Matching ITC with GSTR-2B has been made mandatory effective from 1st January 2022 by inserting clause (aa) in section 16(2) of CGST Act, 2017.
Prior to this amendment, though GST Act has not made it mandatory but Rules,36(4) was inserted w.e.f. 09.10.2019 to match ITC with GSTR-2A, the said rule initially allowed to take ITC 20% extra in excess of eligible ITC reflected in GSTR-2A, this limit was revised to 10% and 5% effective from 01.01.2020 and 01.01.2021 respectively.
In other words, Rule 36(4) of CGST Rules, 2017 allowed additional credit for which invoices are available and supply is received but invoices are not reported by supplier in it’s GSTR-1/IFF, said credit was allowed to the tune of 20%, 10% and 5%, as the case may be, during the period from 09.10.2019 to 31.12.2019, 01.01.2020 to 31.12.2020 and 01.01.2021 to 31.12.2021 respectively.
Subsequently, it is expected that such additional credit is matched with GSTR-2A but in many cases ITC is not reflected in GSTR-2A, and GST authorities have issued notices for demanding of ITC which is not matching with GSTR-2A. Meanwhile, CBIC issued Circular No. 183/15/2022-GST dated 27th December 2022 and clarified that in cases where ITC is not matching with GSTR-2A but recipient has fulfilled all the conditions for availment of ITC including the condition that ‘tax has been paid to the Government’ as per section 16 of CGST Act, 2017; in that case recipient can produce a certificate from CA/CMA if unmatched ITC amount is more than Rs. 5 lacs or declaration from supplier if unmatched ITC is less than Rs. 5 lacs, that tax has be paid to the Government by the supplier.
The above Circular was applicable for the period FY 2017-18, 2018-19 and 01 April 2019 to 08 October 2019. However, the similar situation continued for the period where additional credit was allowed in excess of GSTR-2A and CBIC further clarified vide Circular No. 193/05/2023 dated 17 July 2023 that solution given in earlier Circular No. 183 will also be applicable to the extent availment of additional credit (20%/10% /5%) for subsequent period till the time matching of ITC with GSTR-2B was made mandatory i.e. 01 January 2022.
The solution provided through above two circulars, for unmatched ITC, is summarized below:
|ITC relating to the Period||Basis of availment of unmatched ITC||Limit of ITC unmatched|
|2017-18||In terms of Circular No. 183/2022, unmatched ITC to be claimed on the basis of declaration of supplier / CA / CMA Certificate as tax is paid the Government
1. If ITC difference is more than Rs. 5 lacs in a Financial Year CA/CMA certificate
2. If ITC difference is upto Rs. 5 lacs in a Financial Year – Supplier Declaration
|01.04.2019 to 08.10.2019|
|09.10.2019 to 31.12.2019||In terms of Circular No. 193/05/2023, unmatched ITC to be claimed on the basis of declaration of supplier / CA / CMA Certificate as tax is paid the Government
1. If ITC difference is more than Rs. 5 lacs in a Financial Year submit CA/CMA certificate
2. If ITC difference is upto Rs. 5 lacs in a Financial Year submit Supplier Declaration
|upto 20% of eligible ITC reflected in GSTR-2A|
|01.01.2020 to 31.12.2020||upto 10% of eligible ITC reflected in GSTR-2A|
|01.01.2021 to 31.12.2021||upto 5% of eligible ITC reflected in GSTR-2A|
|01.01.2022 onwards||Compulsory matching of ITC with GSTR-2B as per Section 16 (2) (aa) of CGST Act, 2017.||Not applicable|
It is appreciated that CBIC has brough solution to resolve the issues of mismatch of ITC due to genuine mistakes by Suppliers, however, issue is not completely ironed out for the period from 09.10.2019 to 31.12.2021 by putting restrictions on submissions of CA/CMA certificate / declaration for ITC mismatch upto 20%/ 10%/ 5%.
GST Department would raise dispute where ITC mismatch is more than 20%/ 10%/ 5% during the respective period, taxpayer may get the Notices even if their ITC is genuine but not matching due following reasons:
- Supplier reported invoice with wrong GSTIN.
- Supplier reported invoice to different GSTIN of same recipient.
- Supplier forgot to report invoice in GSTR-1, but tax is paid in GSTR-3B.
Even though ITC mismatch is more than limit of additional credit but not matched due to above bona-fide errors, no ITC is required to be reversed as the tax has been paid to the government.
The Taxpayer (recipient) should ensure that in cases where ITC unmatched is higher than 20%/ 10%/ 5% during the period from 09.10.2019 to 31.12.2021, obtain proactively CA/CMA certificate that supplier has paid tax to the Government in all such cases of unmatched ITC without waiting for Notices to be issued by the GST Department.
Keeping such record ready will be a good defence against the demand raised by the Department and recipient can claim that if at all any dispute to be raised for ITC it can be first raised with the Supplier in accordance with the ratio laid down by the Hon’ble High Court of Madara in case of D.Y. Beathel Enterprises Vs State Tax Officer, that before initiating recovery from the recipient / buyer inquiry shall be made first against supplier.
Similarly, Hon’ble High Court of Kerala in case of Diya Agencies vs. State Tax Office held that non-reflection of ITC in GSTR 2A should not be an automatic ground for denial of ITC. Taxpayers should be given an opportunity to prove the genuineness of their claims, ensuring a fair and just application of tax law.
Having said that above, two cases law would be helping to take a stand that inquiry to be made first with Supplier. However, Hon’ble Supreme Court in case of Union of India (UOI) v. Bharti Airtel Ltd. And Others held that GSTR-2A is only a facilitator and the Petitioner was required to do its own self-assessment of its transaction and exercise the option to avail and utilize the eligible ITC.
Prior to 1st January 2022, where it was not mandatory to claim ITC after matching with GSTR-2B and for transactions on which ITC is claimed, the taxpayer should ensure that the Supplier has filed GSTR-3B return and ITC is reflected in GSTR-2A, if ITC is not reflected in GSTR-2A, seek declaration or CA/CMA Certificate from Supplier that tax in respect of such supply has been paid to the Government by the supplier, so that condition for availment of ITC under section 16(2)(c)of CGST Act,2017 would be satisfied.