Section 42 of GST – Matching, reversal and reclaim of input tax credit
(1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the “recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched-
(a) with the corresponding details of outward supply furnished by the corresponding registered person (hereafter in this section referred to as the “supplier”) in his valid return for the same tax period or any preceding tax period,(b) with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him, and(c) for duplication of claims of input tax credit.
(2) The claim of input tax credit in respect of invoices or debit notes relating to inward supply that match with the details of corresponding outward supply or with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him shall be finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the recipient.(3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.(4) The duplication of claims of input tax credit shall be communicated to the recipient in such manner as may be prescribed.(5) The amount in respect of which any discrepancy is communicated under subsection (3) and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the month in which the discrepancy is communicated.(6) The amount claimed as input tax credit that is found to be in excess on account of duplication of claims shall be added to the output tax liability of the recipient in his return for the month in which the duplication is communicated. (7) The recipient shall be eligible to reduce, from his output tax liability, the amount added under sub-section (5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39. (8) A recipient in whose output tax liability any amount has been added under subsection (5) or sub-section (6) shall be liable to pay interest at the rate specified under subsection (1) of section 50 on the amount so added from the date of availing of credit till the corresponding additions are made under the said sub-sections. (9) Where any reduction in output tax liability is accepted under sub-section (7), the interest paid under sub-section (8) shall be refunded to the recipient by crediting the amount in the corresponding head of his electronic cash ledger in such manner as may be prescribed Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the supplier. (10) The amount reduced from the output tax liability in contravention of the provisions of sub-section (7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place and such recipient shall be liable to pay interest on the amount so added at the rate specified in sub-section (3) of section 50.
Introduction
This provision relates to matching, reversal and reclaim of input tax credit. However, the provisions of section 42 shall not be applicable for the financial year 2017-18 and 2018-19 due to deferment of filing of Form No. GSTR-2 and GSTR-3. However, the matching of input tax credit and verification of output tax liability would still be done on the basis of GSTR 1 furnished for outward supplies and amount of credit availed by recipient apart from values as made available to him in his Form GSTR 2A, the facility of which is still available to both registered persons as well as to exchequer to ensure that there is no mismatch in output tax paid or payable / input tax credit availed or available, as the case may be. Further, vide Notification No. 49/2019 C.T. dated 09.10.2019 inserted new sub-rule (4) to rule 36 of the CGST Rules, 2017; whereby restricting taking of input tax credit in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37 of the CGST Act, 2017. Accordingly, the Input tax credit was restricted to 10% of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers.The following principal was laid down by the above referred sub-rule:
The restriction of taking of Input tax credit is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under subsection (1) of section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of sub-section (1) of section 37, provided that eligibility conditions for taking of ITC are met in respect of the same.The particulars of the invoice in the Form GSTR-2A have to be matched with the inward register maintained under section 35 of the CGST Act, 2017.The supplier has to calculate 10%. of the eligible credit available based on only those invoices which are otherwise eligible for ITC as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period.The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. The receiver can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 10 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers.
Analysis
A. Matching, reversal and reclaim envisages the following circumstances Illustration:The recipient of supply has filed his return for the month of July, 2018 on 20th of August, 2018. There is mismatch in the amount of input tax credit availed and amount of tax paid by the supplier on the particular tax invoice, the discrepancy will be made available to recipient in Form GST MIS-1 and to the supplier in Form GST MIS-2 by 31st day of August 2018 through the common portal. In this case one has to understand who has committed the error and who should rectify – whether the supplier shall make rectification in their GSTR 1 to be submitted for the month of August 2018 OR the recipient shall make rectification in Form GSTR 2 to be submitted for the said month i.e., August 2018. In such a situation, if the supplier has committed the error and corrects it in his GSTR 1 to the said extent there will be increase in his output tax, along with applicable interest. Similarly, if the error has been committed by the recipient and he corrects it in Form GSTR 2, then to the said extent there will be reduction in the amount of input tax credit available for payment of taxes. However, if neither the supplier nor the recipient rectifies the discrepancy, then the difference amount will get added to the output tax liability of the recipient of supply in his return in FORM GSTR-3 / GSTR 3B as the case may be for the month of September 2018. The said differential amount shall be payable by recipient along with applicable interest. However, if the supplier declares the invoice or debit note in any subsequent month but before the time limit prescribed, say in the month Jan 2019, the recipient of supply can reduce the relevant tax amount from the output tax liability for the month of January 2019. Further, recipient will also be eligible for refund of interest paid earlier and the said amount will get credited to electronic cash ledger under the head of interest and can be utilised for any payment towards interest in future.Recommended Articles –
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