Madras HC: No Tax Recovery As Per Differences B/W GSTR 1 & 3B Without Following CGST Rule 88C

In the case of M/s. Caterpillar India Pvt. Ltd. v. The Assistant Commissioner Chennai [WP No. 28092 of 2023 dated September 25, 2023], the Madras High Court granted the writ petition, affirming that recovery based solely on variations between Form GSTR-1 and Form GSTR-3B is impermissible without adherence to the prerequisites outlined in Rule 88C of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”).

Points:

The petition, lodged by M/s. Caterpillar India Pvt. Ltd. (“the Petitioner”), contested the recovery notice issued on September 13, 2023 (“the Impugned Notice”) by the Revenue Department (“the Respondent”). The challenge centred on the failure to follow the procedural safeguards specified under Rule 88C of the CGST Rules, introduced through Notification No. 26/2022 dated December 26, 2022. Despite the Petitioner’s response, the Respondent sought to initiate recovery proceedings under Section 75(12) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) in conjunction with Rule 88C of the CGST Rules.

Case:

If Form GSTR 3B and GSTR 1 differ, can recovery proceedings be operated without conceding with Rule 88C of the CGST Rules?

Had:

In the case of W.P. No. 28092 of 2023, the Hon’ble Madras High Court held under the:

• It was observed that Instruction No. 01/2022 dated January 7, 2022, outlining guidelines for recovery procedures under section 79 of the CGST Act, in cases falling under the explanation to 75(12) of the CGST Act, predates Rule 88C of the CGST Rules.
• The Court’s opinion emphasizes that recovery cannot be carried out directly based on discrepancies between Form GSTR-1 and Form GSTR-3B without fulfilling the requisites outlined in Rule 88C of the CGST Rules.
• Consequently, the Impugned Notice issued under Rule 79 of the CGST Rules has been annulled, and the Respondent has been granted permission to issue an appropriate notice in Form GST DRC-01B before pursuing the recovery of any amounts based on the variance between Form GSTR-1 and Form GSTR-3B. Therefore, the writ petition has been upheld.

Appropriate Provisions Under CGST Rule 80C:

The way of dealing with difference in obligation reported in the statement of outward supplies and that reported in the return

• If the tax owed by a registered individual, as per the declaration of outward supplies submitted through FORM GSTR-1 or utilizing the Invoice Furnishing Facility for a tax period, surpasses the amount of tax payable according to the return filed for that period using FORM GSTR-3B by an amount and percentage prescribed by the Council, the said registered person will be notified about this variance in Part A of FORM GST DRC-01B electronically on the common portal. A copy of this notification will also be sent to the registered individual’s provided email address during registration or as updated, highlighting the difference and instructing them to:
  • Clear the differential tax liability, together with interest under section 50, via FORM GST DRC-03; or
  • Explain the aforementioned distinction in tax payment on the common portal within seven days.

• Upon receiving the notification specified in sub-rule (1), the registered individual must, within the stipulated time frame:
  • Pay the differential tax liability mentioned in Part A of FORM GST DRC-01B, either in full or partially, along with interest under section 50, using FORM GST DRC-03, and electronically furnish the details in Part B of FORM GST DRC-01B on the common portal; or
  • Electronically submit a response on the common portal, outlining the reasons for any unpaid portion of the differential tax liability as specified in Part B of FORM GST DRC-01B within the designated period.

• If any specified amount in the notice mentioned within sub-rule (1) remains outstanding beyond the specified duration and no acceptable explanation is provided by the defaulting registered person, the outstanding sum will be recoverable under the guidelines of section 79.

Tax Recovery Under GST Section 79:

• When any sum owed by an individual to the Government under the regulations of this Act or its associated rules remains unpaid, the relevant officer will pursue recovery through the following methods:
  • The officer may subtract, or request another designated officer to subtract, the amount owed from any funds owed to the individual, which are under the control of the said officer or another specified officer.
  • The officer may seize and auction off any goods owned by the individual that are under their or another specified officer’s control to recover the sum owed.
  • The officer, through a written notice, may instruct any individual who owes money to the defaulter or who holds money on their behalf to pay the Government an amount sufficient to clear the due sum from the defaulter or the entire sum if it is equal to or less than the owed amount, either immediately upon the money becoming due or within the time specified in the notice.
    • Every recipient of such a notice under sub-clause (i) is obliged to comply. Particularly, when such a notice is issued to entities like post offices, banking companies, or insurers, it won’t be necessary to present specific documents before the payment is made, contrary to any existing rules or requirements.
    • If the recipient of a notice issued under sub-clause (i) fails to fulfil the payment to the Government, they will be considered a defaulter for the specified amount in the notice, and all consequences outlined in this Act or its associated rules will apply accordingly.
    • The officer issuing a notice under sub-clause (i) retains the authority to amend, revoke, or extend the time for payment mentioned in the notice at any given time.
    • Any individual complying with a notice issued under sub-clause (i) will be considered to have made the payment on behalf of the defaulting person. Once this payment is received by the Government, it shall serve as a proper discharge of the defaulting person’s liability up to the amount specified in the receipt.
    • Any person settling the liabilities of the defaulting person after receiving the notice issued under sub-clause (i) will be held personally liable to the Government. This liability will be up to the extent of the amount they’ve discharged or the liability of the defaulting person for tax, interest, and penalty—whichever is lesser.
    • If a recipient of the notice served under sub-clause (i) proves to the satisfaction of the issuing officer that the demanded money, or any part of it, was not owed to the defaulting person, or that they did not hold any money for or on behalf of the defaulting person at the time of the notice, nor will it be owed or held in the future, they are not obliged by this section to pay the Government the specified amount or any part of it.

• The authorized officer, following the regulations to be established for this purpose, may seize any movable or immovable property belonging to or controlled by the individual and retain it until the outstanding amount is settled. If any part of the due amount or the expenses related to seizing or maintaining the property remains unpaid for thirty days after the initial seizure, the officer may arrange for the sale of the property. The proceeds from this sale will be used to cover the outstanding amount, including the sale costs. Any surplus amount from the sale will be returned to the individual concerned.

• The authorized officer may create a certificate detailing the owed amount by an individual and forward it to the Collector of the district where the individual holds property, resides, or conducts business, or to an officer authorized by the Government. Upon receiving this certificate, the Collector or the appointed officer shall take steps to recover the specified amount from the individual, treating it akin to an overdue land revenue.

• Notwithstanding the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), the authorized officer holds the right to apply to the relevant Magistrate. The Magistrate, upon receipt of this application, shall proceed to recover the specified amount from the individual as if it were a fine imposed by the Magistrate.

• If any bond or other legally binding document executed under this Act or its associated rules specifies that any amount due under such instrument may be recovered following the process outlined in subsection (1), the amount can be recovered in line with that subsection, without prejudice to any other recovery method.

• In cases where an individual owes the Government any unpaid tax, interest, or penalty according to the Act or its rules, the proper officer of State tax or Union territory tax may, during the process of recovering such tax arrears, treat the unpaid amount as if it were an arrear of State tax or Union territory tax and credit the recovered amount to the Government’s account.

• If the amount recovered under subsection (3) is less than the combined amount due to both the Central Government and State Government, the credited amount for each respective Government shall be proportional to the amount owed to each.

Illustration– For this section, the word person shall include “distinct persons” as referred to in subsection (4) or, as the case may be, sub-section (5) of section 25.

General Provisions Under GST Section 75(12):

Notwithstanding anything included in section 73 or section 74 in which any amount of self-assessed tax as per the return filed under section 39 left unpaid either entirely or party or any amount of the interest subject to get paid on these tax left unpaid the identical under the provision of section 79 shall be recovered.

Illustration – For the objective of such sub-section, the expression of “self-assessed tax” will comprise the tax liable to get paid for the information of the outward supplies filed under section 37 however does not comprise in the return filed under section 39.