The Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 02/2023-GST, providing a Standard Operating Procedure (SOP) for the scrutiny of returns for the financial year 2019-20 onwards. This instruction modifies the previous SOP issued for the financial years 2017-18 and 2018-19.
The Directorate General of Analytics and Risk Management will select GSTINs for scrutiny based on identified risk parameters.
Analysis of risk parameters of scrutiny of GST Returns as per CBIC SOP guideline
The list is indicative, and the proper officer may include additional risk parameters in selection of returns for Scrutiny.
Tax Liability on Outward Supplies and short-payment of tax :
- The tax liability declared in Table 3.1(a) and Table 3.1(b) of FORM GSTR-3B should be verified with the corresponding tax liability declared in various tables of FORM GSTR-1.
- If the tax liability declared in FORM GSTR-1 exceeds the liability declared in FORM GSTR-3B, it may indicate a short payment of tax.
Tax Liability on Inward Supplies (RCM) and Input Tax Credit claimed under RCM
- The input tax credit (ITC) availed in RCM should not exceed the cash paid under reverse charge mechanism (RCM) in Form GSTR-3B.
- Short payment of tax liability on account of RCM supplies or excess availment of ITC in respect of RCM supplies can be indicated by availing ITC in excess of the liability discharged for reverse charge supplies.
- RCM paid in GSTR -3B should not be less then reflected in form GSTR-2B.
ITC on Inward Supplies from ISD
- The input tax credit (ITC) availed for inward supplies received from an Input Service Distributor (ISD) should be claimed in Table 4(A)(4) should always be less than or equal to the ITC shown in Table 7 of GSTR-2A.
Excess Claim of ITC in GSTR3B V/s GSTR2B.
- The input tax credit (ITC) claimed in GSTR-3B for all other supplies should be compared with the ITC shown in GSTR-2B.
- It is important to ensure that the ITC claimed in GSTR-3B does not exceed the ITC available as per GSTR-2B.
- Any excess claim of ITC in GSTR-3B compared to GSTR-2B may lead to scrutiny and potential issues related to tax compliance.
- Therefore, it is necessary to reconcile and verify the ITC claimed in GSTR-3B with the corresponding details provided in GSTR-2B to avoid any discrepancies or potential scrutiny notices.
Outward supply in GSTR-3B vs. TDS and TCS Credit
- The taxable value declared for outward taxable supplies in GSTR-3B should not be lower than the net amount liable for TCS and TDS credit as per GSTR-2B.
- A discrepancy in this regard may indicate a potential shortfall in tax payment.
- For example, if a supplier has made supplies to a government department and TDS is deducted on the entire contract value, but the supplier declares a lower taxable value in GSTR-3B, it may result in a short payment of GST, and the supplier may need to pay the additional tax amount.
Outward supply in GSTR-3B vs. Liability as per E-way bills.
- The tax liability declared in FORM GSTR-3B should be equal to or greater than the tax liability declared in the e-way bills generated for outward supplies.
- Reconciliation between the tax liability in FORM GSTR-3B and the e-way bills is necessary to ensure accurate reporting and payment of taxes.
- E-way bills are required for consignments exceeding a certain value and capture a portion of the supplies made by registered persons, but not all supplies require an e-way bill. Therefore, a thorough reconciliation is needed to account for supplies not covered by e-way bills, such as those involving delivery challans or transactions that do not require the movement of goods.
ITC from suppliers whose registration is cancelled
- In case of retrospective cancellation of a supplier’s registration, the recipient is not eligible to claim Input Tax Credit (ITC) for invoices or debit notes issued by the supplier after the effective date of cancellation.
- The effective date of cancellation of a supplier’s registration is provided in relevant tables of FORM GSTR-2A, which can be used to verify if the registered person has availed ITC for invoices issued after the cancellation date.
- However, if the recipient can prove the genuineness of the purchase transactions, actual payment including GST, and compliance with statutory obligations such as verifying the identity of the supplier, they may be able to rely on court judgments supporting their claim for ITC, such as the judgment of the Hon’ble Calcutta High Court in the case of Sanchita Kundu & Anr. Vs. The Assistant Commissioner of State Tax, 2022
ITC on filing of GSTR 1 but non- filing of GSTR 3B. Tax not paid to Government by the Supplier.
- If a supplier has not filed their GSTR-3B return for a specific tax period, the recipient will see a status of “No” in their GSTR-2B, indicating that the supplier has furnished invoice details in their GSTR-1 but has not filed the return.
- Availing Input Tax Credit (ITC) in respect of such invoices or debit notes may not be allowed as per Section 16(2)(c) of the GST Act, which requires the recipient to fulfill certain conditions, including the filing of the supplier’s return.
- However, this is a litigated area, and taxpayers can rely on legal grounds such as violation of constitutional articles and the Doctrine of Impossibility. They can also refer to relevant press releases and court judgments, such as the ones from the Hon’ble Madras High Court and Hon’ble Chattisgarh High Court, which have favored the taxpayers in similar cases.
ITC on returns filed post due date for filing of GST Returns
- According to Section 16(4) of the CGST Act, Input Tax Credit (ITC) can only be availed until 30th November of the following financial year or the due date of filing the relevant Annual Return, whichever is earlier.
- If a registered person files their FORM GSTR-3B return after this specified time period, any ITC claimed in that return is not admissible.
ITC on Import of Goods
- To verify the Input Tax Credit (ITC) claimed in Table 4(A)(1) of FORM GSTR-3B for “Import of goods,” the corresponding details can be cross-verified with GSTR-2B. The information can also be verified from the ICEGATE portal, which provides access to Bill of Entry details.
Interest and Late Fees :
- Late filing of returns can attract Interest , penalties and late fees. If a taxpayer fails to file their GST returns within the prescribed due dates, they may be liable to pay the same.
The instruction outlines the process for the selection of returns for scrutiny, communication of discrepancies to the registered person, and the timeline for conducting the scrutiny. The proper officer will scrutinize the returns and related particulars furnished by registered persons to verify their correctness.
The officer will rely on information available in various returns, statements, and data from sources like DGARM, ADVAIT, GSTN, and the E-Way Bill Portal. The proper officer will issue a notice (FORM GST ASMT-10) to the registered person through the ACES-GST application, informing them of the discrepancies and seeking an explanation.
Registered persons have the option to accept the discrepancies mentioned in the notice and pay the tax, interest, and any other amount arising from the discrepancies. They can also provide an explanation for the discrepancies (FORM GST ASMT-11) within the prescribed time period.
The reply furnished by the registered person will be made available to the proper officer through the scrutiny dashboard. If the explanation is acceptable, the proper officer will conclude the proceedings by informing the registered person (FORM GST ASMT-12).
If no satisfactory explanation is provided or the registered person fails to pay the dues, the proper officer may proceed with determining the tax and other dues under section 73 or 74 of the CGST Act.
In certain cases, the matter may be referred for audit or investigation to determine the correct liability.
The instruction emphasizes conducting the scrutiny in a time-bound manner and provides timelines for each stage of the scrutiny process.
The details of the actions taken by the proper officer will be available through the scrutiny dashboard in the form of management information system (MIS) reports. The requirement of compiling and sending monthly scrutiny progress reports to the Directorate General of Goods and Services Tax (DGGST) is dispensed with for the financial year 2019-20 onwards.
It is important to note that the scrutiny functionality is available only for the financial year 2019-20 onwards, and the previous procedure will continue to be followed for the scrutiny of returns for the financial years 2017-18 and 2018-19. We have attached herewith our previous articles on the subject matter and also latest Instruction No. 02/2023-GST dated 26th May ,2023.
Overall, this instruction provides guidelines for the scrutiny of returns under the GST regime, aiming to ensure the correctness of returns and streamline the scrutiny process.
Below is the link for our earlier article on the Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and FY 2018-19
Disclaimer: This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
