MANNER OF REVERSAL OF EXCESS ITC

[ROHIT GOEL]

Dear Sir,

One of the clients claimed ITC for month of January and Feb 2019 doubly i.e. 200 instead of 100 due to error by accountant. The ITC remained unutilised and mistake was realised in August 2019. On realisation, assessee reversed the excess of 100 by punching same in Table 4(B) of GSTR-3B for Aug 2019. Thereafter, same was also disclosed in GSTR-9 (Table-12) for FY 2018-19.

During departmental audit, same was explained to officer. However, concerned officer has rejected such reversal and again raised demand of ₹ 100. As per officer, reversal could not be made via GSTR-3B but can only be done by DRC-03. This is because when reversal was done via GSTR-3B of Aug, ITC for Aug was 20 and reversal was 100 and only 80 was added to output for Aug instead of full amount of 100. He is failing to understand that balance 20 got adjusted from eligible ITC for Aug 2019 and thus there was no loss to revenue.

I have gone through Instructions to GSTR-9 and same clearly allow reversal of ineligible ITC for FY 2018-19 in GSTR-3B of Aug 2019. However, I wanted your expert advice as to whether there is any other legal provision which allows/bars reversal of ITC of earlier FY in GSTR-3B of succeeding FY.

Hoping for a swift response.

[CA Hemanth Kumar]

Dear ROHIT GOEL,

1. As per section 39(9) rectification of any error or omission can be made till Sep return of subsequent F.Y or Annual return which ever is earlier.

(9) Subject to the provisions of sections 37 and 38, if any registered person after furnishing a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (4) or sub-section (5) discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars 5[in such form and manner as may be perscribed], subject to payment of interest under this Act:

Provided that no such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following 6[the end of the financial year to which such details pertain], or the actual date of furnishing of relevant annual return, whichever is earlier.

Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. (Not yet notified)........ before it was read as "in the return to be furnished for the month or quarter during which such omission or incorrect particulars are noticed"

2. Circular No. 26/26/2017-GST where it allows reversal of credit in subsequent months

Point No.4 It is clarified that as return in FORM GSTR-3B do not contain provisions for reporting of differential figures for past month(s), the said figures may be reported on net basis along with the values for current month itself in appropriate tables i.e. Table No. 3.1, 3.2, 4 and 5, as the case may be. It may be noted that while making adjustment in the output tax liability or input tax credit, there can be no negative entries in the FORM GSTR-3B. The amount remaining for adjustment, if any, may be adjusted in the return(s) in FORM GSTR-3B of subsequent month(s) and, in cases where such adjustment is not feasible, refund may be claimed. Where adjustments have been made in FORM GSTR-3B of multiple months, corresponding adjustments in FORM GSTR-1 should also preferably be made in the corresponding months

3. There is no provision (in my view) which insists that reversal has to be done only through DRC-03. May be u can ask the dept to show the same.

[Shilpi Jain]

Even assuming the reversal is to be done in DRC-03, at the most reversing in GSTR-3B would be only a procedural lapse and the department cannot demand a second reversal. You could take this stand.

[KASTURI SETHI]

The legal status of GST-paid character is same whether paid through ITC or in cash. Agree with both experts. A very comprehensive and convincing reply (having legal force) by CA.Hemanth Kumar, Sir.

[Ganeshan Kalyani]

Reversal thru DRC-03 is specific to the transaction and is relatable to the issue on hand. Whereas, reversal in GSTR-3B is not specific though the working of reversal can be produced before officer to justify. This is the reason department is asking for DRC-03 as it is ease for them to record, otherwise it is only a procedural issue.

AI Summary

Client Challenges Tax Officer's Rejection of ITC Reversal in GSTR-3B; Experts Argue DRC-03 Not Mandatory A client mistakenly claimed double the Input Tax Credit (ITC) for January and February 2019. The error was realized in August 2019, and the excess ITC was reversed in the GSTR-3B for August 2019 and disclosed in GSTR-9 for FY 2018-19. During an audit, the tax officer rejected the reversal, insisting it should have been done via DRC-03. The client seeks advice on the legality of reversing ITC in GSTR-3B. Experts suggest that while DRC-03 is often preferred, reversing in GSTR-3B is a procedural issue, and the department's demand for a second reversal is unjustified.