2 Recent Dangerous Changes In GST- Rule 88C And Rule 88D

The recent changes to the Goods and Services Tax (GST) framework have introduced two critical and challenging amendments: Rule 88C and Rule 88D. These modifications address the inconsistencies in GSTR 1 vs 3B and GSTR-2B Input Tax Credit (ITC) vs 3B ITC. This article explores the details of these revisions, examines their impact, and guides taxpayers on the steps required to remain compliant with the updated regulations.

Synopsis of New Rules

Synopsis of New Rules under the Goods and Services Tax (GST) regime, specifically Rule 88C and Rule 88D, is provided below:

Rule 88C

Rule 88C, about the Goods and Services Tax (GST), addresses discrepancies between GSTR-1 and GSTR-3B filings. Here's an outline of the rule:

Notification of Discrepancy: When a difference is identified between GSTR-1 and GSTR-3B, the taxpayer will be notified via Part A of FORM GST DRC-01B.
Actions within 7 Days: Upon receiving FORM GST DRC-01B, the taxpayer has two options to be executed within seven days:
Option A: Pay the differential tax amount indicated in Part A of FORM GST DRC-01B, either in full or partially. This payment and the applicable interest under section 50 should be made through FORM GST DRC-03. The payment details must be furnished in Part B of FORM GST DRC-01B.

Rule 88D

Rule 88D under the Goods and Services Tax (GST) regime deals with discrepancies between GSTR-2B Input Tax Credit (ITC) and GSTR-3B ITC. Here's a breakdown of the rule:

Notification of Discrepancy: Taxpayers will be notified of any differences identified between GSTR-2B ITC and GSTR-3B ITC through Part A of FORM GST DRC-01C.
Actions Required Within 7 Days: Upon receiving FORM GST DRC-01C, the taxpayer has two options to respond within seven days:
Option A: The taxpayer can pay the differential tax amount specified in Part A of FORM GST DRC-01C, in whole or in part, along with the applicable interest under section 50. This payment should be made through FORM GST DRC-03; the details must be provided in Part B of FORM GST DRC-01C.
Option B: If the taxpayer opts not to pay the total differential tax amount, they must submit a reply explaining the reasons for any unpaid portion of the excess input tax credit. This explanation should be included in Part B of FORM GST DRC-01C.

What is Rule 88C?

Rule 88C, added to the Central Goods and Services Tax (CGST) Rules by the Central Board of Indirect Taxes and Customs (CBIC), focuses on automating the process of identifying mismatches between GSTR-1 (or Invoice Furnishing Facility, IFF) and GSTR-3B. The GST portal is programmed to automatically send taxpayer intimations when the tax payable reported in GSTR-1/IFF is significantly higher than in GSTR-3B. Upon receiving these intimations, taxpayers have two primary options: either pay the differential tax liability along with the applicable interest under Section 50 through Form GST DRC-03, or they can explain the difference in tax payable directly on the GST portal. Introducing Rule 88C is a key measure in ensuring accurate and timely GST filings, thus reducing tax evasion and enhancing the tax system's efficiency.

Form DRC-01B

Rule 88C introduces a new way to deal with differences between the tax amounts reported in GSTR-1/Invoice Furnishing Facility (IFF) and GSTR-3B. Taxpayers will get a notice (Part A of Form GST DRC-01B) through the GST portal and by email if the difference is more than a certain amount. This form is used to tell taxpayers about these differences officially. When taxpayers get this notice, they must either pay the extra tax with interest using Form GST DRC-03 or explain why there is a difference. They have to do this within seven days of getting the notice. Then, they must record what they did in Part B of Form GST DRC-01B. This process helps make sure GST reports are accurate and follow the rules.

Reasons for Mismatches Between GSTR-1 and GSTR-3B

Mismatches between GSTR-1 and GSTR-3B often occur due to the following:

Wrong Section Reporting: Sometimes, what's correctly reported in GSTR-1 needs to be corrected in the wrong section of GSTR-3B.
Timing Differences: There can be delays in reporting invoices and related debit/credit notes, leading to mismatches.
Invoice Errors: Invoices might be duplicated in GSTR-1 or missed in GSTR-3B.
Tax Rate Mistakes: Sometimes, taxes are paid under the wrong category or at incorrect rates.
Changes After Filing: Adjustments made to supplies after submitting the GSTR-1 should be shown in GSTR-3B.
Simple Mistakes: Basic typing errors can also cause differences between these forms.

The time limit for replying to DRC-01B

When taxpayers receive an intimation under Rule 88C regarding discrepancies between the tax payable in their GSTR-1 and GSTR-3B, they have a seven-day window to respond. During this time, they must either settle the outstanding tax amount or justify why it remains unpaid.

Blocking of GSTR-1 Filing for Non-Compliance Under Rule 88C

Rule 88C sends automated notices for tax payable discrepancies between GSTR-1 and GSTR-3B. If taxpayers don't respond to these notices, new changes come into play. The CBIC has added clause (d) to Rule 59(6) in the CGST Rules, which allows the government to block the filing of GSTR-1 for those who don't timely respond to the Rule 88C intimation. This means that taxpayers who either don't pay the required amounts or need to provide a valid explanation for non-payment will be unable to file their GSTR-1 or use the Invoice Furnishing Facility (IFF) for the next tax period. Know more about the Intimation of suspension of GST registration

What is Rule 88D?

Rule 88D in the CGST guidelines establishes a process for automatically notifying taxpayers when the Input Tax Credit (ITC) claimed in their GSTR-3B is more than the allowable ITC amount in GSTR-2B by a certain percentage or amount. Taxpayers are notified through an automated message, DRC-01C, on their GST portal and registered email when such discrepancies are detected. Detailed in part A of DRC-01C, this notification highlights the ITC mismatch. The taxpayer is then required to either justify the excess ITC claimed in Part B of the form and any supporting documents or pay for the excess ITC. This response must be provided within seven days of receiving the notice. Following this, tax authorities will examine the taxpayer's response to determine the validity of the ITC claim and proceed with necessary actions based on the findings.

Reasons For Mismatches Between GSTR-2B And GSTR-3B

While GSTR-2B and GSTR-3B are designed to be in sync, mismatches can still occur for various reasons. Some of these reasons, which might be justifiable to the tax officer, include:

Supplier Errors in GSTR-2B: Mistakes made by the supplier in reporting figures due to clerical errors or incorrect GST rates.
Misclassification of Transactions: Suppliers might incorrectly categorize transactions (e.g., reporting a business-to-business transaction as business-to-customer), leading to discrepancies in GSTR-2B.
Incorrect Reporting of State Transactions: Suppliers misreport inter-state transactions as intra-state or vice versa, resulting in errors in GSTR-2B.
Delayed ITC Claims: Not claiming input tax credit in previous tax periods due to non-receipt of goods or services in that period, including cases where goods are received in instalments.
Omissions in Previous Periods: Failing to claim an input tax credit in prior tax periods.
ITC on Imported Goods: Input tax credit on imports might not be reflected in GSTR-2B.
ITC from SEZ Supplies: ITC claimed inward supplies from Special Economic Zones (SEZs) that are not shown in GSTR-2B.
Reclaiming Reversed ITC: Excess ITC reversed in previous periods being reclaimed in the current tax period.
Reversing and Recrediting ITC: This includes reciting ITC after payment to the supplier for invoices where ITC was reversed under CGST Rule 37 in a prior period and reciting ITC upon the supplier's filing of GSTR-1, in cases where ITC was reversed under CGST Rule 37A.
Amendments in Subsequent Tax Periods: Taxpayers who file GSTR-3B with incorrect details should correct them in the next tax period due to typographical errors or wrong tax rates.

How to reply to DRC-01C?

To reply to DRC-01C on the GST portal, follow these steps:

Log In: Access the GST portal and log in with your credentials.
Navigate to DRC-01C: Click on the ‘Services’ tab, then go to Returns > Return Compliance > DRC-01C.
Find the Intimation: Use the return period, reference number, or status to search for the specific intimation. Once located, click on it.
Review Part-A of DRC-01C: Check the details of the intimation in Part-A of DRC-01C.
Decide on Action: Determine whether to pay the excess ITC claimed with interest or provide reasons for the ITC difference.
Fill in Part-B of DRC-01C: Enter the details of the action taken, whether it's tax payment or reasons for the ITC difference.
Submit the Form: Complete and submit the form in Part B of DRC-01C.

This process allows you to respond effectively to the intimation received under DRC-01C, ensuring compliance with GST regulations.

Consequences Of Not Complying With Rule 88D

If a taxpayer fails to comply with Rule 88D after receiving an intimation through DRC-01C, there are significant consequences:

Restriction on Filing GSTR-1/IFF: The taxpayer may be blocked from filing the GSTR-1 and using the Invoice Furnishing Facility (IFF) for the next period, as specified by CGST Rule 59(6).
Demand and Recovery Actions: As per the provisions of Rule 88D, the excess Input Tax Credit (ITC) claimed could lead to demand and recovery actions under Sections 73 or 74 of the CGST Act. This entails receiving a formal demand notice and undergoing an adjudication process.

These measures underscore the importance of responding promptly and accurately to intimations under Rule 88D to avoid such stringent actions.

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