Common Errors : ITC (Documentation and Recording)

Madhukar N Hiregange , Last updated: 21 December 2018
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BACKGROUND

The primary focus of the industry at the time of introduction of GST was on implementation/modification of ERP module to suit GST requirements, appropriate classification of goods/services and providing training to staff. Initially, the area of focus was more on the aspect of migration, correct levy of taxes, reverse charge liability and ensure timely compliances with return uploading requirements.

However after 15 months, the focus had shifted to validation of input tax credit and reconciliation of credits with Form GSTR-2A data. This is partly on account of Department enquiries w.r.t. Form GSTR-2A vs Form GSTR-3B input tax credit mismatch and the reporting requirement under Table 8 of Form GSTR-9. Trade/ Industry who were already under internal audit of indirect tax, credit reconciliations and management audit were regularly ensuring eligible credits were taken on timely basis with adequate evidence to pass scrutiny, in case of any verification in pre GST regime. However proportion was less than 10% though this was a value added activity rather than a cost.

In general, the errors in ITC can be classified:

lack of understanding of what is eligible and not eligible,
mistakes in reversal of proportionate credit,
delay in credit availment,
documentation/ recording issues and others.

These mistakes would be more in case of entities having multiple registrations under GST. The challenge would also be to ensure that the credit has been availed in the appropriate State. In this article we examine ONLY some common errors and possible solution relating to documentation and recording observed in review assignments and pre audit verifications.

S.No	Error	Impact & Action
1.	Invoice issued by Vendor in State A charging CGST & SGST without GSTIN of Co. State A - Credit availed by Co. State A Invoice not available in Form GSTR-2A.	Possible loss of Input Tax Credit. Obtain revised invoice from Vendor and ensure that the said invoice is reported by the vendor as B2B transaction in Form GSTR-1
2.	Invoice issued by Vendor in State A charging CGST & SGST with incomplete/incorrect GSTIN of Co. State A - Credit availed by Co. State A. Invoice not available in Form GSTR-2A.	Possible loss of Input Tax Credit. Obtain revised invoice from Vendor and ensure that the said invoice is reported by the vendor as B2B transaction in Form GSTR-1
3.	Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A and address of Co. State B - Credit availed by Co. State A	Possible loss of Input Tax Credit. Obtain revised invoice from Vendor with correct address
4.	Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A – Invoice reported by Vendor in Form GSTR-1 with GSTIN of Co. State B Invoice reported in Form GSTR-2A of other State.	Possible loss of Input Tax Credit. Communicate to the vendor about the said error and follow-up for rectification with the vendor in Form GSTR-1.
5.	Invoice issued by Vendor in State A charging CGST & SGST with ISD GSTIN of Co. State A - Credit availed by Regular GSTIN Co. State A	Reverse credit availed by Regular GSTIN of Co. State A Distribute the said credit through the ISD return
6.	Invoice issued by Vendor in State A charging CGST & SGST with Regular GSTIN of Co. State A - Credit availed by Regular GSTIN Co. State A. Vendor reported the said invoice in Form GSTR-1 against the ISD GSTIN of Co.	Communicate to the vendor about the said error and follow-up for rectification with the vendor in Form GSTR-1.
7.	Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A - IGST Credit availed by Co. State B	Reverse IGST credit availed in Co. State B. Avail CGST & SGST credit in the Co. State A
8.	Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - CGST & SGST credit availed by Co. State B	Reverse CGST & SGST credit availed in Co. State B. Avail IGST credit in the Co. State B
9.	Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A - CGST & CGST credit availed by Co. State B	Reverse CGST & SGST credit availed in Co. State B. Avail CGST & SGST credit in the Co. State A
10.	Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State B - CGST & SGST Credit availed by Co. State A	Reverse CGST & SGST credit availed in Co. State A CGST & SGST has been charged in Invoice by Vendor State A against the GSTIN of Co. State B. CGST & SGST Credit cannot be availed by Co. State B. If revised invoice can be obtained from the vendor with GSTIN of Co. State A, credit can be availed in Co. State A
11.	Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - CGST & SGST Credit availed by Co. State A	Reverse CGST & SGST credit availed in Co. State A Avail IGST credit in Co. State B
12.	Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - IGST Credit availed by Co. State C	Reverse IGST credit availed in Co. State C. Avail IGST credit in Co. State B
13.	Invoice issued by vendor prior to 1 July 2017 with Service Tax - Availed as IGST credit	Reverse IGST credit availed
14.	Excess reporting and payment of output tax liability in Form GSTR-3B, availed as input tax credit.	Excess payment of output tax liability in GST return shall be adjusted against the liability of the subsequent months. Input tax credit availed on account of such excess payment shall be reversed.
15.	IGST credit availed as CGST & SGST and vice-versa, in Form GSTR-3B. (Error in return disclosures)	Reverse input tax credit availed under the wrong head and avail the same under the correct head.

The above list of common errors could extend further and differ based on the confusion in the GST provisions and incorrect rectification of errors committed.

There are certain errors which can be rectified, if identified well in advance and provides an opportunity to the assesse to avoid additional tax cost. The interest cost in case of incorrect availment of credits would also be a factor to be considered.

As per Section 16(4) of the CGST Act,2017 the time limit for availment of input tax credit is the due date for furnishing the return for the month of September (under section 39 of the CGST Act) or furnishing of annual return, whichever is earlier. The question raised here is whether Form GSTR-3B can be considered as a return under Section 39 of the CGST Act,2017 read with Rule 61 of the CGST Rules,2017, as a replacement to Form GSTR-3. This aspect has already been challenged before various High Courts [2018-TIOL-179-HC-AHM-GST and 2018-TIOL-177-HC-DEL-GST] and the finality of these cases would provide the judicial standing on the said issue.

Rectifiable errors detected beyond the time limit for rectification, would also result in tax cost. Since loss of input tax credit would directly result in additional cost, it is imperative to have a strong internal control system for appropriate validation of credits and reconciliation of credits with Form GSTR-2A. In case of multiple registrations, it would also be advisable to conduct periodic review audits to identify, prevent and correct the errors.

The author can also be reached at madhukar@hiregange.com & vikram@hiregange.com.