[Opinion] Automated Controls | A New Era of GST

Hardik Shah & Divya Soni – [2023] 155 taxmann.com 115 (Article)

After the press conference of the 50th GST Council meeting, the spotlight was on the breaking news –

“Online gaming, gambling and horse racing are chargeable to GST at 28%.”

Casino owners and startups blooming in online gaming certainly had sleepless nights. However, this announcement was just the tip of the iceberg. There are other recommendations impacting the industry at large; one such is the initiative to curb availment of input tax credit on fake invoices.

At the Council meeting, it was announced that there shall be system-based intimation to taxpayers on excess availment of input tax credit vide GSTR-3B,in comparison to ITC as per GSTR-2B, above a certain threshold . The taxpayer may either explain the difference or take remedial action. To implement the referred action, it is proposed to insert Rule 88D to CGST Rules, 2017 and a Form DRC-01C.

This is not the first time when the government has brought in measures to ensure that the input tax credit availment is ‘verified’ by the GST system. Back in October, 2019, the government introduced Rule 36(4) of CGST Rules, to cap input tax credit to GSTR-2A/2B at total level, subject to some cushion (20%/ 10%/ 5% as amended from time to time). Taxpayers adopted the new practice by undertaking certain changes in GST compliances undertaken.

Post that, in January 2022,the government mandated taxpayers to reconcile input tax credit availment with GSTR-2B at line-item level. It is noteworthy that on 14th day of the succeeding month, Form GSTR-2B is generated and the due date for finalizing payment liability is on the 20th day. Taxpayers have also adopted reconciliation activity in the short span of 6 days. Thus, mapping GSTR-2B and GSTR-3B has been on the agenda of the government from the start. Finally, the government is also working towards curbing ineligible input tax credit using the automation mode – the process by which provisions proposing reversal of ITC/ payment of taxes incase of difference between GSTR-3B and GSTR-2B, would be identified. An intimation will also be shared immediately with consumers, subject to announcement on threshold.

From a high level perspective, this referred initiative clearly keeps a close watch on the practices adopted by the taxpayer. However, if looked from a practical lens, intimations will flood the mailbox/ GST portal of taxpayers. Why? Let us look at some legitimate reasons for differences between the input tax credit as per GSTR-3B vs GSTR-2B:

• Timing difference:
  Let us say certain goods are moved from the vendor in the last week of June, 2023, and the vendor would have uploaded the invoice in his GSTR-1 for June, 2023. Further, by the time the goods are received by the taxpayer, it is July, 2023. In such case, though the input tax credit is visible in GSTR-2B for the month of June2023, the taxpayer will avail the input tax credit in July2023, post receipt of goods only.
• Accounting:
  Continuing with the above example, in certain cases, goods are received, checked and approved at the factory. Post that, a copy of the invoice is sent to the taxpayer’s head office where the accounting takes place. There may be instances when the goods received on the last days of the month take some time due to quality check inspection. In such cases, the credit availment is pushed to the next month based on the accounting entry passed at the head office.
• Disputed matters:
  Assuming that the vendor has sent goods to the taxpayer and has also disclosed the invoice in GSTR-1. Owing to some discussions/ disputes, the taxpayer keeps availment of input tax credit on hold to avoid interest implications. The matter gets resolved and later on the taxpayer avails the input tax credit, say, after a month. The input tax credit is visible in previous period’s GSTR-2B and this leads to the difference.
  

Looking at the such illustrations, it can be inferred that the difference in GSTR-2B vis-à-vis GSTR-3B can be for legitimate reasons as well. Referred scenarios are common industry practices- it would be akin to a fairy tale if the input tax credit as per GSTR-2B matches with the input tax credit availed in GSTR-3B, without any adjustments. In that case, on a monthly basis, intimations shall be flowing to taxpayers. In addition to the line-item wise reconciliation of GSTR-2B, the taxpayer will also have to be ready with responses to intimations.

This implies that every month, an intimation will hit the taxpayer’s mail seeking reason for difference (considering threshold) and the taxpayer needs to submit detailed reasons. The question here is, whether this will serve the purpose of the government to curb fake invoices?

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