Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 ('CGST Act') contain provisions for determination of tax short paid or not paid and the process to be followed for adjudication proceedings including issuance of show cause notice, adjudication order, etc.
Section 75 of the CGST Act contains some general provisions in relation to determination of tax. Section 75(12) of the CGST Act is a non-obstante provision stating that any unpaid amount of self-assessed tax as per GSTR 3B return or interest thereon shall be recovered under provisions of Section 79 of the CGST Act (i.e., using various modes of recovery such as deduction from amounts refundable to assessee, garnishee proceedings, etc.).
Amendment in Section 75 of the CGST Act
The Finance Act, 2021 inserted an explanation in the Section 75(12) of the CGST Act to expand the scope of the term "self-assessed tax" used therein, which has come into effect from January 01, 20221. The provisions of Section 75(12) and the amendment in question are as under:
"(12) Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.
[Explanation.- For the purposes of this sub-section, the expression "self-assessed tax" shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.]2
By virtue of this amendment, the difference between GST on outward supplies declared in GSTR 1 and GST on outward supplies paid as per GSTR 3B would be treated as "self-assessed tax" and can be recovered without following the procedure laid down in Section 73 and 74 of the CGST Act.
Implications of the amendment
So far, the GST authorities issue notice in Form GST ASMT 10 (in terms of Section 61 of the CGST Act) to intimate differences between GSTR 1 vs. GSTR 3B. In case a suitable explanation of such difference is not provided within a period of thirty days or such further period as permitted, or corrective measures are not taken in cases where discrepancy is accepted, the proper officer is empowered to initiate a departmental audit or carry out search, etc. or issue a show cause notice. Eventually, recovery of any short payment or non-payment of tax in such cases may be made after issuance of an order under Section 73 or 74 of the CGST Act.
However, pursuant to the aforesaid amendment, the difference between GSTR 1 vs. GSTR 3B may now be treated as self-assessed tax and may be straight recovered without following the adjudication proceedings as per Section 73 or 74 of the CGST Act. This amounts to a lot of power in hands of the proper officer.
It may be noted that the CBIC has issued Instruction no. 1/2022 – GST dated 07.01.2022 providing guidelines for initiating recovery proceedings in such cases ('Guidelines'). The Guidelines (discussed in detail in ensuing paragraphs of this article) effectively contain instructions for implementation of aforesaid provisions in the reasonable manner. However, the reasonability in implementation of these provisions, at ground level, needs to be seen in the days to come.
It is also pertinent to note that Section 73(6) and Section 73(8) provide for waiver from penalty (equal to 10% of tax or INR 10,000 whichever is higher) in cases where the tax amount is paid before issuance of notice or within 30 days of issuance of notice under Section 73(1) of the CGST Act. However, as per Section 73(11), such waiver from penalty is not eligible in cases where any amount of "self-assessed tax" has not been paid within a period of thirty days from due date. The above amendment read with these provisions of Section 73 of the CGST Act would mean that the cases of tax demand arising due to GSTR 1 vs. GSTR 3B mismatch may not be eligible for such waiver from penalty.
Manner of determination of GSTR 1 vs. GSTR 3B mismatch, bona fide reasons of mismatch and the Guidelines issued by the CBIC
Given that the formats of GSTR 1 and GSTR 3B returns are quite different, differences between tax on outward supplies as per the two returns may arise in various practical situations. Some of the instances of such bona fide mismatch are as under:
- Negative GST liability on account of credit note or advance adjustment would be disclosed in GSTR 1 in the respective tax period. However, since GSTR 3B does not permit disclosure of negative values, such net negative amounts may be carried forward in GSTR 3B for several subsequent tax periods (in the same financial year or across financial years) till the same is fully adjusted. This may lead to mismatch of GSTR 1 vs. GSTR 3B returns for all such subsequent tax periods.
- GSTR 1 does not allow reporting of refund vouchers. However, the same needs to be adjusted while reporting tax liability on outward supplies in GSTR 3B, leading to mismatch of tax amounts.
In addition to the above, there could also be various practical situations of mismatch in the GSTR 1 vs. GSTR 3B due to inclusion of a transaction in GSTR 1 and 3B in two different tax periods; wherein, there would not be any effective non-payment of tax on an overall basis.
The Guidelines issued by the CBIC for implementation of the provisions in question acknowledge some of these practical situations leading to differences between GSTR 1 vs. GSTR 3B for genuine reasons (such as errors in return filing rectified in subsequent period, declaration of a supply in GSTR 1 and GSTR 3B in two different tax periods, etc.). The Guidelines state wherever any recovery is sought to be made in terms of the above amendment, a communication to the taxpayer should be made explaining the reasons in support of the recovery sought to be made and providing opportunity to justify the differences.
The Guidelines broadly seek to impart reasonability and compliance to principles of natural justice to recovery proceedings initiated pursuant to this amendment. However, the same unfortunately do contain guidance on manner of determining GSTR 1 vs. GSTR 3B mismatch considering the issues attributable to return formats, determination of mismatch basis year to date comparison as opposed to standalone comparison for a month, etc.
This amendment in Section 75(12) of the CGST Act creates various implications for the entire process of return scrutiny and consequent recovery of self-assessed tax. Treatment of differential tax between GSTR 1 vs. GSTR 3B as self-assessed tax and permitting direct recovery of the same by the proper officer would mean a lot of power in hands of proper officer, which, if not exercised with responsibility, may create difficulties for taxpayers. To avoid the same, reasonability in implementation and genuine compliance to the Guidelines issued by the CBIC on part of the tax authorities would be crucial.
The article has been published in Taxsutra.
1. As per Notification No. 39/2021-Central Tax dated December 21, 2021
2. Inserted vide Section 114 of the Finance Act, 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.