Rule 88C - GSTR 3B vs GSTR 1 mismatch in Liability

Rule 88C has been added to the CGST Rules 2017 vide GST Notification No 26/2022 to implement decisions taken by 48th GST Council Meeting. The Rule 88C specifies manner of dealing with difference in liability reported in statement of outward supplies and that reported in return.

Extract of Recommendation of 48th GST Council Meeting

Rule 88C and FORM GST DRC-01B to be inserted in CGST Rules, 2017 for intimation to the taxpayer, by the common portal, about the difference between liability reported by the taxpayer in FORM GSTR-1 and in FORM GSTR-3B for a tax period, where such difference exceeds a specified amount and/ or percentage, for enabling the taxpayer to either pay the differential liability or explain the difference.

Further, clause (d) to be inserted in sub-rule (6) of rule 59 of CGST Rules, 2017 to restrict furnishing of FORM GSTR-1 for a subsequent tax period if the taxpayer has neither deposited the amount specified in the intimation nor has furnished a reply explaining the reasons for the amount remaining unpaid. This would facilitate taxpayers to pay/ explain the reason for the difference in such liabilities reported by them, without intervention of the tax officers.

What is Rule 88C under GST?

Section 75(12) of the CGST Act, 2017 allows for recovery of tax without the issuance of a Show Cause Notice under Section 73/74 of the CGST Act, 2017 where any amount of tax is self-assessed in accordance with the return furnished under Section 39 of the CGST Act, 2017.

An explanation was added to the said sub-section by Finance Act, 2021 wherein the expression “self-assessed tax” included tax payable in respect of details of outward supplies furnished under section 37 (GSTR-1), but not included in the return furnished under section 39 (GSTR-3B). The said explanation was made effective from 01st January 2023.
There were many doubts raised by trade and the field formations about how the recovery on account of the mismatches between GSTR-1 and GSTR-3B would be dealt with by the Tax Authorities. On 7th January 2022, CBIC issued guidelines for recovery proceedings under the provisions of Section 79 of the CGST Act, 2017.

It instructed for providing of opportunity to the affected taxpayer to explain the differences between GSTR-1 and GSTR-3B by sending a letter, before initiation of action under Section 79 of the CGST Act, 2017. To standardize the entire recovery proceedings, Rule 88C has been inserted in the CGST Rules, 2017.

The Rule 88C has been explained further in detail below:

1. Rule 88C Applicability

This provision will be applicable where tax liability as per GSTR-1 / IFF exceeds tax paid in GSTR-3B by such amount and such percentage as may be prescribed by the council. Such mismatches will be considered under the provisions of Rule 88C.

2. Intimation to Taxpayer

The registered person will be intimated of such difference in Part A of FORM GST DRC-01B.
FORM GST DRC-01B would be uploaded on the common portal, and a copy of such intimation shall also be sent to his e-mail address as provided in his registration certificate. The said form would highlight the difference between GSTR-1 and GSTR-3B.

Also Read: GSTR 1/IFF Enhancements | GSTR 1 Filing Process Changes 2022

3. Action required by taxpayer

The taxpayer shall have either of the two options to deal with FORM GST DRC-01B.
Pay the differential tax liability, as specified in Part A of FORM GST DRC-01B, fully or partially, along with interest under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01B electronically on the common portal; or
Furnish a reply electronically on the common portal, incorporating reasons in respect of that part of the differential tax liability that has remained unpaid, if any, in Part B of FORM GST DRC-01B.

4. Time Limit:

The time limit that has been prescribed for a taxpayer to take any action in response to form DRC-01B is 7 days.

5. Consequence of non-compliance of Rule 88C

In the case where the amount specified in DRC-01B remains unpaid, or no reply was furnished, or where the reply furnished was found to be unacceptable by the proper officer, recovery proceedings would be initiated by provisions of Section 79 of the CGST Act, 2017.

Section 79 of the Central Goods and Services Tax states that, notwithstanding anything contained in the Code of Criminal Procedure, 1973, the proper officer may file an application to the appropriate Magistrate and such Magistrate shall proceed to recover from such person the amount specified thereunder as if it were a fine imposed by him.

6 .Effective date of the new Rule 88c

Rule 88C is not yet effective. The said rule gets triggered only where the difference between GSTR-1 and GSTR-3B would exceed a certain amount and percentage as may be prescribed. Since the amount and percentage have not yet been notified, the rule cannot be implemented until the amount and percentage are notified.

7. Blockage of further filing of GSTR-1

Rule 59(6) of the CGST Act, 2017 also got inserted vide GST Notification No. 26/2022 -Central Tax dated 26th December 2022. The said rule does not allow the filing of GSTR-1/IFF for a subsequent tax period where after the issuance of DRC-01B the taxpayer fails to take any action. That is where the taxpayer neither

Pays amount payable as per DRC-01B nor
Submits any reply for any amount remaining unpaid in Part B of FORM GST DRC-01B

Kindly note that the rule does not prescribe blocking of GSTR-1 / IFF where the reply furnished was found to be non-satisfactory by the tax authorities. Where the reply was furnished but found to be not satisfactory, only recovery proceedings under Section 79 of the CGST Act, 2017 would be triggered.

Where no action was taken against the issuance of DRC-01B, there would be blocking of GSTR-1/IFF along with initiation of recovery proceedings under Section 79 of the CGST Act, 2017.

Also Read: FAQs around mistakes in GSTR 3B & GSTR 1 and how to resolve them

GSTR 1 and GSTR 3B are the two most important returns in the GST system. Comparing GSTR-3B with GSTR-1 is a much-needed process to be undertaken by every taxpayer in order to ensure that there are no variations or gaps, which could, in turn, lead to a demand notice from the tax authorities or unwanted issues that may arise and hinder the accurate filing of the annual returns.

In this article, let us understand in detail about mismatches in GSTR 1 and GSTR 3B in liability…

Reasons for the mismatch in GSTR 1 and GSTR 3B in liability

1. Misallocation: GSTR-1 is prepared at the invoice level and GSTR-3B is prepared at the aggregate level. This can lead to furnishing supplies under the wrong head in GSTR-3B, but declaring the same details correctly in GSTR-1.

2. RCM Supplies: Interstate supplies made to unregistered persons not declared in GSTR-3B.

3. Wrong tax heads: The total value of supplies is correctly shown but taxes are paid under the wrong head.

4. Post-filing Amendments: Amendment in supplies made after GSTR-1 filed.

5. Different filing periods: The time difference in reporting time of invoices in GSTR-1 and GSTR-3B.

6 .Tax not paid in GSTR 3B on supplies: There have been multiple instances of ITC being passed on by the supplier vide GST-R1 for which tax have not been discharged through GSTR 3B.

Some mismatches in GSTR 1 and GSTR 3B may convert in tax liability, while some other may be on account of genuine errors and does not have any impact on tax liability. To identify the error, one requires an explanation by the registered person and the judicious application of mind of the Department officers.

Vide the recommendations of the 48th GST Council meeting on 17th December 2022, Rule 88C was inserted to provide for a mechanism for dealing with the difference arising from taxpayer’s liability as reported in GSTR-1 v/s GSTR-3B.

Also Read:

How to Amend your GST Return: GSTR1 & GSTR 3B

GSTR 1 & GSTR 3B Reconciliation: Use MIS Reports to Resolve Mismatches

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