Rule 88D: A new regulation for dealing with GSTR-3B v GSTR-2B differences

As per Notification No. 38/2023- Central Tax dated 4th August 2023, Rule 88D, along with the relevant FORM GST DRC-01C, was added to the CGST Rules, 2017. Further, a consequential amendment is also made in Rule 59(6) of the CGST Rules, 2017. This article examines this new regulation, highlighting its implications on taxpayers, particularly regarding differences between GSTR-3B and GSTR-2B. The consequences of a taxpayer’s failure to respond to Form DRC-01C within a specified 7-day period are also discussed in detail.

BACKGROUND

The GST Council in its 50th meeting, recommended a mechanism for system-based intimation to the taxpayers in respect of the excess availment of ITC in FORM GSTR-3B vis a vis that made available in FORM GSTR-2B above a certain threshold, along with the procedure of auto-compliance on the part of the taxpayers, to explain the reasons for the said difference or take remedial action in respect of such difference.

As per the recommendation, this will help in reducing ITC mismatches and misuse of ITC facility in GST.

New Rule 88D

The new Rule 88D reads as under-

“Manner of dealing with difference in input tax credit available in auto-generated statement containing the details of input tax credit and that availed in return.-

(1) 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-3B exceeds the input tax credit available to such person in accordance with the auto-generated statement containing the details of input tax credit in FORM GSTR-2B in respect of the said tax period or periods, as the case may be, 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 DRC01C, 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—

(a) 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

(b) explain the reasons for the aforesaid difference in input tax credit on the common portal, within a period of seven days.

(2) The registered person referred to sub-rule (1) shall, upon receipt of the intimation referred to in the said sub-rule, either,

(a) pay an amount equal to the excess input tax credit, as specified in Part A of FORM GST DRC01C, fully or partially, along with interest payable under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01C, electronically on the common portal, or

(b) furnish a reply, electronically on the common portal, incorporating reasons in respect of the amount of excess input tax credit that has still remained to be paid, if any, in Part B of FORM GST DRC-01C, within the period specified in the said sub-rule.

(3) Where any amount specified in the intimation referred to in sub-rule (1) remains to be paid within the period specified in the said sub-rule and where no explanation or reason is furnished by the registered person in default or where the explanation or reason furnished by such person is not found to be acceptable by the proper officer, the said amount shall be liable to be demanded in accordance with the provisions of section 73 or section 74, as the case may be.“

It implies that the taxpayer needs to, within seven days, either reverse excess input tax credit availed in the said FORM GSTR-3B, along with interest payable under section 50, through FORM GST DRC-03, or explain the reasons for such differences.
In case the taxpayer does not respond or the reasons for differences explained by the taxpayer are not found to be acceptable by the proper officer, the said amount shall be liable to be demanded in accordance with the provisions of section 73 or section 74 of the CGST Act, 2017.

It is pertinent to note that the “percentage” as referred in the said Rule is not recommended by the GST Council till date.

BLOCKING OF GSTR-1 FOR SUBSEQUENT PERIOD

The most important part is consequential amendment in Rule 59(6) of the CGST Rules,2017 to block filing of FORM GSTR-1/IFF for subsequent tax period, if no reply is filed against FORM GST DRC-01C within a period of 7 days.

The Rule 59(6)(e) reads as under-

“a registered person, to whom an intimation has been issued on the common portal under the provisions of sub-rule (1) of rule 88D in respect of a tax period or periods, shall not be allowed to furnish the details of outward supplies of goods or services or both under section 37 in FORM GSTR-1 or using the invoice

furnishing facility for a subsequent tax period, unless he has either paid the amount equal to the excess input tax credit as specified in the said intimation or has furnished a reply explaining the reasons in respect of the amount of excess input tax credit that still remains to be paid, as required under the provisions of sub-rule (2) of rule 88D.”

It implies that if a taxpayer does not file Form DRC-01C (Part-B) for any period, it will not be able to file GSTR-1/IFF for the subsequent period.

Illustration– A taxpayer cannot file GSTR-1 for July 2023, if it has any pending DRC-01C for any tax period prior to July 2023.

CATEGORIES OF REASONS FOR EXPLAINING THE DIFFERENCES

Taxpayers must create proper head wise Recos and MIS reports for reasons of difference, since DRC-01C (PartB) requires a taxpayer to explain the reasons for differences by selecting only one of the reasons listed below.

1. Input tax credit not availed in earlier tax period(s) due to non-receipt of inward supplies of goods or services in the said tax period (including in case of receipt of goods in instalments).

2. Input tax credit not availed in earlier tax period(s) inadvertently or due to mistake or omission

3. ITC availed in respect of import of goods, which is not reflected in FORM GSTR-2B

4. ITC availed in respect of inward supplies from SEZ, which are not reflected in FORM GSTR-2B

5. Excess reversal of ITC in previous tax periods which is being reclaimed in the current tax period

6. Recredit of ITC on payment made to supplier, in respect of ITC reversed as per rule 37 in earlier tax period.

7. Recredit of ITC on filing of return by the supplier, in respect of ITC reversed as per rule 37A in earlier tax period.

8. FORM GSTR-3B filed with incorrect details and will be amended in next tax period (including typographical errors, wrong tax rates, etc.)

9. Any other reasons (need to be specified)

WAY FORWARD

It becomes important to ensure timely reply to Form DRC-01C to avoid any interruptions in the filing of GSTR-1/IFF.

It is very important to note that the non reply to Form DRC-01C can also hinder timely passing on the ITC to the recipient. This is because GSTR-2B gets generated on 14th of every month based on returns filed till 11th/13th of that month, therefore if GSTR-1/IFF could not be filed by the due date because of any pending DRC-01C, then availability of ITC to the recipient would get deferred due to non-reflection in GSTR-2B of the recipient for that month [sec 16(2)(aa)].

There remains no doubt that invoice wise reconciliation is to be prepared along with proper reasoning, b/w GSTR-2B vis-a-vis Books, at the time of filing of GSTR-3B so that a taxpayer can reply to Form DRC-01C asap and avoid blocking of Form GSTR-1 for the subsequent period(s) and consequent inadmissibility of ITC in the hands of recipient.

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Disclaimer: The information contained herein is not intended to be a source of advice and it is only for the convenience and educational purposes for the user. This is not an opinion to anyone and author is / will not be responsible to anyone for any matter whatsoever regarding any reliance placed on this article.