GST Council meet: Ways to deal with tax credit mismatch on agenda

Cases to be scrutinised if tax credit mismatch is over 20%

Businesses might receive intimation from indirect tax authorities if there is a mismatch of input tax credit claimed by them with the output tax liability as declared by the supplier. They could even be asked to pay an amount equal to the “excess of credit claimed” with interest and penalty in the absence of satisfactory response.

Ahead of the Goods and Services Tax (GST) Council meeting next week, a committee of officials has proposed further tightening in the returns filing system to limit the scope of claiming input tax credit to curb fraudulent practices. 

The panel comprising officials from the Centre and states suggested a mechanism to deal with differences in input tax credit between GSTR-2B (auto-generated statement containing details as furnished by supplier) and GSTR-3B (monthly summary return).

Cases will be considered for scrutiny if the mismatch is more than 20 per cent, or over Rs 25 lakh.  

“Unless the said registered business either deposits the amount specified in the intimation or furnishes a reply explaining the reasons for any amount remaining unpaid, such a person may not be allowed to furnish the details of outward supplies in GSTR-1 or using invoice furnishing facility for a subsequent tax period,” said a member privy to the proposal.

Earlier, a similar measure was taken for mismatch in invoices by errant businesses. Experts are of the view that the proposed move could increase compliance significantly.

“All businesses proactively engage with their vendors on an ongoing basis to prevent input tax credit mismatches. However, there can be several genuine reasons for some of the mismatches. These should be discussed with the industry, so that differential treatment between genuine mismatches and others is contemplated in the legislation,” said M S Mani, partner, Deloitte India.

Further, to curb the menace of fake registration, the law panel laid out some measures to weed out fraudulent people engaging in dubious and complex transactions causing huge losses to the government.

According to it, the new registration should furnish details of the bank account within 30 days from the date of grant of registration or before furnishing the details of outward supplies of goods and services in GSTR-1.

It also suggested doing away with the requirement of the physical presence of the applicant during the physical verification of business premises by the officer.

“It is of view that physical presence of the applicant poses the risk of manipulation by unscrupulous applicants making temporary arrangements as well as the risk of undue delays in case of wilful absence of the applicant,” said the member cited above.

These proposals are expected to be tabled in the Council meeting for approval on July 11 in New Delhi.

Other key proposals

Among other key proposals, the all-powerful Council is likely to clarify the applicability of a 22 per cent compensation cess on multi-utility vehicles.

Official sources said that the fitment panel (encompassing revenue officials from states and the Centre) suggested treating all utility vehicles on a par with sport utility vehicles provided they met the key parameters of length greater than 4,000 millimetre (mm), engine capacity greater than 1,500 cc, and ground clearance more than 170 mm.

The fitment panel was also tasked to suggest the compensation cess rates on evasion-prone commodities such as paan and gutka masala, and have it linked to the retail sale price. However, determining rates based on retail sale prices faces some legal challenges. It has for now been suggested to notify earlier “ad valorem rate” as was applicable on March 31, 2023.

The Council, at its last meeting, accepted the report of the state panel where it suggested the levy of compensation cess be converted from ad valorem tax to a specific tax-based levy to boost the first stage (manufacturer level) collection of revenue as regards these commodities.

The Council might also take a final call on the taxation issue of online gaming, even though the second report submitted by another state panel could not arrive at a consensus on a flat rate of 28 per cent and even on the valuation on which the tax would be levied.

Weeding out errant businesses

• Limiting scope of wrongly availed of input tax credit
• To scrutinise businesses if difference in ITC availed of is more than 20% or over Rs 25 lakh
• Physical presence of applicant during verification process may be done away with

Other key proposals

• 22% cess on all types of utility vehicles on par with SUVs, provided they meet certain parameters
• Review of second panel report on taxing online gaming; states express divergent views
• No consensus on 28% GST on the full face value of bets placed