Circulars on mismatch between GSTR-2A and GSTR-3B - Whether a burden?
AUGUST 23, 2023
By Priyanka Kalwani, Associate Partner; Devanshi Sharma, Senior Associate; and Aanchal Kesari, Senior Associate
ONE of the fundamentals of Goods & Services Tax ('GST') law is to ensure seamless flow of input tax credit ('ITC'). However,multiple amendments in the legal provisions since the inception of GST have been a roller coaster ride for taxpayers resulting in uncertainty with regard to fulfillment of various conditions for availment of ITC. Adding fuel to the fire are various Circulars issued by the Central Board of Indirect Taxes & Customs ('CBIC') from time to time.
The GST regime has digitized the return filing mechanism with a system in place for auto population of data. One such return is Form GSTR-2A which is a system generated statement of inward supplies for a recipient based on details furnished by the supplier in Form GSTR-1. The assessee avails ITC in Form GSTR-3B which is the monthly return for discharging tax liability on outward supplies.
Section 16 of the Central Goods & Services Tax Act, 2017 ('CGST Act, 2017') prescribes the conditions for eligibility of ITC. One of the conditions under section 16 is that the tax in respect of the supply must be paid to the government. It is interesting to note that at the time of inception of GST regime, there was no condition under Section 16 which provided for matching of ITC reflecting in GSTR-2A with the ITC availed in GSTR-3B. Clarity in this regard was provided by CBIC vide Press Release dated 18.10.2018 where it was clarified that reconciliation between GSTR-2A and GSTR-3B is a trade facilitation measure and is not mandatory for availing ITC.
The matching concept was first introduced by inserting Rule 36(4) of the Central Goods & Services Tax Rules, 2017 ('CGST Rules,2017')with effect from 9.10.2019.The provision restricted availing of ITC for those details which were not reflecting in the recipient's GSTR-2A. However, benefit to the extent of 20% of eligible ITC was permitted. This limit was further reduced to 10% 1 and subsequently to 5% 2 .
Hence, the provision itself permitted availment of ITC on invoices not reflected in GSTR-2A to the extent of specified limits, as amended from time to time. Further, for the period 01.07.2017 to 09.10.2019, there was no mandate under Section 16 or Rule 36 to avail ITC on the basis of details reflected in Form GSTR-2A.
However, the Department initiated proceedings against assessees, countrywide, denying ITC on the ground of mismatch between GSTR-3B and GSTR-2A even for period July2017- March 18 and F.Y. 2018-19.
As a trade facilitation measure, the CBIC vide Circular No. 183/15/2022-GST on 27.12.2022 clarified that the ITC may not be reflecting in the recipient's GSTR-2A due to certain bona fide errors such as non-filing of GSTR-1, failure to report a supply, wrong reporting of a supply, mentioning of wrong GSTIN, etc. The Circular stated that ITC should be allowed in case of such bona fide errors to the recipient on production of a certificate from the supplier or a Chartered Accountant / Cost Accountant, to the effect that said supplies have been actually made by the supplier and tax on said supplies has been paid by the supplier. The above clarification was issued for the period F.Y. 2017-18 and F.Y. 2018-19.
It is pertinent to note that proceedings for the period F.Y. 2017-18 and F.Y. 2018-19 were initiated by the Department with no statutory backing whatsoever, for denial of ITC on the ground of mismatch, in absence of such a restriction either in the Act or the Rules. The aforesaid Circular appears to have been issued to alleviate the hardship faced by the assessees.
The Legislature inserted Section 16(2)(aa) in the CGST Act, 2017 which mandates matching between GSTR-2B and GSTR-3B w.e.f. 01.01.2022. The eligibility of ITC has now been linked with GSTR-2B (auto-drafted ITC statement) instead of GSTR-2A. Rule 36(4) has also been amended accordingly, doing away with beneficial limits prescribed earlier.
An argument can be taken that for the period prior to 01.01.2022, there was no enabling provision under the CGST Act, for the matching concept. It is settled law that a Rule cannot impose a substantive condition without the corresponding enabling provision under the Act. Hence, the demand for denial of ITC on the ground of mismatch, even for period post 09.10.2019 and prior to 01.01.2022 can be contested on the ground that Rule 36(4) suffers from the vice of excessive delegation.
Recently, based on the recommendations of the 50th GST Council Meeting, the CBIC has issued Circular No. 193/05/2023-GST dated 17.07.2023 clarifying that the guidelines provided in prior Circular dated 27.12.2022 would be applicable for the subsequent period, April 2019 to December 2021.
Prior to issuance of the Circular dated 17.07.2023, the Hon'ble Karnataka High Court in the case of M/s Wipro Limited India 3, has held that the benefit of the Circular dated 27.12.2022 must be extended for subsequent period as well. In this case, the ITC was not reflected in the recipient's GSTR-2A due to incorrect GSTIN declared by the supplier.
Let us analyze the clarification provided in the Circular dated 17.07.2023. The Circular states that in case of mismatch, ITC would be eligible subject to the prescribed limits of 20%, 10% and 5% as prevailing during the relevant time period, on production of certificate by the concerned supplier, Chartered Accountant or Cost Accountant.
It is important to highlight that the Circular dated 17.07.2023 is, in fact,imposing an additional burden of producing certificates for availing ITC within limits permissible under Rule 36(4), which was otherwise eligible to the assessee. Although the intention of the government seems benevolent, the clarification saddles the assessee with documentary compliance, not envisaged under the law.
A comprehensive analysis of the changes in law shows that there was no requirement to avail ITC based on details reflected in GSTR-2A prior to 01.01.2022. However, the introduction of Rule 36(4) without an enabling provision in the CGST Act, and the litigious approach of the Department has led to issuance of multiple Circulars and Press Releases by the CBIC, which though seemingly beneficial, have resulted in an anomaly.
The validity of Rule 36(4) of the CGST Rules, 2017 has been challenged before various High Courts, inter alia, on the grounds of it being ultra vires the provisions of Section 16 of the CGST Act, 2017. It remains to be seen whether the assessees would benefit from the outcome of such proceedings.
[The views expressed are strictly personal.]
1 Notification No. 75/2019 – Central Tax dated 26.12.2019, w.e.f. 01.01.2020.
2 Notification No. 94/2020 – Central Tax dated 22.12.2020 w.e.f. 01.01.2021.
3 M/s Wipro Limited India v. Assistant Commissioner of Central Taxes & Ors, - 2023-TIOL-84-HC-KAR-GST
(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site) |