Recovery of Self-Assessed Tax for Mismatch in GSTR-1 vs GSTR-3B: Implications and Process
In a bid to combat fraudulent billing and under-reporting of sales, the government has empowered GST officers to initiate recovery action against businesses that show higher sales in their monthly GSTR-1 but inaccurately report it in their GSTR-3B. The Finance Act, 2021, introduced an explanation to Section 75(12) of the Central Goods and Services Tax Act, 2017, allowing for the retrieval of self-assessed tax. This article provides a comprehensive overview of the recovery process and its implications for businesses.
Recovery Process for Mismatch in GSTR-1 vs GSTR-3B:
Section 75(12) of the CGST Act, 2017 states that recovery proceedings can be initiated if any self-assessed tax remains unpaid as per the return furnished under Section 39. The recent explanation added to this section clarifies that "self-assessed tax" includes the GST payable for outward supplies reported in the GSTR-1 but not included in the GSTR-3B filed by the taxpayer.
The recovery proceedings can be initiated by the GST authority if the following conditions are met:
a) The GST payable as per GSTR-1 has not been fully or partially paid through GSTR-3B.
b) There is unpaid interest on the aforementioned unpaid GST tax liability.
In such cases, the tax amount and interest that have not been paid based on self-assessment will be recovered by the tax authorities under Section 79 of the CGST Act.
Genuine Reasons for Variances:
Although mismatches between GSTR-1 and GSTR-3B may indicate under-reporting, there can be genuine reasons for such discrepancies. These may include typographical errors, omissions, or incorrect reporting of details in either return. Taxpayers have the opportunity to rectify such errors in subsequent returns or report missed supplies in the current period's return.
Steps for Recovery by the GST Department:
The recovery process for non-payment or short payment of taxes involves the following steps:
1. Communication: The proper officer sends a communication to the registered person, requesting payment of the unpaid tax or an explanation for the non-payment or short payment of self-assessed tax.
2. Reasonable Time: The taxpayer is provided with a reasonable period to make the payment and/or provide a satisfactory explanation for the discrepancies.
3. Justification or Payment: If the taxpayer can justify the differences or provide a valid explanation for the non-payment or short payment, and the tax official is satisfied, no further recovery proceedings are initiated. Alternatively, if the taxpayer pays the unpaid tax, recovery action may be avoided.
4. Failure to Respond or Pay: If the taxpayer fails to respond to the communication or does not make the payment within the prescribed time limit, the proper officer can initiate recovery proceedings under Section 79.
5. Unsatisfactory Explanation: If the taxpayer fails to provide a satisfactory explanation for the variances in sales or if the tax official is not satisfied with the explanation offered, the proper officer will initiate recovery of the tax liability as per the provisions of Section 79.
Rule 143 - Recovery by deduction from any money owed:
Where any amount payable by a person to the Government under the GST Act or rules made thereunder is not paid, the proper officer may require a specified officer to deduct the amount from any money owed to the defaulter. The specified officer may be an officer of the Central Government, State Government, Union territory Government, local authority, Board, Corporation, or a company owned or controlled, wholly or partly, by the Government.
The government's decision to empower GST officers to initiate recovery action for mismatches between GSTR-1 and GSTR-3B aims to deter fraudulent billing practices and under-reporting of sales. It is crucial for businesses to ensure accurate reporting in their returns and promptly respond to communications from tax authorities. By aligning GSTR-1 and GSTR-3B, businesses can avoid the consequences of recovery proceedings and maintain compliance with GST regulations.