GST UPDATE ON REVERSAL OF CREDIT VIA DRC-03

Circular No. 88/07/2019- CGST Act dated 1st February 2019 ratifies Changes in certain Circulars issued earlier under the CGST Act, 2017. This epistle emphasizes on clarifications made in Circular No. 58/32/2018 dated 04.09.2018.

The said circular dealt with recovery of arrears of wrongly availed CENVAT credit under the existing law and inadmissible transitional credit in cash. Before proceeding further, an analysis of the term existing law is necessary. As per section 2(48) of the CGST Act, 2017-
Existing law means any law, notification, order, rule or regulation relating to levy and collection of duty or tax on goods or services or both passed or made before the commencement of the GST Act by Parliament or any Authority or person having the power to make such law, notification, order, rule or regulation. Transitional Credit means carry forwarding of eligible duties as prescribed in explanation 1of Section 140 of the CGST Act, 2017. All the migrated tax payers were required to file GST TRAN 1 before 27th December 2017 in order to carry forward Cenvat credit of pre GST regime.

The government here uses the words “existing law” to indicate that if any taxpayer has taken any inadmissible credit in the earlier tax regime in the eyes of law, then such wrongly availed credit cannot be now reversed in table 4(B)(2) in form GSTR-3B. Let’s understand this with the help of an example.
Mr. Sanjay is a service provider, registered in the Finance Act,1991. While filing ST-3, he had availed Cenvat credit of Rs 10,000 in respect of the inputs consumed. Departmental audit was conducted after the implementation of GST wherein it was alleged that the Cenvat Credit so availed by him amounting to RS 10,000 was invalid as per the law.
Before the circular was issued, the only method for payment of such liability was reversal of wrongly availed credit in column 4(B)(2) in monthly return i.e. GSTR 3B.
Circular No. 88/07/2019- CGST Act states that the alternate method explained in Circular No. 58/32/2018 of reversing the credit in Table 4(B) (2) in form GSTR-3B if wrongly availed, will now not be allowed to the taxpayers. From 1st February 2019 onwards, any such invalid credit is to be paid in cash vide Form GST DRC-03 along with interest and penalty if any. Form DRC-03 enables a taxpayer to make voluntary payments, before issue of notice u/s 73 or 74 of the CGST Act, 2017 or within 30 days of issue of show cause notice (SCN).It is for Intimation of payment made voluntarily or made against the show cause notice (SCN) or statement notified under rule 142(2) & 142 (3) of CGST Rules, 2017.
This circular raises another question in line “Whether such alternate method will be made applicable in all cases of reversal by the department in future?” but there seems no such intention and only payment in cash of cenvat credit is applicable in cases where the credit is taken in erstwhile regime.

But again raises a question that why an assessee should be penalized for change of regime. He has not utilized this credit. He will be penalized even if credit is not utilized and it is lying in balance.

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GST UPDATE ON REVERSAL OF CREDIT VIA DRC-03

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