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Mismatch in GSTR-1 and 3B have been an Achilles’ heel right from the inception of GST. There have been multiple instances of ITC being passed on by the supplier vide GSTR-1 for which taxes have not been discharged through GSTR-3B. While some of the mismatches in GSTR-1 and 3B involve payment of taxes, the others may be on account of genuine errors resulting in non-payment of taxes. To separate the two, one requires an explanation by the registered person and the judicious application of mind of the Department officers.

Vide the recommendations of the 48th GST Council meeting on 17th December 2022, Rule 88C was inserted to provide for a mechanism for dealing with the difference arising from taxpayer’s liability as reported in GSTR-1 v/s GSTR-3B.


Section 75(12) of the CGST Act, 2017 allows for recovery of tax without the issuance of a Show Cause Notice under Section 73/74 of the CGST Act, 2017 where any amount of tax is self-assessed in accordance with the return furnished under Section 39 of the CGST Act, 2017.

An explanation was added to the said sub-section by Finance Act, 2021 wherein the expression “self-assessed tax” included tax payable in respect of details of outward supplies furnished under section 37 (GSTR-1), but not included in the return furnished under section 39 (GSTR-3B).  The said explanation was made effective from 01st January 2022.

There were many doubts raised by trade and the field formations about how the recovery on account of the mismatches between GSTR-1 and GSTR-3B would be dealt with by the Tax Authorities. On 7th January 2022, CBIC issued guidelines for recovery proceedings under the provisions of Section 79 of the CGST Act, 2017. It instructed for providing of opportunity to the affected taxpayer to explain the differences between GSTR-1 and GSTR-3B by sending a letter, before initiation of action under Section 79 of the CGST Act, 2017. To standardize the entire recovery proceedings, Rule 88C has been inserted in the CGST Rules, 2017.


It provides that where tax liability as per GSTR-1 / IFF exceeds tax paid in GSTR-3B by such amount and such percentage as may be prescribed by the council, the registered person will be intimated of such difference in Part A of FORM GST DRC-01B.

FORM GST DRC-01B would be uploaded on the common portal, and a copy of such intimation shall also be sent to his e-mail address as provided in his registration certificate.

The said form would highlight the difference between GSTR-1 and GSTR-3B. The taxpayer shall have either of the two options to deal with FORM GST DRC-01B.

a. Pay the differential tax liability, as specified in Part A of FORM GST DRC-01B, fully or partially, along with interest under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01B electronically on the common portal; or

b. furnish a reply  electronically  on  the  common  portal,  incorporating  reasons  in  respect  of that part of the differential tax liability that has remained unpaid, if any, in Part B of FORM GST DRC-01B

within 7 days of issuance of DRC-01B.

In the case where the amount specified in DRC-01B remains unpaid, or no reply was furnished, or where the reply furnished was found to be unacceptable by the proper officer, recovery proceedings would be initiated by provisions of Section 79 of the CGST Act, 2017.


Rule 88C is not yet effective. The said rule gets triggered only where the difference between GSTR-1 and GSTR-3B would exceed a certain amount and percentage as may be prescribed. Since the amount and percentage have not yet been notified, the rule cannot be implemented until the amount and percentage are notified.


Rule 59(6) of the CGST Act, 2017 also got inserted vide Notification No. 26/2022 -Central Tax dated 26th December 2022. The said rule does not allow the filing of GSTR-1/IFF for a subsequent tax period where after the issuance of DRC-01B the taxpayer fails to take any action. That is where the taxpayer neither

i. Pays amount payable as per DRC-01B nor

ii. Submits any reply for any amount remaining unpaid in Part B of FORM GST DRC-01B

Kindly note that the rule does not prescribe blocking of GSTR-1 / IFF where the reply furnished was found to be non-satisfactory by the tax authorities. Where the reply was furnished but found to be not satisfactory, only recovery proceedings under Section 79 of the CGST Act, 2017 would be triggered. Where no action was taken against the issuance of DRC-01B, there would be blocking of GSTR-1/IFF along with initiation of recovery proceedings under Section 79 of the CGST Act, 2017.


The time limit that has been prescribed for a taxpayer to take any action in response to DRC-01B is merely 7 days. Failing which recovery proceeding would be initiated against the taxpayer. The time limit of 7 days is a very small window offered to an aggrieved taxpayer. Even where an SCN has been issued to a taxpayer the minimum time given to him to reply is 30 days[1] .

The following are our suggestions for this time limit of 7 days:

a. The government should increase the time limit for reply to at least 30 days. If not, then 7 days should at least be read as 7 working days.

b. There is currently no provision that allows for the extension of the time limit. Where there is any reason due to which the taxpayer is unable to submit his response within 7 days, he should be given an opportunity to apply for an extension. The proper officer shall be at the liberty to grant extension.

c. At least 3 reminder notices should be given to a taxpayer before initiation of any action against him.


Where the response submitted by the taxpayer is found to be not satisfactory, direct recovery proceedings under Section 79 of the CGST Act, 2017 would be initiated against the taxpayer without any further opportunity of being heard.

Section 79 of the CGST Act, 2017 only allows for recovery of the amount payable by a person. “. The words “any amount payable” is to be interpreted in the context in which it has been used and the amount payable (unless admitted) can only be determined by initiating adjudication process as provided under Section 73 or 74 of the CGST Act 2017.[2]

Further, Section 75(5) warrants that an opportunity would be required where a request is received in writing or where any adverse decision is contemplated against such person. Raising of any demand / recovery on account of mismatch between GSTR-1 and 3B clearly gets classified here.

Hence, in a case where the taxpayer disputes the liability computed on account of any reason, it is pertinent that he should be provided with a personal hearing before any adverse action is taken on him. Further, he should be provided with an adequate opportunity to justify his case. Before this principle of natural justice is followed, no recovery action should be initiated against him.

Hence in our view, only where the taxpayer in his reply accepts the tax liability but still fails to pay or fails to provide any reply within the reasonable timeline, one should initiate recovery against the registered person.


Further, the tax authority shall be able to initiate recovery proceedings, where the reply is not found to be acceptable by the tax authority. However, what constitutes acceptable needs thorough judicial review and scrutiny. In each case, where the taxpayer does not agree to the liability imposed, it cannot be said to be unacceptable leading to recovery proceedings. The judicial review system of the country requires thorough and independent examination of an issue at multiple seniority levels before any matter attains finality. Hence, there should be a proper mechanism judicious review of reply of the registered person by the senior ranked officers and the quasi-judicial authority before concluding that the demand / recovery stands justified.


Further to this, there should be proper instructions laid that where the taxpayer disputes the liability in DRC-01B, recovery proceedings should not be initiated under Section 79 of the CGST Act, 2017 as tax cannot be concluded to be payable where it is under dispute. If according to the proper officer’s interpretation, the tax is still liable to be paid, he could proceed to issue showcause notice under Section 73 / 74 of the CGST Act, 2017.

It is recommended that the board comes out with a Circular clarifying various issues in relation to Rule 88C of the CGST Rules, 2017. If no clarification is given, tax authorities would start recovery proceedings in every case where his view differs from the taxpayers. This would leave no alternate remedy to the taxpayer but to knock the doors of the High Court which may not be possible for all taxpayers given the time, cost and exposure involved in it.

[1] Sheetal Dilip Jain vs. State of Maharashtra [2022] 143 taxmann.com 159 (Bombay)

[2] Mahadeo Construction Co v. Union of India [2020] 116 taxmann.com 262 (Jharkhand)


Article is written jointly by CA Sneha Khaitan and CA Shubham Khaitan


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  1. Nabaghan pradhan says:

    Madam namaskar
    in my case GSTR 1 liability more than the GSTR 3B in the financial year 2019-2020 but I have correct liability shown in GSTR -3B and also annual return GSTR 9 now what can I do for the same

  2. Gayathri says:

    hi mam
    thank you so much for valuable content
    actually in my case gstr 3b showing more turnover than gstr 1 & tax paid according to gstr 3b ..
    now what can i do to settle down the mismatch.. because supplier needs itc..
    thanks in advance…

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July 2024