Notices on mismatch between GSTR 2A & GSTR 3B: How to defend such cases? – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/gst/notices-on-mismatch-between-gstr-2a-gstr-3b-how-to-defend-such-cases/articleshow/85323122.cmsSynopsis

The mechanism for matching of input tax credit as per GST law is designed to be carried out by combined filing of Forms GSTR-1, GSTR-2 and GSTR-3.

We have completed the fourth year of the biggest indirect tax reform in India. In the last one year, we have witnessed numerous assessees under the GST receiving notices from the department asking them to explain the mismatch of Input Tax Credit (ITC) claimed in their returns (i.e. GSTR-3B) vis-à-vis GSTR-2A. The assesses have been asked to reverseITCalong with interest and penalty in absence of a satisfactory response. This article attempts to discuss this issue along with the procedure to be adopted to defend such cases.

Mechanism of matching as laid down under GST Law is not yet implemented in India
The GST law, as introduced, provides for matching of specified details to avail ITC. Section 42 of CGST Act provides for matching, reversal and reclaim of ITC and prescribes a mechanism for matching of ITC claimed by the recipient with the output tax liability as declared by the supplier. The mechanism for matching of input tax credit as per GST law is designed to be carried out by combined filing of Forms GSTR-1, GSTR-2 and GSTR-3.

As per the matching principle as laid down under the law, ITC can be taken if the recipient accepts the information furnished by supplier and vice versa. However, in case of any discrepancy between the information furnished by the supplier and recipient, the same shall be communicated to both the parties in form of mismatch report. Before the date of next return, both the supplier and the recipient have the option to make suitable rectifications. To the extent, suitable rectification is not made, the recipient is required to reverse ITC on the same. The entire matching concept is supposed to be implemented through Form GSTR-2 (i.e. statement of inward supplies) and Form GSTR-3.

However, the requirement to file Form GSTR-2 and Form GSTR-3 was suspended since the inception of the GST Regime. While GSTR-3B is required to be filed instead of GSTR-3, there is no return which legally replaces GSTR-2. There is no provision of the CGST Act or the CGST Rules that provide for denial of claim of ITC in case of difference in details furnished in GSTR-2A and GSTR-3B. The matching has to be done through the flow of information in GSTR-1 and GSTR-2 and its result thereof, if mismatched, in GSTR-3 of the recipient. The department cannot deny credit merely based on mismatching of Form GSTR-3B and Form GSTR-2A, which is not backed-up by any statutory provision.

Having said that, it may be noted that since October,2019, there is a restriction in Rule 36(4) of the CGST Rules which imposes a restriction that a taxpayer can avail ITC pertaining to outward supplies not declared by his supplier in Form GSTR-1 (and reflected in Form GSTR 2-A) only up-to the extent of 5% of the eligible credit available regarding invoices declared by his suppliers in Form GSTR-1. However, the validity of the said provision is itself doubtful and has been challenged in various High Courts.

Doctrine of Impossibility
The Department cannot arbitrarily reject the ITC on account of the mismatch between ITC claimed in Form GSTR-3B vis-à-vis ITC reflecting in Form GSTR -2A on the GST portal. As per Section 16 (2) (c) of the CGST Act, benefit of ITC cannot be denied to the taxpayer on account of default of the supplier, over whom the taxpayer does not have any control. At this juncture, the legal maxim, lex non cogit ad impossibilia, comes into play that postulates that law cannot compel a man to do that which cannot possibly be performed.

The law cannot compel the Noticee to do the impossible, i.e., to ensure that the Supplier has paid the tax to the Government. It is unjust to deny credit to the Noticee on failure on part of Supplier to furnish details on the same in time.

ITC cannot be denied in the absence of collusion between supplier and recipient
Perhaps the most blatant flaw in Section 16(2)(c) is the fact that it imposes an unreasonable burden on a recipient who might otherwise be bonafide. It makes the recipient responsible for the actions of the supplier, even where the two of them may be unrelated. Thus, it penalizes the recipient for the fault of a third party, i.e. the supplier, even in the absence of collusion between the two.

In the VAT regime, there are several judgments that highlight this problem in the law and the disadvantage it imposes on the recipient. The Courts have consistently held under VAT regime that where the purchaser is bonafide and there is absence of mala fide intention, connivance or wrongful association of the purchaser with the supplier, the reversal cannot be sought from purchaser.

Tax and interest should be demanded from supplier and not recipient
It is totally arbitrary and unjust to directly seek reversal of ITC from bonafide recipient instead of recovering the amount from the supplier who is in reality the actual defaulter. Recently, the Madurai Bench of the Madras High Court in the case of M/s. D.Y. Beathel Enterprises v. The State Tax Officer (Data Cell), held that the approach taken by the revenue authorities in reversing the Input Tax Credit (“ITC”) availed by the recipient without properly enquiring the sellers is incorrect and ordered for fresh enquiry in this matter.

Conclusion
Due to the lack of enforcement of the entire scheme of the Act as proposed, the Department is not justified in imposing such demands on assesses. The mechanism of availing ITC can be called the flagship of the system, was introduced to prevent fraudulent availment of ITC and, to this extent, Department is undeniably right in taking action for disciplining the same. However, the rightfulness of the action gets impugned when it trespasses into the rink of bona fide taxpayers, the threshold of which has not been demarcated and that makes the larger issue specifically in absence of enabling provisions. Considering the above discussions, such actions of the department can be contested before an appropriate forum.

(Tushar Aggarwal and Pitam Goel are Founder Partners, Tattvam Advisors)

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