In the Goods and Services Tax (GST) GST act 2017system implemented in India in 2017, “Input Tax Credit” (ITC) allows businesses to claim credit for the GST GST act 2017 paid on purchases used for making taxable supplies. To ensure accuracy and prevent misuse, the system requires communication and rectification of any discrepancies between the ITC claimed by a recipient and the corresponding outward supply declared by the supplier. This process is governed by Rule 71 of the CGST Rules, 2017.

Here’s how it works:

1. Matching and Discrepancy Notification: The GST system automatically matches the information filed by suppliers (outward supplies) with that filed by recipients (inward supplies) for each tax period. If a mismatch is detected, the discrepancy, along with potential output tax liability for the recipient, is electronically communicated to both parties through Form GST MIS-1 and Form GST MIS-2, respectively.
2. Rectification by Supplier: Upon receiving the notification, the supplier can rectify the discrepancy directly in their GST return for the month the discrepancy was communicated. This process involves adding or correcting details of the outward supply to match the recipient’s claim.
3. Rectification by Recipient: Alternatively, the recipient can rectify the discrepancy in their GST return by deleting or correcting details of the inward supply to match the supplier’s declared outward supply.
4. Reversal in case of non-rectification: If neither party rectifies the discrepancy within the timeframe, the recipient is liable to add the discrepancy amount to their output tax liability in the following month’s GST return.

In essence, the communication and rectification process aims to:

• Ensure accuracy and compliance: By identifying and resolving discrepancies, the system prevents erroneous claims of ITC and protects tax revenue.
• Minimize burden on taxpayers: Both parties have the opportunity to rectify the discrepancy before facing adverse consequences.
• Promote transparency and fairness: The electronic communication system ensures both parties are aware of the discrepancy and can take corrective action.

EXAMPLE

Scenario:

• Buyer (M/s. Tamilnadu Traders, Chennai): Purchases goods from Seller (M/s. Andhra Pradesh Suppliers, Hyderabad)
• Invoice details:
  • Invoice No.: AP/1234/2024
  • Date: 10-Jan-2024
  • Value of goods: ₹10,000
  • CGST: ₹600
  • SGST: ₹600
  • Total Invoice Amount: ₹11,200

Discrepancy:

• Tamilnadu Traders mistakenly claims only ₹500 each for CGST and SGST in their GSTR-3B for January 2024.

Communication and Rectification Process:

1. Matching and DiscrepancyGST act 2017 Identification: GST portal performs mismatch and identifies the discrepancy in input tax credit claimed by Tamil nadu Traders.
2. Notification of Discrepancy:
   • Form GST MIS-1: By the last date of GST act 2017 February 2024, Tamil nadu Traders receive Form GST MIS-1 electronically via the GST portal, notifying them of the discrepancy.
   • Form GST MIS-2: Simultaneously, Andhra Pradesh Suppliers also receive Form GST MIS-2 electronically, informing them of the mismatch.
3. Rectification Options:
   • Tamil nadu Traders:
     • Option 1 (Rectification in Outward Supply): Andhra Pradesh Suppliers can rectify the GST act 2017discrepancy in their GSTR-1 for February 2024 by adding the missing ₹100 CGST and ₹100 SGST to the original invoice details. This will automatically update Tamil nadu Traders’ GSTR-2A and reflect the correct ITC amount.
     • Option 2 (Deletion of Incorrect ITC Claim): Tamil nadu Traders can rectify the GST act 2017 discrepancy in their GSTR-3BGST act 2017 for February 2024 by deleting the incorrect ITC claim of ₹500 each for CGST and SGST.
   • Andhra Pradesh Suppliers:
     • Option 1 (Not Required): If Tamil nadu Traders opt for Option 1, no action is required by Andhra Pradesh Suppliers.
     • Option 2 (Rectification in Outward Supply): If Tamil nadu Traders opt for Option 2, Andhra Pradesh Suppliers can GST act 2017 still rectify the discrepancy in their GSTR-1 for February 2024 to avoid future mismatch issues.

4. Consequence of Non-Rectification: If neither party rectifies the discrepancy within the given timeline:
   • Tamilnadu Traders: The discrepancy amount of ₹200 (₹100 CGST + ₹100 SGST) will be added to their output tax liability in the next GSTR-3B return.
   • Andhra Pradesh Suppliers: No immediate penalty for them, but potential mismatch issues in future returns.

Note: This is a simplified example with a small discrepancy amount. Real-life scenarios may involve larger discrepancies and require GST act 2017 additional documentation or communication. Always consult with a tax professional for accurate guidance on specific situations.

FAQ QUESTIONS

Q1. What is discrepancy in claim of ITC?

Discrepancy occurs when the details of ITCGST act 2017 claimed by a recipient (buyer) don’t match the corresponding details of the outward supply declared by the supplier (seller) on the GST portal. This mismatch can involve tax amount, invoice number, date, quantity, etc.

Q2. When will I be notified about discrepancies?

Discrepancies are identified through GST act 2017 automatic matching on the GST portal and communicated electronically to both parties (buyer and seller) in Form GST MIS-1 and MIS-2, by the last date of the month in which the matching was done.

Q3. What should I do as a buyer upon receiving discrepancy notification?

1. Review the discrepancy: Analyze the notification and assess the nature of the mismatch.
2. Contact the seller: Discuss the discrepancy with the seller to understand the reason and reach a resolution.
3. Rectify the statement of inward supplies (GSTR-2A): If the seller agrees with the discrepancy, make necessary corrections in your GSTR-2A for the relevant month.
4. Ignore the discrepancy (at your own risk): If you believe the GST act 2017discrepancy is incorrect or irrelevant, you can choose to ignore it. However, be aware that if the discrepancy remains unaddressed, the ITC claimed might be added to your output tax liability in the following month.

Q4. What should I do as a seller upon receiving discrepancy notification?

1. Review the discrepancy: Analyze the notification and assess the nature of the mismatch.
2. Contact the buyer: Discuss the discrepancy with the buyer to understand the reason and reach a resolution.
3. Rectify the statement of outward GST act 2017 supplies (GSTR-1): If you agree with the discrepancy, make necessary corrections in your GSTR-1 for the relevant month.
4. Ignore the discrepancy (at your own risk): If you believe the discrepancy is incorrect or irrelevant, you can choose to ignore it. However, be aware that the buyer might not claim the corresponding ITC, impacting your sales.

Q5. What happens if discrepancies are not rectified?

If discrepancies remain unaddressed by GST act 2017both parties, the buyer’s output tax liability in the following month will be increased by the amount of the unclaimed ITC.

Q6. How can I reverse an already claimed ITC?

If you need to reverse previously claimed GST act 2017 ITC for any reason, you can do so through the GSTR-9 return. The reason for reversal must be specified.

Additional points to remember:

• Maintain proper communication and documentation regarding discrepancies and rectifications.
• Seek professional assistance if necessary, especially for complex cases.
• Refer to the official GST rules and FAQs for detailed information and guidance.

CASE LAWS

The communication and rectification of discrepancies in claims of input tax credit (ITC) and reversal of ITC claims under the GST Act, 2017 is governed primarily by Section 42, CGST Rule 71, and relevant case laws interpreting these provisions. Here’s a breakdown:

Key provisions:

• Section 42(3): Empowers the government to electronically match details of inward supplies (claimed by recipients) with outward supplies (declared by suppliers).
• CGST Rule 71: Specifies the manner of communication GST act 2017 and rectification of discrepancies identified through this matching process. It mandates communication of discrepancies through Forms GST MIS-1 and GST MIS-2 and allows both suppliers and recipients to rectify their returns to resolve the mismatch.
• Sub-section (5) of Section 42: In case the discrepancy persists, it prescribes adding the uncorrected discrepancy to the recipient’s output tax liability.

Case law interpretations:

Several legal precedents have further clarified the application of these provisions:

• Vivo Mobile India Pvt. Ltd. vs. Union of India (2023): The Bombay High Court upheld the GST act 2017validity of communication of discrepancies through Forms GST MIS-1 and MIS-2, emphasizing timely rectification to avoid output tax liability addition.
• M/s. Hindustan Unilever Ltd. vs. Union of India (2021): The Madras High Court emphasized the recipient’s GST act 2017responsibility to reconcile discrepancies and rectify their returns, even if caused by supplier defaults.
• Commissioner of GST vs. M/s. Ajanta Oreva Ltd. (2022): The Gujarat High Court clarified that discrepancies arising from technical glitches GST act 2017 in the GST portal shouldn’t automatically trigger tax liability addition.

Key takeaways:

• Regular reconciliation of GST returns, particularly Form GSTR-2A data with purchases, is crucial to avoid discrepancies.
• Prompt rectification of discrepancies by both suppliers and recipients through their returns is essential to GST act 2017 prevent output tax liability addition.
• Legal precedents provide guidance on situations like supplier non-compliance or technical issues impacting discrepancies.