ITC wrongly reversed (Output Liability reduction) and reclaimed next year

[UDHAYKUMAR KANDASAMY]

Dear Sirs,

One of my client's accountant has reversed ITC instead of reduction in Output liability for the credit notes issued for the previous month sale in August 2018. Since for the month of August 2018 (CGST & SGST each Rs.142050/-) there was no enough ITC carried forward the reversed amount was reduced in Cash Ledger as it was available at that time.

Later realising the mistake he has again reclaimed the same amount in the next financial year i.e, September 2019 (which is also a mistake instead of claiming the refund) through All Other ITC in GSTR-3B for the month of September 2019.

Now the department has issued SCN DRC-01 for the difference between GSTR-3B Vs GSTR-2A for the Financial year 2019-20.

What to do under this situation?

Please opine.

thanks

[KASTURI SETHI]

Under which Section SCN has been issued ?

No mala fide intention is involved. You are to justify the difference on the basis of books of account (statutory records). Take shelter of case laws on this issue. Case laws can be easily traced out in your client's favour.

It is a bona fide mistake. You can request for lenient view under Section 126 of CGST Act

[Padmanathan KV]

Pls confirm whether the facts i understood are correct:

A. Output reduction in August 2018 was not done.

B.1. Input tax credit was inadvertantly reduced (due to insufficiency, cash was paid).

B.2. In Sept 2019, ITC wrongly reversed in Aug 2018 was reclaimed in all other ITC.

You can reply to the SCN stating that the difference amount was ITC pertaining to FY 2018-19. (In 2018-19, the net ITC in 3B must be less compared to 2A).

[Shilpi Jain]

A fit case to fight. Do file a reply to SCN stating the facts and arguing that ITC claimed was of past period inadvertently reversed and since revision of GSTR-3B is not allowed.

[UDHAYKUMAR KANDASAMY]

Dear Sir / Madam,

Thanks for your valuable time to reply to my query.

Notice was issued U.S. 73

In FY 2018-19, the ITC availed is exactly (I.e. reversed amount of ITC in FY 2018-19) less than the amount reclaimed in fy 2019-20.

For output liability is paid for August 2018 in 3B since the ITC reversed in that month was reversed and reduced in cash ledger because of no ITC available in that month of August 2018.

I hope the facts are clear.

The officer asked for reply stating the facts to consider.

Thanks once again

AI Summary

Client Corrects ITC Error from 2018; Show Cause Notice Issued for 2019-20 Discrepancies; Respondents Suggest Section 126 Defense A client mistakenly reversed Input Tax Credit (ITC) instead of reducing Output Liability for credit notes issued in August 2018. Due to insufficient ITC, the amount was reduced in the Cash Ledger. The error was corrected in September 2019, but the department issued a Show Cause Notice (SCN) for discrepancies between GSTR-3B and GSTR-2A for 2019-20. Respondents suggest justifying the difference using statutory records and case laws, emphasizing the mistake was bona fide. They recommend responding to the SCN under Section 126 of the CGST Act and clarifying that the ITC claimed pertains to the previous financial year.