GST Return Mistake can Trigger Scrutiny & Demand Proceeding

Common GST Return Mistakes That Can Trigger Scrutiny Notices, Audit or Demand Proceedings

1. Mismatch Between GSTR-1 and GSTR-3B

• When the outward supplies reported in GSTR-1 are higher than those declared in GSTR-3B, it indicates that tax liability has been disclosed but may not have been fully paid.
• Risk: Scrutiny under Section 61 and potential demand proceedings under Sections 73 or 74 of the Central Goods and Services Tax Act, 2017

2. Excess Input Tax Credit Claimed in GSTR-3B Compared to GSTR-2A/2B

• Claiming ITC in excess of the credit reflected in GSTR-2A or GSTR-2B may indicate ineligible input tax credit claims or credits availed on invoices not uploaded by suppliers.
• Risk: Input tax credit may be treated as wrongly availed or utilized, attracting recovery proceedings and penalties under Goods and Services Tax law.

3. Availment of ITC Beyond the Statutory Time Limit

• Input tax credit claimed after the time limit prescribed u/s 16(4) of Central Goods and Services Tax Act, 2017 is a common compliance lapse.
• Risk: Such credits may be disallowed during scrutiny, resulting in tax demand along with applicable interest.

4. Excessive Input Tax Credit Utilisation Compared to Cash Payment

• Where Input Tax Credit utilization is disproportionately high compared to cash tax payment, especially when ITC utilization is several times higher than cash payment, it may raise concerns.
• Risk: Authorities may suspect bogus input tax credit claims or under-reporting of outward supplies.

5. High Turnover but Nil or Negligible Cash Tax Payment

• Businesses reporting substantial turnover while discharging almost the entire tax liability through Input Tax Credit may attract departmental attention.
• Risk: Such cases are specifically flagged as risk parameters for scrutiny and verification.

6. Mismatch Between GSTR-3B and E-Way Bill Data

• If the value of goods moved through e-way bills significantly exceeds the turnover reported in Goods and Services Tax returns, it may indicate suppression of taxable supplies.
• Risk: Detailed departmental examination and possible tax demand proceedings.

7. Turnover Reported in GSTR-3B Lower Than TDS/TCS Returns

• A mismatch between turnover reported in GSTR-3B and turnover reflected through GSTR-7 (TDS) or GSTR-8 (TCS) may indicate under-reporting of revenue.
• Note: In some cases, the difference may arise due to timing issues and reconciliation adjustments.
• Risk: Scrutiny notice seeking explanation and reconciliation.

8. Non-Reporting of Inter-State B2C Supplies

• Failure to report inter-state B2C transactions in Table 3.2 of GSTR-3B and the corresponding details in GSTR-1 can impact the correct apportionment of IGST between states.
• Risk: Penalty proceedings u/s 125 of the Central Goods and Services Tax Act, 2017 .

9. Delayed or Non-Filing of GST Returns

• Regular delays in filing GSTR-1, GSTR-3B, or other prescribed returns are viewed seriously by the Department.
• Risk: Late fees, interest, scrutiny notices, best-judgment assessment, and penalty proceedings.

10. Non-Reversal of Input Tax Credit on Capital Goods Used for Exempt Supplies

• Taxpayers are required to reverse eligible portions of input tax credit on capital goods attributable to exempt supplies or non-business activities as per Rule 43.
• Risk: Excess Input Tax Credit claims may be identified during scrutiny, leading to tax demands and interest.

11. Non-Compliance with Rule 86B

• Rule 86B requires specified taxpayers to discharge at least 1% of Goods and Services Tax liability in cash, subject to prescribed conditions and exceptions.
• Risk: Cases where Rule 86B applies but tax continues to be paid almost entirely through Input Tax Credit are frequently selected for scrutiny.

Best Practices to Avoid GST Scrutiny

• Regularly reconcile GSTR-1, GSTR-3B, GSTR-2B, and books of accounts.
• Match turnover with e-way bill, tax deducted at source & tax collected at source, and financial records.
• Verify input tax credit eligibility before claiming credit.
• Monitor Rule 42, Rule 43 and Rule 86B compliance.
• Maintain proper documentation and reconciliation statements.
• File goods and services tax returns accurately and within due dates.