIC vide Circular No. 170/02/2022-GST, dated: 06/07/2022 has clarified that reversal of ITC availed due to inadvertent mistake can be shown at Table 4B(2) of GSTR-3B. However, said Circular also provides that temporary reversals are to be reported in Table 4B(2) of 3B. Hence, there could a dilemma as to exact field in which this type of reversal to be reported.
If in case, a taxpayer has inadvertently availed higher credit or credit of wrong amount due to typo error etc then such credit which was reversed, in fact, a final/un-claimable ITC. Therefore, such reversal if reported under Table 4B(2) of GSTR-3B, need not be taken into consideration for reporting of balance of ‘re-claimable reversals’ in RCL.
6. In-eligible Credit reported under Table 4B(2) for period prior to July 2022:
Table 4 of GSTR-3B got amended vide Notification No. 14/2022 – Central Tax Dated 05.07.2022. Before the amendment, Table 4 of GSTR-3B for return period prior to July 2022 used to appear as below:
Earlier, for reporting in-eligible credit under Section 17(5) of CGST Act, no specific mention was given at Table 4B(1) (unlike in the current scenario/revised format) and therefore, Taxpayers used to report in-eligible credit at Table 4B(2) – ‘Others’.
Therefore, if the taxpayer had reported the ineligible ITC under Table 4B(2) then while reporting the reclaimable credit in RCL, precaution needs to be taken for non-inclusion of such in-eligible credit in RCL.
7. Taxpayers have not reported temporary ITC reversals in any of earlier GSTR-3B filed, even though reversals were required to be done:
In these cases, opening/cumulative balance of ‘re-claimable credits’ in RCL would be Nil. However, there may be a possibility that, tax authorities may seek reasons for such ‘Nil’ balance which needs to be explained depending on facts of the case.
In view of above challenges, Taxpayers will need to take utmost care while compiling the ITC reversal details of past periods which is to be reported in RCL.
Conclusion:
A suitable clarification from the Tax authorities on few issues discussed above will lead to the correct reporting of re-claimable credits at Taxpayers side and lower disputes at later date.
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