Submission for Expert Opinion on Rectification of Incorrect ITC Reporting

[Rajagopal K]

 During August 2023 to May 2026, supplier-uploaded credit notes were auto-populated in GSTR-2B but were inadvertently reported under Table 4(B)(2) of the respective GSTR-3B returns as temporary reversals.

This treatment did not appropriately consider the reporting mechanism applicable from 1 September 2022, under which the impact of such credit notes was required to be considered while determining net ITC under Table 4(A)(5) - All Other ITC. Consequently, CGST Rs. 99,986 and SGST Rs. 99,986 were reflected in the Electronic Credit Reversal and Re-claimed Statement.

Pursuant to the applicable GSTN advisory, the above amounts were reported in the July 2026 GSTR-3B under Table 4(A)(5) - All Other ITC and Table 4(D)(1) - ITC reclaimed which was reversed earlier under Table 4(B)(2). The amounts consequently became available in the Electronic Credit Ledger. CGST Rs. 99,986 and SGST Rs. 99,986 have remained completely unutilised and have not been used towards any output tax liability.

The error was subsequently identified. Since the July 2026 GSTR-3B cannot be revised, correction is required in the August 2026 GSTR-3B.

Kindly advise the legally and procedurally appropriate method of rectification.

Option A: Reduce CGST Rs. 99,986 and SGST Rs. 99,986 from eligible ITC under Table 4(A)(5). If sufficient ITC is not available, kindly advise whether a negative figure may be reported or another mechanism should be followed.

Option B: Report CGST Rs. 99,986 and SGST Rs. 99,986 as positive figures under Table 4(B)(1) as a voluntary reversal/correction.

Kindly advise which option, or any other prescribed treatment, is appropriate.

Since the amounts remained unutilised in the Electronic Credit Ledger, kindly advise whether interest, penalty or any other consequential liability arises. Please also advise the documentation and reconciliation to be maintained, including GSTR-2B/GSTR-3B reconciliation, Electronic Credit Ledger reconciliation, the relevant GSTN advisory and workings evidencing non-utilisation.

[Sanjeev Agarwal]

Recommended treatment: Report CGST Rs. 99,986 and SGST Rs. 99,986 in Table 4(B)(2) of the August 2026 GSTR-3B.

This is preferable to both alternatives proposed. Table 4(B)(2) is appropriate for reversal of ITC inadvertently availed in an earlier period due to an error. Table 4(B)(1) is intended for permanent/non-reclaimable reversals and therefore is not the appropriate classification for this correction.

A negative figure in Table 4(A)(5) should not be created merely to neutralise the July 2026 error. The August return should report the actual eligible ITC for August, while the earlier erroneous availment should be separately corrected through 4(B)(2).

Interest and penalty

On the stated facts, interest should not arise if the disputed ITC was never utilised for payment of output tax. This should be demonstrated through a period-wise Electronic Credit Ledger reconciliation establishing that sufficient credit remained available and the disputed Rs. 99,986 CGST and Rs. 99,986 SGST were never utilised.

If any portion was actually utilised, interest exposure should be examined to that extent.

No automatic penalty should arise merely because an inadvertent reporting error is voluntarily corrected, particularly where there is no fraud, wilful misstatement, suppression or revenue loss.

Documentation

Maintain:

• Credit-note-wise GSTR-2B/GSTR-3B reconciliation;

• computation of correct net ITC;

• July 2026 and August 2026 GSTR-3B workings;

• Electronic Credit Reversal/Reclaimed Statement reconciliation;

• period-wise Electronic Credit Ledger movement proving non-utilisation;

• relevant GSTN advisory/Circular;

• management note documenting the error, identification, correction and interest/penalty assessment.

Final position:
August 2026 Table 4(B)(2): CGST Rs. 99,986 + SGST Rs. 99,986.
Avoid 4(B)(1) and avoid an artificial negative 4(A)(5) solely for rectifying the July error.

AI Summary

Input tax credit rectification addresses correction of unutilised credit-note amounts wrongly reclaimed through GSTR-3B reporting.
Rectification is sought for supplier-uploaded credit notes incorrectly reported as temporary ITC reversals in Table 4(B)(2), rather than being considered under Table 4(A)(5). Amounts were subsequently reclaimed through Table 4(A)(5) and Table 4(D)(1), became available in the Electronic Credit Ledger, and remained unutilised. Clarification is sought on correcting the position in a later GSTR-3B through reduction of eligible ITC, voluntary reversal, or another prescribed mechanism, along with interest, penalty, and reconciliation requirements.