GST Authorities issue Notices to Businesses for Input Tax Credit Mismatches

Several businesses have received notices from Goods and Services Tax (GST) authorities about irregularities in their claimed input tax credit (ITC), according to sources familiar with the matter. This comes after a thorough examination of the input tax credit by these companies, which discovered discrepancies between their annual returns.

The notices were issued under Section 150 of the CGST Act of 2017, which requires taxpayers to submit an information return outlining the reasons for the “short reporting” of input tax credits.

“Short reporting” occurs when the input tax credit declared in the yearly return form (GSTR-9) is less than the amount claimed in the monthly forms (GSTR-3B or GSTR 2B). GSTR-3B is a monthly self-declared summary of GST returns, whereas GSTR 2B is an auto-generated form that lists eligible and ineligible ITC for each month.

The majority of these notices were issued in January for the April to November period of 2023-24.

Businesses and experts contend that, while the law allows officials to request an information return, many notices are given in a mechanical manner without checking whether taxpayers have actually used the ITC, increasing compliance obligations.

“Various notices have instructed taxpayers to reverse even unclaimed ITC in GSTR-3B mechanically, without any critical analysis,” said one expert, who questioned the justification for reversing unclaimed ITC.

In a post-budget interview, Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs, stated that the administration cannot ignore an ITC mismatch found in the system.