How to Respond to DRC-01C Notice for ITC Mismatch: GSTR-2B vs. GSTR-3B

Have you got an intimation in DRC-01C under Rule 88D for ITC mismatch between GSTR-2B and GSTR-3B? Understanding the reasons and how to respond                                                                                

Have you availed ITC higher than the amount auto-populated in GSTR-2B?

If you have then the chances are you can receive an intimation in form DRC-01C under Rule 88D asking for an explanation on the reason for the excess ITC availed or payment of the amount of ITC which is availed in excess of the amount auto-populated in GSTR-2B along with applicable interest.

Q. What is an intimation in form DRC-01C under Rule 88D?

A. As per Rule 88D of the CGST Rules, Where the amount of input tax credit availed by a registered person in the return for a tax period or periods furnished by him in FORM GSTR – 3Bexceeds the input tax credit available to such person in FORM GSTR – 2Bin respect of the said tax period or periods, by such amount and such percentage, as may be recommended by the Council,

• the said registered person shall be intimated of such difference in Part A of FORM GST DRC -01C, electronically on the common portal, and a copy of such intimation shall also be sent to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said difference and directing him to:

1. pay an amount equal to the excess input tax credit availed in the said FORM GSTR- 3B, along with interest payable under section 50,through FORM GST DRC-03, or

2. explain the reasons for the aforesaid difference in input tax credit on the common portal,

Within a period of seven days.

Therefore, if you avail ITC in excess of the amount auto-populated in GSTR-2B by a specified percentage, you will be served an intimation asking you to pay the amount of ITC availed in excess with interest or explain the reasons for such excess availment of credit.

Q. Who can get an intimation in DRC-01C under Rule 88D? 

A. A registered person, who has availed ITC in excess of the auto-populated amount in GSTR-2B by such percentage as decided by the Govt. for a certain tax period or periods can get an intimation in Part-A of form DRC-01C asking for the reason(s) for such excess availment of ITC.

He can also be asked to pay the amount of tax equal to the ITC availed in excess of the amount in GSTR-2B along with interest u/s 50 if he does not furnish a reason for availing ITC in excess of 2B within 7 days of receipt of the intimation or if the reason furnished by such registered person is not found to be satisfactory.

Q. What do you do if you get an intimation in Part-A of form DRC-01C under Rule 88D?

A. If you get an intimation in DRC-01C:

• First of all, you need to reconcile your ITC for the tax period(s) shown in the intimation and determine the reason for availing excess ITC as compared to GSTR2B.
• If there is any excess claim of ITC due to a mistake or an error on your part. Then please reverse the ITC along with interest and file DRC-03 and file a response in Part B of DRC-01C by providing ARN of DRC-03 for payment of Tax and Interest.
• If the ITC claimed by you is due to a genuine reason, then file a response in Part B of DRC-01C giving the exact reason for availing excess ITC. You can select one of the reasons as provided in the response tab of Part B of DRC-01C.
• In case your reason is not highlighted, you can select the reason as ‘Any Other reasons’ and explain the exact reason for availing excess ITC and attach a proper reconciliation for availing excess ITC in 3B as compared to 2B.
• If the reason is found to be satisfactory then you will not need to do anything else. However, if the reason stated by you is not found to be satisfactory, you can be asked to pay the amount of excess ITC availed along with interest and proceedings u/s 73 or 74 can be initiated against you.

Q. Will I be allowed to file my GSTR-1 if I get an intimation in DRC-01C Part A for ITC mismatch?

A. No, you will not be allowed to file your return of supplies of goods and services before filing response in Part-B of form DRC-01C to the intimation.

As a result, the tax payer will also not be able to file his GSTR-3B for a tax period if the GSTR-1 for that period is not filed.  Therefore, you will not be able to file GSTR-1 and GSTR-3B before filing response to the intimation in DRC-01C.

However, once you file a response in Part-B of form DRC-01C, the status will be updated automatically and you will be able to file the returns as soon as the response is filed.

Q. What can be the reasons for mismatch of ITC between GSTR-2B and GSTR-3B?

A. Some of the reasons for the mismatch in ITC between GSTR-2B and GSTR-3B include:

• Input tax credit not claimed in previous tax period(s) due to non-receipt of purchased goods or services in that tax period. It could also include cases of receipt of goods in instalments.
• Missed claiming input tax credit in the previous tax period(s) inadvertently or due to mistake or omission and claimed later and hence mismatch in ITC.
• Input tax credit on import of goods, that is not reflecting in GSTR-2B.
• ITC claimed on inward supplies from SEZ, which do not appear in GSTR-2B.
• Excess ITC reversal in the previous tax periods reclaimed in the current tax period.
• Recredit of ITC on making payment to supplier towards the invoice, where such ITC was reversed under the CGST Rule 37 in the earlier tax period(s).
• Recredit of ITC upon filing return by the supplier, where such ITC was reversed under CGST Rule 37A in the earlier tax period.
• The taxpayer filed GSTR-3B return with incorrect details and will amend the details in the subsequent tax period. The error in GSTR-3B could be due to typographical errors or charging the wrong tax rate or any other reason as the case maybe.

There can also be other reasons for mismatch due to wrong/inaccurate filings by your supplier(s) such as:

• The supplier furnished incorrect figures (clerical error or GST rate error) in his GSTR-1 and accordingly reflected incorrectly in GSTR-2B and as a result there is a mismatch.
• The supplier has wrongly reflected the transaction(s) instead of business to business (B2B) the transaction is reflected as business to customer (B2C) and accordingly does not reflect in GSTR-2B of the recipient and hence the mismatch.
• The supplier has wrongly furnished inter-state supplies as intra-state or vice versa and is accordingly reflected incorrectly in GSTR-2B.

Q. How to File a reply to DRC-01C?

A. After logging on the GST Portal, click on ‘Services’ tab and navigate to Returns > Return Compliance > DRC-01C.

Here you can search for the intimation in DRC-01C, by return period, reference number or the status of intimation and click on the particular intimation.

Thereafter you can furnish a reply in Part-B by paying excess ITC claim demanded along with interest u/s 50 or provide reasons for the difference in ITC also attaching relevant reconciliation or any other supporting documents and submit the form in Part-B of DRC-01C.

Q. How can you avoid intimation in DRC-01C?

A. You can avoid DRC-01C intimation by regular and timely reconciliation of the ITC availed in GSTR-3B vis-a-vis GSTR-2B and keeping proper reconciliations of the differences in the claim of the ITC.

If you find any incorrect claim in ITC, it would be better to reverse the ITC claimed on your own rather than waiting for the intimation in DRC-01C.

Q. On which class of taxpayers is form DRC-01C applicable?

A. Form DRC-01C is applicable to various types of taxpayers, including regular taxpayers, SEZ units, SEZ developers, casual taxpayers etc.

Q. Can Form DRC-01C Part B be filed monthly or quarterly?

A. For quarterly filers, Form DRC-01C will be generated, if applicable, after filing the quarterly GSTR-3B. On the other hand, for monthly filers, Form DRC-01C will be generated on a monthly basis after filing the monthly GSTR-3B. Therefore, it depends on the frequency of filing GSTR-3B.

Q. What if you enter wrong reason while filing DRC-03?

A. Remember to select the reason as ‘ITC mismatch – GSTR-2A/2B to GSTR- 3B’ while filing DRC-03 otherwise while entering the ARN of the DRC-03 in response to DRC-01C there will be an error and you would not be able to file the response to the intimation.

Q. What can be the reasons for mismatch of ARN of DRC-03 while filing the response?

A. If you are getting this error message, then you need to check the following points:

• the ARN is for the same DRC-03 and of the same GSTIN.
• The DRC-03 should have been filed on or after the date on which DRC-01C part A was issued.
• The Cause of payment is ‘ITC mismatch – GSTR-2A/2B to GSTR- 3B.’
• The overall tax period pertains to the period for which the DRC-01C Part A has been issued.

o For Monthly, it is of the same period, both From and To

o For Quarterly, it is of at least one month of the quarter

Q. Is it mandatory to pay the tax in DRC-03 if you get an intimation in DRC-01C?

A. You will be able to file part B of DRC-01C by providing response in either sub part 1 or 2 or in both. It is not mandatory to enter ARN of DRC-03. In PART-B, you can either validate the ARN of DRC-03 or provide the reason for the Difference in ITC. You can also provide both, the ARN of DRC-03 and the reason for difference of ITC in case where part tax is payable as for the other part you can provide a reason.

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(The author is a Chartered Accountant and can be contacted at [email protected] or [email protected] or Mobile: +91-9953199493)