Excess payment made in 3B adjustment with short payment of GST in next financial year

[Sudhir Kumar]

Sir

One my client has received an SCN on short payment of GST in GSTR-3B in comparison to the liability declared in R1 for 2018-19.

However he replied to the department that he has paid excess liability in GSTR-3B in comparison to the liability declared in GSTR-1 for 2017- 18 and a partial amount of short paid liability declared in GSTR-3B in 2018-19 has been adjusted from excess payment made in 2017-18 in GSTR-3B while rest of the short paid liability of 2018-19 was adjusted with the excess liability paid in 2019-20, however the taxpayer agree to pay interest for delay payment of GST for 2018-19 in 2019-20.

Please suggest whether the client's adjustment is correct or the department 's action is correct? Can the client adjusted excess liability paid shown in GSTR-3B for previous year to the short paid liability shown in 3B for next financial year?

[Amit Agrawal]

Kindly refer to Section 39(9) of the CGST Act, 2017 as well as Circular No. 26/26/2017-GST.

[Sadanand Bulbule]

Dear querist

I respectfully endorse the explanation of Amit Sir.

[KASTURI SETHI]

What is the date of adjustment in both years ?

[Sudhir Kumar]

The total short paid liability for 2018-19 was Rs 4416384/- , the tax payer adjusted with the excess paid liability in 3B Rs 224785/-for 2017-18 on 23.04.2019 and rest short paid amount RS 4191599/- was paid/adjusted with the excess paid liability in 3B for next financial year 2019-20 on 20.07.2020 and submitted reply to the department accordingly

[KASTURI SETHI]

The sword of time restriction is hanging on. Your client has delayed the adjustment. Hence the department's action is correct.

[Shilpi Jain]

Excess paid tax can be adjusted and it is suggested to either disclose it in Part V of GSTR-9 or if the GSTR-9 has already been filed then make an intimation letter to the department.

Excess paid tax is in the nature of collection of tax without authority of law. The taxpayer should be able to adjust such excess tax payments.

[KASTURI SETHI]

Sometimes excess payment of tax is made due to typographical error or calculation error. I mean without collection from the buyer or service recipient.

[Amit Agrawal]

Dear Querist,

W.r.t. factual position point by you in post Serial No. 4 above, I am presuming that said adjustment was done by you on your own, voluntarily and without being pointed out / detected by dept (i.e. other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities). It is further presumed that all these adjustments were done prior to furnishing relevant annual return/s.

Dept. may argue that such adjustments are done beyond time-limits prescribed u/s 39(9) and hence, same is not acceptable. For the point of making counter-argument, please note the followings:

A. Before substitution vide Finance Act, 2022w.e.f. 01-10-2022, Said Section 39(9) reads as follows:

"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."

A1. The words from above provision (i.e. "Subject to the provisions of sections 37 and 38, if") were substituted with the word 'Where' vide Finance Act, 2022w.e.f. 01-10-2022

B. As you are aware, facility of filing Form GSTR-2u/s 38 and matching u/s 43 etc. were never made to a tax-payer.

B1. In these circumstances read with reading of Section 39 (9) (i.e. to a period prior to substitution vide Finance Act, 2022 w.e.f. 01-10-2022), one can argue that as facility to file Form GSTR-2u/s 38 was never made operational and as Section 39(9) started was 'Subject to the provisions of sections 37 and 38', time-limit prescribed u/s 39(9) for adjustments done by you was NOT applicable.

C. Please note that these are just some of counter-arguments.

D. Looking at the stakes involved and there is definitely some risk on solely relying on proving rightness of adjustments as done by you (which may get denied by dept / court etc), you should look for lesser risky alternatives.

D1. Please also check possibility of claiming refund of excess paid taxes on 20.07.2020 (using Covid-related extended date for claiming refund, which will lapse sometime in future if you continue defending the adjustment done till date, which may lead to double trouble for the tax-payer) while simultaneously paying short paid liability of FY 18-19 with interest & penalty.

D2. It is better to involve a local GST professional expert who is operating on the field at your place in such matters.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Client Challenges GST Shortfall Notice for 2018-19; Debates Adjustment Legality Under Section 39(9) and Circular No. 26/26/2017-GST. A client received a notice for short payment of GST in GSTR-3B for 2018-19 compared to GSTR-1. The client argued that excess payments made in GSTR-3B for 2017-18 and 2019-20 were used to adjust the shortfall. However, the department questioned the legality of these adjustments. Responses in the forum suggested referring to Section 39(9) of the CGST Act and Circular No. 26/26/2017-GST. Some advised that adjustments beyond prescribed time limits might not be valid, and suggested considering refund claims or consulting a local GST expert.