The primary focus of the industry at the time of introduction of GST was on implementation/modification of ERP module to suit GST requirements, appropriate classification of goods/services and providing training to staff. Initially, the area of focus was more on the aspect of migration, correct levy of taxes, reverse charge liability and ensure timely compliances with return uploading requirements.
However, after about 12 to 15 months of GST implementation, the focus had shifted to validation of input tax credit and reconciliation of credits with Form GSTR-2A data. This was partly on account of Department enquiries w.r.t. Form GSTR-2A vs Form GSTR-3B input tax credit mismatch and the reporting requirement under Table 8 of Form GSTR-9. Trade/ Industry who were already under internal audit of indirect tax, credit reconciliations and management audit were regularly ensuring eligible credits were taken on timely basis with adequate evidence to pass scrutiny, in case of any verification in pre-GST regime. However, proportion was less than 10% though this was a value-added activity rather than a cost
In general, the errors in ITC can be classified:
- lack of understanding of what is eligible and not eligible,
- mistakes in reversal of proportionate credit,
- delay in credit availment,
- documentation/ recording issues and others.
These mistakes would be more in case of entities having multiple registrations under GST. The challenge would also be to ensure that the credit has been availed in the appropriate State. In this article we examine ONLY some common errors and possible solution relating to documentation and recording observed in review assignments and pre audit verifications. It is to be noted that all such corrections and availment of ITC shall be within the time limit provided under Section 16(4) of the CGST Act,2017.
|
S.No |
Error |
Impact & Action |
|
1. |
Invoice issued by Vendor in State A charging CGST & SGST without GSTIN of Co. State A - Credit availed by Co. State A Invoice not available in Form GSTR-2A. |
Possible loss of Input Tax Credit. Obtain revised invoice from Vendor and ensure that the said invoice is reported by the vendor as B2B transaction in Form GSTR-1 |
|
2. |
Invoice issued by Vendor in State A charging CGST & SGST with incomplete/incorrect GSTIN of Co. State A - Credit availed by Co. State A. Invoice not available in Form GSTR-2A. |
Possible loss of Input Tax Credit. Obtain revised invoice from Vendor and ensure that the said invoice is reported by the vendor as B2B transaction in Form GSTR-1 |
|
3. |
Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A and address of Co. State B - Credit availed by Co. State A |
Address is not a mandatory attribute for claiming ITC under proviso of Rule 36(2) of the CGST Rules, 2017. However, it is advisable to obtain revised invoice from Vendor with correct address |
|
4. |
Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A – Invoice reported by Vendor in Form GSTR-1 with GSTIN of Co. State B Invoice reported in Form GSTR-2A of other State. |
Possible loss of Input Tax Credit in State A, on account of matching requirement under Rule 36(4) of the CGST Rules,2017 Communicate to the vendor about the said error and follow-up for rectification with the vendor in Form GSTR-1. |
|
5. |
Invoice issued by Vendor in State A charging CGST & SGST with ISD GSTIN of Co. State A - Credit availed by Regular GSTIN Co. State A |
Reverse credit availed by Regular GSTIN of Co. State A Distribute the said credit through the ISD return |
|
6. |
Invoice issued by Vendor in State A charging CGST & SGST with Regular GSTIN of Co. State A - Credit availed by Regular GSTIN Co. State A. Vendor reported the said invoice in Form GSTR-1 against the ISD GSTIN of Co. |
Communicate to the vendor about the said error and follow-up for rectification with the vendor in Form GSTR-1. |
|
7. |
Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A - IGST Credit availed by Co. State B |
Reverse IGST credit availed in Co. State B. Avail CGST & SGST credit in the Co. State A |
|
8. |
Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - CGST & SGST credit availed by Co. State B |
Reverse CGST & SGST credit availed in Co. State B. Avail IGST credit in the Co. State B |
|
9. |
Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State A - CGST & CGST credit availed by Co. State B |
Reverse CGST & SGST credit availed in Co. State B. Avail CGST & SGST credit in the Co. State A |
|
10. |
Invoice issued by Vendor in State A charging CGST & SGST with GSTIN of Co. State B - CGST & SGST Credit availed by Co. State A |
Reverse CGST & SGST credit availed in Co. State A CGST & SGST has been charged in Invoice by Vendor State A against the GSTIN of Co. State B. CGST & SGST Credit cannot be availed by Co. State B. If the type of levy in the invoice is incorrect, i.e. IGST is to be charged, obtain revised invoice with IGST and the said credit shall be availed in Co. State B |
|
11. |
Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - CGST & SGST Credit availed by Co. State A |
Reverse CGST & SGST credit availed in Co. State A Avail IGST credit in Co. State B |
|
12. |
Invoice issued by Vendor in State A charging IGST with GSTIN of Co. State B - IGST Credit availed by Co. State C |
Reverse IGST credit availed in Co. State C. |
|
13. |
Invoice issued by vendor does not contain GSTIN of Vendor. |
Obtain revised invoice from vendor with GSTIN of vendor, as it is a mandatory invoice attribute for availment of ITC. Else, reverse credit availed. |
|
14. |
Excess reporting and payment of output tax liability in Form GSTR-3B, availed as input tax credit. |
Excess payment of output tax liability in GST return shall be adjusted against the liability of the subsequent months. Input tax credit availed on account of such excess payment shall be reversed. |
|
15. |
IGST credit availed as CGST & SGST and vice-versa, in Form GSTR-3B. (Error in return disclosures) |
Reverse input tax credit availed under the wrong head and avail the same under the correct head. |
|
16. |
Invoice issued by Vendor in State A chagrining IGST with GSTIN of Co. State A – CGST & SGST credit availed by Co. State A. |
Possible loss of credit availed by Co. State A, as the invoice does not contain CGST & SGST charge. Obtain revised invoice from the vendor with CGST & SGST levy. |
|
17. |
Excess credit availed due to dual entry passed. |
Reverse the excess credit availed. |
|
18. |
Availment of input tax based on pro-forma invoice issued by the Vendor. |
Reverse the input tax availed since pro-forma is not valid document under Rule 36 for availment of credit. |
The above list of common errors could extend further and differ based on the confusion in the GST provisions and incorrect rectification of errors committed.
There are certain errors which can be rectified, if identified well in advance and provides an opportunity to the assesse to avoid additional tax cost. The interest cost in case of incorrect availment of credits would also be a factor to be considered.
As per Section 16(4) of the CGST Act,2017 the time limit for availment of input tax credit is the due date for furnishing the return for the month of September (under section 39 of the CGST Act) or furnishing of annual return, whichever is earlier. The question which was raised earlier is whether Form GSTR-3B can be considered as a return under Section 39 of the CGST Act,2017 read with Rule 61 of the CGST Rules,2017, as a replacement to Form GSTR-3. Notification No.49/2019 - Central Tax dated 09.10.2019 amended Rule 61(5) of the CGST Rules, 2017 providing that GSTR-3B shall be a return under Section 39 of the CGST Act, 2017 and such rule is amended retrospectively with effect from 01.07.2017.
Rectifiable errors detected beyond the time limit for rectification, would also result in tax cost. Since loss of input tax credit would directly result in additional cost, it is imperative to have a strong internal control system for appropriate validation of credits and reconciliation of credits with Form GSTR-2A. In case of multiple registrations, it would also be advisable to conduct periodic review audits to identify, prevent and correct the errors.
For any further queries/comments please write to [email protected] & [email protected].