Close
Receiving a GST notice does not necessarily mean that a business has evaded tax or wrongly claimed Input Tax Credit (ITC).
GST is increasingly a data-driven compliance system.
The GST portal also provides comparison reports for GSTR-1 versus GSTR-3B liability and GSTR-3B ITC versus GSTR-2A/2B.
When these figures do not match, the GST system or the proper officer can identify the difference.
Sometimes the difference represents tax that has actually been short paid or ITC that has been claimed in excess. However, a difference can also arise due to amendments, credit notes, reporting mistakes or transactions being accounted for in different tax periods.
The important point is that a mismatch needs to be reconciled and explained.
In Part 1 of our series on GST notices, we look at three important notices and intimations arising from return scrutiny, turnover/tax liability mismatch and ITC mismatch.
1. Return Scrutiny Notice – ASMT-10
Under Section 61 of the CGST Act, the proper officer can scrutinise a return and the related particulars furnished by a registered taxpayer to verify whether the return is correct.
If a discrepancy is noticed during scrutiny, Rule 99 provides for a notice in Form GST ASMT-10. The notice informs the taxpayer about the discrepancy and seeks an explanation. Where possible, the officer may also quantify the tax, interest or other amount relating to the discrepancy.
ASMT-10 is therefore broader than a notice relating only to turnover or ITC. It can arise when scrutiny of the returns and information available to the officer reveals a discrepancy requiring an explanation.
Example: Turnover difference noticed during scrutiny
|
Taxable outward supplies in GSTR-1 |
₹1.25 crore |
|
Taxable outward supplies considered while discharging liability in GSTR-3B |
₹1.18 crore |
|
Difference |
₹7 lakh |
At first sight, there is a ₹7 lakh difference between the two returns.
That does not automatically establish that the business concealed ₹7 lakh of turnover.
The difference could, depending upon the facts, arise because an invoice was subsequently amended, a credit note was accounted for differently, a transaction was reported in a different tax period, or an error occurred while filing one of the returns.
The taxpayer therefore needs to establish why the difference arose.
Rule 99 permits the taxpayer either to accept the discrepancy and pay the resulting tax, interest and other amount, or furnish an explanation in Form GST ASMT-11. If the explanation is accepted, the officer communicates acceptance through ASMT-12.
If no satisfactory explanation is furnished, or the taxpayer accepts the discrepancy but fails to take corrective action, Section 61 permits the officer to initiate further proceedings available under the Act.
What should a business check?
The taxpayer should first identify exactly which figures have been questioned.
For a turnover or liability discrepancy, this may require reconciliation of:
GSTR-1 ↔ GSTR-3B ↔ books of account
The business should then examine the relevant invoices, debit notes, credit notes, amendments and the tax periods in which they were reported.
A reply which merely says, “Our returns are correct,” does not explain the discrepancy.
A useful response should demonstrate:
Department’s figure → taxpayer’s figure → reason for the difference → supporting records
ASMT-10 should therefore be treated as an opportunity to explain the discrepancy before it develops into a larger dispute.
2. GSTR-1 vs GSTR-3B Liability Mismatch – DRC-01B
DRC-01B deals with a more specific situation.
GSTR-1 reports details of outward supplies. GSTR-3B is used to report and discharge the corresponding GST liability.
The GST portal compares the liability declared through GSTR-1/IFF with the liability reported through GSTR-3B. Where the difference exceeds the predefined system parameters, an intimation can be generated in Form GST DRC-01B.
The taxpayer then needs to deal with the difference through Part B of DRC-01B.
Example: GSTR-1 liability is higher
|
GST liability as per GSTR-1 |
₹9,00,000 |
|
GST liability reported in GSTR-3B |
₹8,20,000 |
|
Difference |
₹80,000 |
The system identifies an apparent shortfall of ₹80,000.
But before concluding that ₹80,000 is payable, the business should reconcile the transactions behind the difference.
Suppose an invoice was wrongly included in GSTR-1 and was subsequently amended. The taxpayer needs to identify the amendment and provide the appropriate explanation.
Alternatively, the reconciliation may reveal that the invoice was correctly reported in GSTR-1 but its corresponding tax liability was accidentally omitted from GSTR-3B.
In that situation, there may indeed be tax that needs to be paid along with the consequences prescribed by law.
The same ₹80,000 mismatch can therefore represent two very different situations:
Situation 1: A reporting/reconciliation difference that can be explained.
Situation 2: An actual short payment of GST that needs corrective action.
That is why receiving DRC-01B should lead first to reconciliation, not an automatic assumption either that the Department is wrong or that the entire difference must be paid.
What should be reconciled?
GSTR-1 → GSTR-3B → invoices → amendments → debit/credit notes → books of account
The GST portal provides taxpayers with a comparison report showing liability declared in GSTR-1 and GSTR-3B, including shortfall or excess for the tax period and cumulatively for the financial year.
If the taxpayer agrees with the difference, payment can be made through the prescribed mechanism. If the taxpayer does not agree, Part B of DRC-01B provides the mechanism for responding to the intimation.
Ignoring DRC-01B can also affect future compliance. GSTN states that where the required response in Part B is not filed, the taxpayer will not be able to file GSTR-1/IFF for the subsequent tax period.
Therefore, even a completely explainable difference needs a timely response.
3. GSTR-2B vs GSTR-3B ITC Mismatch – DRC-01C
The third situation concerns Input Tax Credit.
The GST system compares the ITC available according to GSTR-2B with the ITC claimed by the taxpayer in GSTR-3B.
Where the ITC claimed in GSTR-3B exceeds the ITC available in GSTR-2B beyond a predefined limit, the taxpayer receives an intimation in Form GST DRC-01C. The taxpayer must then file Part B and deal with the difference.
Example: ITC claimed is higher than GSTR-2B
|
ITC available as per GSTR-2B |
₹6,40,000 |
|
ITC claimed in GSTR-3B |
₹7,10,000 |
|
Difference |
₹70,000 |
The GST system sees an apparent excess ITC claim of ₹70,000.
Again, the existence of the difference does not by itself tell us why it occurred.
The business should compare its purchase register, GSTR-2B and GSTR-3B and trace the ₹70,000 difference to the underlying invoices.
Suppose the reconciliation shows that an eligible invoice was accidentally considered twice while preparing GSTR-3B. In that case, the business has identified an actual excess ITC claim and can take the appropriate corrective action.
But suppose the difference arises from another identifiable reporting or reconciliation issue. The taxpayer can provide an explanation in Part B of DRC-01C.
GSTN provides three broad ways of responding: the taxpayer can provide details of payment made towards the discrepancy, provide an explanation for the difference, or use a combination of payment and explanation.
Do not confuse an ITC mismatch with fake ITC
A GSTR-2B versus GSTR-3B mismatch means that the ITC figures do not agree and require reconciliation.
It does not, merely because a difference exists, establish that the taxpayer created fake invoices or fraudulently claimed ITC.
There are also situations where the figures may match perfectly but the Department questions whether the ITC was legally eligible. For example, a particular expenditure may fall within a category of blocked credit.
There can also be cases where a genuine buyer made a genuine purchase from a registered supplier, but the supplier subsequently stopped complying with GST, closed the business or became untraceable.
And there are much more serious cases where the Department alleges that the invoice or underlying transaction itself was fictitious.
These situations raise different factual and legal questions. They should not all be described simply as a “GSTR-2B mismatch.” We will deal with eligibility, supplier-related and fraud allegations separately in this series.
What happens if DRC-01C is ignored?
The taxpayer is required to file Part B of DRC-01C to reconcile the difference.
GSTN states that if the taxpayer fails to file the response, GSTR-1/IFF for the subsequent tax period cannot be filed.
This means that even where the business has a valid explanation, simply ignoring the intimation can interfere with subsequent GST compliance.
The practical response should therefore begin with:
GSTR-2B → GSTR-3B → purchase register → individual invoices
Once the difference has been identified, the taxpayer can determine whether it requires payment/reversal, an explanation, or a combination of the two.
What should you do when you receive a GST mismatch notice?
These three notices have different purposes, but the basic response discipline is similar.
First, identify the tax period and exact discrepancy mentioned in the notice or intimation.
Second, reproduce the Department’s calculation independently. Do not assume either that the system figure is wrong or that it must necessarily be correct.
Third, reconcile the relevant returns with the books and transaction documents.
Fourth, identify whether the difference represents a reporting/reconciliation difference, an actual tax or ITC error, or a legal dispute about the treatment of a transaction.
Finally, respond to the specific discrepancy with the reconciliation and supporting documents.
The objective is not merely to reply to the notice. It is to make it possible for the officer or system to understand why the difference exists and how it should be treated.
A mismatch does not automatically mean tax evasion
The GST system allows tax liability and ITC reported through different returns to be compared quickly. GSTN’s comparison facility provides taxpayers with GSTR-1 versus GSTR-3B liability comparisons and GSTR-3B versus GSTR-2A/2B ITC comparisons.
This makes discrepancies easier to identify.
But a mismatch is the starting point for reconciliation, not automatically proof of wrongdoing.
A ₹1 lakh difference can arise because ₹1 lakh of tax was genuinely unpaid. It can also arise because an invoice was amended, a credit note was accounted for differently or a transaction was reported in another tax period.
The difference between these situations is established through reconciliation and evidence.
For businesses, regular reconciliation of GSTR-1, GSTR-3B, GSTR-2B and the books of account is therefore an important part of GST compliance.
If a difference is identified internally, the business has an opportunity to understand and address it. If the Department identifies it first, the same exercise will have to be carried out while responding to a notice or intimation.
Either way, the fundamental question remains the same: What caused the difference, and can the business demonstrate it from its records?
Publishing Metadata
|
Suggested SEO Title |
GST Notices Explained – Part 1: ASMT-10, DRC-01B & DRC-01C Mismatch Notices |
|
Meta Title |
GST Mismatch Notices: ASMT-10, DRC-01B & DRC-01C |
|
Meta Description |
Understand GST notices for return scrutiny, GSTR-1 vs GSTR-3B liability mismatch and GSTR-2B vs GSTR-3B ITC mismatch, with practical examples and response guidance. |
|
Suggested URL Slug |
gst-notices-asmt-10-drc-01b-drc-01c-mismatch |
|
Primary Keyword |
GST mismatch notices |
|
Secondary Keywords |
ASMT-10 notice; DRC-01B; DRC-01C; GSTR-1 GSTR-3B mismatch; GSTR-2B GSTR-3B ITC mismatch; GST scrutiny notice |
|
Series |
GST Notices Explained – Part 1 |
|
Suggested Category |
GST / Indirect Tax |
|
Suggested Tags |
GST Notices, GST Scrutiny, ASMT-10, DRC-01B, DRC-01C, Input Tax Credit, GSTR-1, GSTR-2B, GSTR-3B |
Disclaimer
This article is intended for general informational and educational purposes only. It is based on the GST law, rules and portal procedures applicable as understood on the date of publication and should not be treated as legal, tax or professional advice. GST notices and proceedings depend on the facts of each case, the relevant tax period and the law applicable to that period. Readers should review the actual notice, supporting records and applicable provisions and obtain advice from a qualified professional before taking any action. The examples used in this article are illustrative and do not represent any particular taxpayer or transaction.
Official References Used for Verification
Central Goods and Services Tax Act, 2017 – Section 61 (Scrutiny of Returns).
Central Goods and Services Tax Rules, 2017 – Rule 99 and Forms ASMT-10, ASMT-11 and ASMT-12.
GST Portal guidance – Return Compliance in Form DRC-01B (GSTR-1/IFF vs GSTR-3B liability difference).
GST Portal guidance – Return Compliance in Form DRC-01C (GSTR-2B vs GSTR-3B ITC difference).
GST Portal guidance – Comparison of liability declared and ITC claimed.
