Self-assessed Tax Recovery for Mismatch in GSTR-1 vs 3B

GST officers can now directly initiate recovery action against businesses showing higher sales in their monthly GSTR-1 but under-reporting it while paying tax in GSTR-3B. The government vide Section 114 of the Finance Act, 2021, inserted an explanation to Section 75(12) of the Central Goods and Services Tax Act, 2017, to retrieve self-assessed tax.

This move would help curb fake billing whereby sellers show higher sales in their GSTR-1 to enable the buyer to claim a higher input tax credit (ITC) but report lower sales in their GSTR-3B to lower their GST tax liability. For businesses, it’s now imperative that their GSTR -3B and GSTR-1 match with each other, and no variances would be permitted in the same.

About Recovery Process for Any Mismatches in GSTR-1 vs GSTR-3B

Let’s first understand the provisions of Section 75(12) of the CGST Act, 2017. Section 75(12) states that the recovery proceedings will be initiated in case of any unpaid self-assessed tax as per the return furnished under Section 39. The inserted explanation now states the inclusion of ‘self-assessed tax’.

With the help of this explanation in sub-Section(12) of Section 75 of CGST Act, the government has clarified that “self-assessed tax” would include the GST payable for outward supplies reported in the GSTR-1 but not included in the return furnished by the taxpayer in his GSTR-3B.

Now, as per Section 75, where there’s any unpaid self-assessed tax, it could be recovered without issuing any show-cause notice, and the proceedings for recovery under Section 79 could be directly invoked.

The GST authority can initiate the recovery proceedings in the cases mentioned below:

a)     Where the GST payable as per GSTR-1 hasn’t been paid wholly or partly through the GSTR-3B.

b)     There’s unpaid interest on the above-mentioned unpaid GST tax liability

In such cases, the amount of tax that hasn’t been paid on such self-assessed and the interest thereon will be recovered by the taxman under Section 79.

In certain cases (as listed below), there could be genuine reasons for the variances between the details of outward supplies furnished in the GSTR-1 and those furnished in GSTR-3B –

    i.          In case of any omission or typographical errors or incorrect reporting of details in the return GSTR-1 or GSTR-3B. Such omissions or errors could be rectified in the following month GSTR-1/ GSTR-3B.

   ii.          A supply that wasn’t declared in GSTR-1 of an earlier period, though the GST was paid correctly in GSTR-3B. Such a person could report the details related to such supply in his GSTR-1 for the current period.

As per the Central Board of Indirect Taxes and Customs (CBIC), erring business as mentioned above would receive reasonable time to explain the reasons behind the differences in sales reported in return GSTR-1 and tax paid in return GSTR-3B before any recovery action is initiated against them for non-payment or short payment of taxes.

Steps for Recovery Through the GST Department

a.     The proper officer could send a communication to a registered person for:

    i.          Paying the tax that hasn’t been paid or short paid

   ii.          Explaining the reasons for such non-payment or short-payment of self-assessed tax

b. A reasonable time would be allowed for the payment of such tax

c. If the taxpayer can:

    i.          Justify the differences, or can explain the reasons for such non-payment or short payment of tax, and the said tax official isn’t satisfied with the explanation offered

   ii.          Pays the unpaid tax

then there might not be any need to initiate any recovery proceedings under Section 79.

d. If the said taxpayer:

    i.          Fails to reply to such communication

   ii.          Fails to make the payment within the prescribed time limit

then the recovery proceedings under Section 79 could be initiated by the proper officer.

e. Further, where the said taxpayer fails to provide the reasons for such difference of sales or the said tax official isn’t satisfied with the explanation offered. The recovery of the tax liability would be initiated by such a proper officer as per provisions of Section 79.