SCN for RCM discloser in GSTR 3B and GSTR 9
This query is : Resolved
30 May 2024
A trader in the market yard, dealing in cotton. He regularly pays GST under the Reverse Charge Mechanism (RCM) at the time of purchase in cash. However, for the financial year 2019-20, he did not report these transactions in GSTR-3B, specifically in sections 3.1(d) (as RCM outward supply) and 4(3) (as eligible ITC of RCM).
When filing GSTR-9, he discovered this error and consequently reported the transactions correctly in both the outward supply and ITC columns. He has now received a notice regarding the discrepancies between the
1 output liability declared in GSTR-9
2 GSTR-3B, the RCM liability on inward supply as per GSTR-9 and GSTR-3B,
3. And excess ITC availed as per GSTR-3B and GSTR-9.
The RCM tax amount has been counted three times and assessed as tax due.
This situation arose solely due to the non-reporting in GSTR-3B. Is there any remedy available according to the GST Act, or any relevant rulings or judgments that can support his position? Please suggest.
When filing GSTR-9, he discovered this error and consequently reported the transactions correctly in both the outward supply and ITC columns. He has now received a notice regarding the discrepancies between the
1 output liability declared in GSTR-9
2 GSTR-3B, the RCM liability on inward supply as per GSTR-9 and GSTR-3B,
3. And excess ITC availed as per GSTR-3B and GSTR-9.
The RCM tax amount has been counted three times and assessed as tax due.
This situation arose solely due to the non-reporting in GSTR-3B. Is there any remedy available according to the GST Act, or any relevant rulings or judgments that can support his position? Please suggest.
11 July 2024
In the scenario described, the trader has encountered discrepancies between the GSTR-3B and GSTR-9 filings, specifically relating to Reverse Charge Mechanism (RCM) transactions for the financial year 2019-20. Here’s a detailed response addressing the situation and potential remedies under the GST Act:
### Understanding the Issue
1. **Non-Reporting in GSTR-3B**: The trader failed to report RCM transactions in GSTR-3B for the financial year 2019-20, which led to:
- Under-reporting of output liability under section 3.1(d) of GSTR-3B (RCM outward supply).
- Over-reporting or incorrect reporting of Input Tax Credit (ITC) under section 4(3) of GSTR-3B.
2. **Correct Reporting in GSTR-9**: During the GSTR-9 filing, the trader correctly reported these RCM transactions, adjusting the output liability and ITC accordingly.
3. **Notice Received**: The trader has received a notice due to discrepancies identified by the tax authorities between:
- Output liability declared in GSTR-9.
- RCM liability on inward supplies as per GSTR-9 and GSTR-3B.
- Excess ITC availed as per GSTR-3B and GSTR-9.
### Potential Remedies and Considerations
1. **Rectification under Section 37 of the CGST Act**: Section 37 of the CGST Act, 2017 provides for rectification of errors in the GST returns:
- **Amendment of GSTR-3B**: If the errors were due to non-reporting or incorrect reporting in GSTR-3B, the trader should consider revising GSTR-3B under Section 37.
- **Correct Declaration in GSTR-9**: The correct declaration of transactions in GSTR-9 supports the trader's position that the transactions were indeed made and GST was accounted for correctly, albeit in GSTR-9.
2. **Communication with Tax Authorities**: The trader should respond to the notice by providing explanations supported with documentary evidence:
- Show that the RCM transactions were correctly reported in GSTR-9, demonstrating compliance with the GST Act.
- Explain the reasons for the discrepancies, such as oversight or error in reporting GSTR-3B.
3. **Legal Precedents and Rulings**: While there may not be specific judgments directly applicable to every factual scenario, legal principles of rectification and compliance can be cited:
- **Judicial Principles**: Courts generally uphold the principle of substance over form, meaning that as long as the tax liability is correctly accounted for in annual returns (GSTR-9), rectification of earlier returns (GSTR-3B) should be permissible.
- **GST Council Clarifications**: Any clarifications or circulars issued by the GST Council regarding rectification procedures or reporting discrepancies can also be referenced.
### Steps Forward
- **Rectification Process**: Initiate the process to rectify GSTR-3B for the relevant period to correct the reporting of RCM transactions.
- **Response to Notice**: Submit a detailed response to the notice, explaining the rectification steps taken and providing supporting documents.
- **Consultation**: If necessary, seek guidance from a GST practitioner or legal expert who can provide specific advice based on the notice received and the nature of the discrepancies.
By following these steps and leveraging relevant provisions under the GST Act, the trader can address the discrepancies and rectify the reporting errors effectively. It’s essential to act promptly and provide clear explanations and supporting evidence to resolve the matter with the tax authorities.
### Understanding the Issue
1. **Non-Reporting in GSTR-3B**: The trader failed to report RCM transactions in GSTR-3B for the financial year 2019-20, which led to:
- Under-reporting of output liability under section 3.1(d) of GSTR-3B (RCM outward supply).
- Over-reporting or incorrect reporting of Input Tax Credit (ITC) under section 4(3) of GSTR-3B.
2. **Correct Reporting in GSTR-9**: During the GSTR-9 filing, the trader correctly reported these RCM transactions, adjusting the output liability and ITC accordingly.
3. **Notice Received**: The trader has received a notice due to discrepancies identified by the tax authorities between:
- Output liability declared in GSTR-9.
- RCM liability on inward supplies as per GSTR-9 and GSTR-3B.
- Excess ITC availed as per GSTR-3B and GSTR-9.
### Potential Remedies and Considerations
1. **Rectification under Section 37 of the CGST Act**: Section 37 of the CGST Act, 2017 provides for rectification of errors in the GST returns:
- **Amendment of GSTR-3B**: If the errors were due to non-reporting or incorrect reporting in GSTR-3B, the trader should consider revising GSTR-3B under Section 37.
- **Correct Declaration in GSTR-9**: The correct declaration of transactions in GSTR-9 supports the trader's position that the transactions were indeed made and GST was accounted for correctly, albeit in GSTR-9.
2. **Communication with Tax Authorities**: The trader should respond to the notice by providing explanations supported with documentary evidence:
- Show that the RCM transactions were correctly reported in GSTR-9, demonstrating compliance with the GST Act.
- Explain the reasons for the discrepancies, such as oversight or error in reporting GSTR-3B.
3. **Legal Precedents and Rulings**: While there may not be specific judgments directly applicable to every factual scenario, legal principles of rectification and compliance can be cited:
- **Judicial Principles**: Courts generally uphold the principle of substance over form, meaning that as long as the tax liability is correctly accounted for in annual returns (GSTR-9), rectification of earlier returns (GSTR-3B) should be permissible.
- **GST Council Clarifications**: Any clarifications or circulars issued by the GST Council regarding rectification procedures or reporting discrepancies can also be referenced.
### Steps Forward
- **Rectification Process**: Initiate the process to rectify GSTR-3B for the relevant period to correct the reporting of RCM transactions.
- **Response to Notice**: Submit a detailed response to the notice, explaining the rectification steps taken and providing supporting documents.
- **Consultation**: If necessary, seek guidance from a GST practitioner or legal expert who can provide specific advice based on the notice received and the nature of the discrepancies.
By following these steps and leveraging relevant provisions under the GST Act, the trader can address the discrepancies and rectify the reporting errors effectively. It’s essential to act promptly and provide clear explanations and supporting evidence to resolve the matter with the tax authorities.
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