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Complete Guide on ITC Mismatch (GST DRC-01C) and way to deal with it including GSTN Advisory

Recently GSTN has issued an advisory informing the Taxpayers that functionality of issuance of notice in DRC-01C for ITC mismatch i.e. between what is available in GSTR-2B and what has been availed in GSTR-3B beyond a threshold limit has been made live on the portal.

Therefore, in this article we will discuss following aspects related to it:

Legal Background of the Notice

Government has issued a Notification on 1st August 2023 vide which New Rule 88D has been inserted wherein it has been notified that: (Legal Text is Provided at the end)

Where the amount of input tax credit availed by a registered person in GSTR-3B exceeds the input tax credit available to such person in accordance GSTR-2B in respect of the said tax period or periods, as the case may be, by such amount and such percentage, as may be recommended by the Council,

In that case, the said registered person shall be intimated of such difference in Part A of DRC-01C, electronically on the common portal, and a copy of such intimation shall also be sent to his e-mail address.

Taxpayer can either explain the reasons of difference (as expalined in subsequent section of the article) in Part B of DRC-01C or Pay the difference vide DRC-03 along with interest with in seven days of such communication.

Where Taxpayer failed to either deposit the difference, or expalin the reasons with in prescribed period or such reaons found non acceptable by Proper Officer, the said amount shall be liable to be demanded in accordance with the provisions of section 73 or section 74, as the case may be.

GSTN Advsiory in this regard

To implement the above Rule, GSTN has issued an advisory on 14 November, 2023 which provides following information:

1. It is informed that GSTN has developed a functionality to generate automated intimation in Form GST DRC-01C which enables the taxpayer to explain the difference in Input tax credit available in GSTR-2B statement & ITC claimed in GSTR-3B return online as directed by the GST Council. This feature is now live on the GST portal.

2. This functionality compares the ITC declared in GSTR-3B/3BQ with the ITC available in GSTR-2B/2BQ for each return period. If the claimed ITC in GSTR 3B exceeds the available ITC in GSTR-2B by a predefined limit or the percentage difference exceeds the configurable threshold, taxpayer will receive an intimation in the form of DRC-01C.

3. Upon receiving an intimation, the taxpayer must file a response using Form DRC-01C Part B. The taxpayer has the option to either provide details of the payment made to settle the difference using Form DRC-03, or provide an explanation for the difference, or even choose a combination of both options.

4. In case, no response is filed by the impacted taxpayers in Form DRC-01C Part B, such taxpayers will not be able to file their subsequent period GSTR-1/IFF.

Note: It appears that fourth point where filing of GSTR-1 has been restriced is not supported by the Rule-88D as explained above.

How to Deal with such Notice

In this regard, guidenace has been provided by the by way of issuance of tutorials (pdf is attached for ready reference) which is summarised as follows:

Reasons which can Justify the Difference which can be submitted in respect of ITC mismatch:

Other Key Points

Form GST DRC-01C is applicable to various types of taxpayers, including regular taxpayers (including SEZ units and SEZ developers), casual taxpayers, and taxpayers who have opted out of the composition scheme.

If Taxpayer has not filed Form GST DRC-01C Part B for any period for which you received an intimation in Form GST DRC-01C Part A, Taxpayer will not be able to file GSTR-1/IFF for the subsequent period. It is important to ensure timely filing of Form GST DRC-01C Part B to avoid any interruptions in the filing of Form GSTR-1/IFF.

After filing the reply for Form GST DRC-01C Part B, Taxpayer can instantly file Form GSTR-1/IFF. If you are facing any issue while filing Form GSTR-1/IFF, then you need to log out and log in again after a few minutes.

Copy of Tutorial:

Download PDF • 2.47MB

Though we believe restriction on filing of GSTR-1 is not supported by the Rule 88D, we suggest the Taxpayer to follow the Advisory to save themselves from any inconvience.

Please connect with us @Linkedin for regular updates.

Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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