March 21, 2023

GSTR-3B vs GSTR 1 mismatch – Rule 88C perspective

GSTR-3B is a monthly summary return filed by taxpayers under GST, which summarizes the total amount of sales, purchases, input tax credit, and output tax liability for a given tax period. GSTR-1, on the other hand, is a monthly or quarterly return that provides details of all outward supplies of goods or services made by a taxpayer.

Mismatches between GSTR-3B and GSTR-1 can occur for various reasons, such as incorrect reporting of invoices, differences in tax rates, or errors in calculating tax liability. To address this issue, the government has introduced Rule 88A and Rule 88B, which require taxpayers to reconcile the differences between the two returns and make adjustments in subsequent returns.

Rule 88C of the CGST Rules, 2017, further lays down the procedure for the recovery of any mismatch between GSTR-3B and GSTR-1. As per this rule, the amount of input tax credit availed by a taxpayer in excess of the amount eligible for the said credit shall be added to his output tax liability in the return to be furnished for the month in which such discrepancy is communicated. The return in which such adjustment is made shall be considered as a valid return for the purpose of Section 39 of the CGST Act, 2017.

It is important for taxpayers to ensure that there are no discrepancies between GSTR-3B and GSTR-1, as any mismatch could lead to interest and penalty liabilities. Taxpayers should maintain proper records of invoices and reconcile the data in GSTR-3B and GSTR-1 on a regular basis to avoid any such issues.

Significance of Rule 88C in the context of GSTR-3B and GSTR-1 mismatch

Rule 88C of the CGST Rules is significant in the context of GSTR-3B and GSTR-1 mismatch because it provides a mechanism to the taxpayers to rectify the mismatch by way of adjusting the excess input tax credit (ITC) against the output tax liability. The rule was introduced to provide relief to the taxpayers who were facing difficulties due to the GSTR-3B and GSTR-1 mismatch, and were unable to claim the ITC which was rightfully theirs.

As per the rule, if the details of outward supplies (GSTR-1) furnished by the supplier do not match with the details of inward supplies (GSTR-3B) furnished by the recipient, the recipient can claim the ITC in the GSTR-3B for the tax period in which the discrepancy is rectified. However, the recipient can claim ITC only up to the extent of 5% of the eligible ITC available in GSTR-2B for the tax period.

In case of any excess ITC claimed in the GSTR-3B, the recipient has to pay interest on the same at the rate of 18% per annum from the due date of the tax payable till the date of payment of such tax.

Thus, Rule 88C helps in addressing the GSTR-3B and GSTR-1 mismatch issues by allowing the taxpayers to claim ITC to the extent of 5% of eligible ITC available in GSTR-2B, while also ensuring that the taxpayers pay interest on the excess ITC claimed.

Time limit for the adjustment of tax liability under Rule 88C

As per Rule 88C of the Central Goods and Services Tax (CGST) Rules, 2017, the time limit for the adjustment of tax liability due to the mismatch between the details of outward supplies and inward supplies furnished in GSTR-1 and GSTR-3B respectively is the filing of GSTR-3B for the month of September following the end of the financial year or the annual return, whichever is earlier.

For example, for the financial year 2021-22, the time limit for the adjustment of tax liability under Rule 88C is the filing of GSTR-3B for the month of September 2022 or the annual return, whichever is earlier.

It is important to note that any adjustment of tax liability beyond this time limit is not permitted under Rule 88C.

Rule 88C in the CGST Rules

Rule 88C of the CGST Rules was introduced by the government to provide for the implementation of provisions for the recovery of tax that has been passed on but not deposited by a seller. This rule allows for the recovery of such tax from the recipient of goods or services. The rule applies in cases where the supplier has not deposited the tax amount collected from the recipient to the government.

Under Rule 88C, if there is a mismatch between the amount of tax paid by a recipient in GSTR-3B and the tax amount paid by the supplier in GSTR-1, then the recipient may not be able to claim input tax credit for such amounts. The recipient may be required to pay the tax liability on such amounts as per the provisions of this rule.

However, this rule can only be invoked by the tax authorities after following the due process of law, which includes giving the recipient an opportunity to respond to any notice issued by the tax authorities regarding any such mismatch. The recipient must also be given the opportunity to rectify the mismatches before any tax demand is made on them.

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