Claiming Excess ITC in GSTR-3B compared to GSTR-2A/2B

Of late notices issued with respect to input tax credit claimed are too many, these include credit claimed with respect to blocked credits, claiming of ITC more than what has been made available in GSTR 2A/2B. In this article we would like to deal the situations and the judicial precedents with respect to the GSTR 2A vs 3B issues.

When the Input claimed in GSTR-3B is more than GSTR-2A. What are the legal implications and remedies with respect to the same has been detailed in this article.

Rule 36(4) has been introduced to say that ITC available in GSTR 2A only needs to claimed giving an admissible limit to claim in excess of what is available in GSTR 2A. So the introduction Rule 36(4) has given scope for lot of notices with respect not only the period from which such rule is introduced but also for the earlier period i.e. before the introduction of Rule 36(4).

1. Because of these unwarranted notices being troublesome to the tax payers, there were multitude of representations by the industry and professional bodies made before the CBIC and Ministry of Finance then CBIC after considering these representations issued a couple of circulars to clarify, which helped tax payers on how to navigate further with respect to these notices. Also, apart from these circulars there were judgements given by the various high courts in favour of the tax payers. Through all these now taxpayer can save himself from various notices.

2. In order to determine which of these prerequisites Rule 36(4) requires, let’s first attempt to comprehend the preconditions for claiming the ITC. In simple words to claim ITC it needs to be reflected in GSTR 2A/2B this has been introduced by way Rule 36(4) of CGST Rules, 2017.

To claim ITC the following conditions as per Section 16(2) has to be followed:

a. Possession of tax invoice or debit note

b. the details of the invoice has been furnished by the supplier and such details have been communicated to the recipient of such invoice

c. Receipt of goods or services or both

d. the details of ITC in respect of the said supply communicated has not been restricted;

e. The tax charged has been paid to the Government by the supplier

f. The recipient has to file GSTR-3B

3. AS it is clear from the Section 16(2) the recipient has to have an invoice to claim ITC, he should receive the goods or services, the ITC in respect of such supplies has not been restricted to claim ITC and such recipient has to file GSTR-3B are within the control of the taxpayer, However the filing of the GSTR-1 (Post filing the invoice reflects in GSTR 2A/2B) and discharge of tax by the supplier are not within the control of the recipient. Now let’s understand how to deal with these situations which are not within the control of the taxpayer.

4. The supplier failed to file his GSTR 1 and thereby the recipient has not been communicated the details of such invoices in his GSTR 2A/2B, however ITC cannot be claimed in case the recipient has not been communicated the details of invoices, this provision has been introduced from January 01, 2022 and before that there was no such provision in the law and only rule introduced was Rule 36(4) which mandated to claim the ITC on the basis of the GSTR 2A.

4.1 There might be multiple reasons for the credit which is not appearing in the GSTR-2A/2B of the recipient and some of the reasons has been listed below:

a) B2B transaction mistakenly reported as B2C in GSTR-1 by the supplier.

b) Incorrect GSTIN provided for B2B transaction reported in GSTR-1 by the supplier.

c) Incorrect Place of Supply has been provided in GSTR-1 by the supplier.

d) An intra-state supply mistakenly reported as inter-state and vice versa.

4.2 So the ITC is not ineligible, since there is a mismatch between GSTR-2A and GSTR-3B the registered tax payer has to do the self-assessment of output tax liability and input tax credit. Therefore, the right to claim Input Tax credit should not be rejected in case such credit doesn’t appear in GSTR-2A/GSTR-2B.

4.3 In this regard various high courts held that ITC eligibility cannot be denied based on the mismatch of GSTR-2A/2B and GSTR-3B as the assessing authority has to examine the evidence irrespective of the form GSTR-2A/2B. This view has been held by Hon’ble Kerala High court in the case of M/S. HENNA MEDICALS VERSUS STATE TAX OFFICERS VS DEPUTY COMMISSIONER[2023 (10) TMI 98 – KERALA HIGH COURT] and similar view has been upheld by the Bombay high court in the case of NRB BEARINGS LTD. VERSUS THE COMMISSIONER OF STATE TAX in cases where there was a bonafide error in filing of the return and when there was no loss of revenue caused to the Government/exchequer, the technicalities on any legitimate rectification ought not to come in the way of the assessee, so as to suffer an inadvertent error, which would have a cascading effect.

4.4 Therefore we are of the view that ITC can be claimed even though the same is not reflected in GSTR 2A, however all other conditions of Section 16(2) has been followed by the recipient.

5. Further to clarify the same CBIC has issued Circular No. 183/15/2022-GST dated 27th December 2022 wherein it has clarified the ITC claimed for the FY 2017-18 & 2018-19 in excess of the available ITC in GSTR 2A can be claimed, However to claim the same following certificates needs to be produced

5.1 If the ITC claimed in GSTR-3B compared to GSTR-2A is more than 5lakhs in a financial year, the proper officer shall ask the registered person to produce a certificate for the concerned supplier from the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that supply of said invoices had been made and tax on such supplies has been paid.

5.2 If the ITC claimed in GSTR-3B compared to GSTR-2A is less than 5lakhs in a financial year, the proper officer shall ask the claimant to produce a certificate from the concerned supplier that said supplies have actually been made by him and tax on said supplies has been paid.

5.3 THE HONOURABLE HIGH COURT OF KARNATAKA, BENGALURU in the case of M/s Wipro Limited India [WRIT PETITION No.16175 OF 2022(T-RES)] has held that the above circular should be applied for the FY 2019-20 as well.

6. As per the Circular No. 193/05/2023-GST dated 17th July 2023 it has referred to the Rule 36(4) which has been introduced from from 9.10.2019 and as per the same rule ITC in excess of GSTR 2A can be claimed as per the below table Further after insertion of clause (aa) to sub-section (2) of section 16 of the CGST Act, ITC can be availed only to the extent communicated in FORM GSTR-2B.

6.1 However the above limits has not been considered by the HONORABLE SUPREME COURT in the case of UNION OF INDIA VS BHARATHI AIRTEL LTD and the court held that GSTR-2A is a form for reference for the tax payers and taxpayer can avail the input tax credit on self-assessment basis. Therefore taxpayers can take the shelter from this judgement and the ITC claimed upto 31.12.2021 can be claimed even if the same is not reflected in GSTR-2A however all other conditions of Section 16(2) has been satisfied by the taxpayer.

6.2 Subsequently with effect from 1st January 2022, they inserted clause (aa) in Section 16 sub section 2 of the CGST Act, which reads as follows:

“The details of the invoice or debit note referred to clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under Section 37”.

6.3 By insertion of above clause in Section 16(2) the taxpayer now can be eligible to claim ITC on the invoices which are reflected in Form GSTR 2B and the taxpayer cannot in anyway claim anything which is not reflected in GSTR 2B. However considering the previous months invoices which are reflected in prior period GSTR 2B may be claimed and to this effect to reconcile the same in a better manner electronic credit and reclaim statement has been introduced into the GST portal from August 2023.

Conclusion: Navigating the complexities of ITC claims in GSTR-3B compared to GSTR-2A/2B requires an understanding of legal frameworks, circulars, and judicial rulings. While Rule 36(4) and related provisions aim to ensure compliance, taxpayers should be aware of their rights and remedies when facing discrepancies. Adherence to Section 16(2) conditions remains paramount, while recent amendments and circulars provide additional clarity and pathways for legitimate ITC claims. By staying informed and proactive, taxpayers can mitigate risks and ensure compliance with GST regulations.