Sec 42 – Matching, reversal and reclaim of input tax credit

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Sec 42 – Matching, reversal and reclaim of input tax credit 2017-04-14T14:51:11+00:00

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  • Ashish BadalaCA Ashish Badala
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    (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 sub-section (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 sub-section (5) or sub-section (6), shall be liable to pay interest at the rate specified under sub-section (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.

    Priya MadrechaPriya Madrecha
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    42.1    Introduction
    This provision relates to matching, reversal and reclaim of input tax credit.
    42.2    Analysis
    A.    Matching, reversal and reclaim envisages the following circumstances
    Situation     Remarks
    All Transactions where Input credit details of recipient are matched for output tax as
    stated by supplier and recipient     The transaction is treated as matched ( see Para B below – Matched transactions)
    Transactions where input credit as claimed by the recipient is less than the output tax as declared by the supplier in their return     The transaction is treated as matched (see Para B below – Matched transactions)
    Transactions where the input tax credit is duplicated by the recipient      Shall be communicated to the registered person in FORM GST MIS 1 (see Para C below –
    Duplicated transactions of recipient)
    Transactions where the claim for input tax credit is higher than the output tax as declared by the supplier      Shall be added to the output tax liability of the recipient ( See Para D below)
    Transactions where the claim for input tax credit is higher than the output tax as declared by the supplier because the supplier has not furnished a particular transaction      Shall be added to the output tax liability of the recipient ( See Para D below)
    Interest on such mismatched transactions      See Para E below
    B.    Matched Transactions
    (i)    The details in a return of inward supplies of a recipient should be matched in prescribed time and manner
    —     With Outward supplies furnished by corresponding taxable person in his return (supplier)
    — With IGST paid on goods imported under Section 3 of the Customs Tariff Act 1975 which represents the Additional Duty of Customs (for which Credit was available under the erstwhile Central Excise Act)
    —     To identify any duplicate claims of input tax credit
    (ii)    When the claim for input tax credit in respect of inward supplies matches with the corresponding outward supply or IGST in respect of goods imported, the same shall be finally accepted and communicated to the recipient in the prescribed manner.
    (iii)    Rule 10 of draft rules return – Matching of claim of input tax credit
    The following details relating to the claim of input tax credit on inward supplies including IGST claimed on imports shall be matched after the due date for furnishing the return in FORM GSTR-3 (Final return with payment of tax to be filed on or before 20th of the following month). The matching is done for the following parameters based on the GSTIN of the Supplier and the recipient
    (a)    GSTIN of the supplier;
    (b)    GSTIN of the recipient;
    (c)    Invoice/ or debit note number;
    (d)    Invoice/ or debit note date;
    (e)    taxable value; and  (f)      tax amount:
    It may be noted that if the supplier has not paid the tax and / or not filed the return on or before the due date (or extended due date, if any), the return filed by him shall not be treated as a valid return for the purposes of the above matching exercise. The transactions between the parties interest, will be treated as unmatched
    The rule provides for two specific circumstances, where the claims for input tax credit are treated as Matched
    (a)    Where the claim of input tax credit in respect of invoices and debit notes in FORM GSTR-2 that were accepted by the recipient on the basis of FORM GSTR-2A without amendment, if the corresponding supplier has furnished a valid return.
    (b)    Where the amount of input tax credit claimed is equal to or less than the output tax paid on such tax invoice or debit note by the corresponding supplier.
    Note :
    However, where the time limit for furnishing FORM GSTR-1 specified under section 37 and FORM GSTR-2 specified under section 38 has been extended, the date of matching relating to claim of input tax credit shall also be extended accordingly.
    (iv)     Rule 11. Final acceptance of input tax credit and communication thereof
    The final acceptance of claim of input tax credit in respect of any tax period, shall be made available electronically in FORM GST MIS -1 through the Common Portal.
    The claim of input tax credit in respect of any tax period which had been communicated as mismatched but is found to be matched after rectification by the supplier or recipient shall be finally accepted and made available electronically to the person making such claim in FORM GST MIS – 1 through the Common Portal.
    C.    Duplicate Transactions
    The duplication of claims of input tax credit shall be communicated to the recipient in such manner as stated below. Further, the amount claimed as input tax credit that is found to be in excess on account of such 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.
    Rule 13. Claim of input tax credit on the same invoice more than once
    Duplication of claims of input tax credit in the details of inward supplies shall be communicated to the registered person in FORM GST MIS – 1 electronically through the Common Portal
    D.    Input tax claim is higher than output tax for a tax period as declared
    Where the credit claimed in respect of inward supplies is in excess when compared to the tax declared by the supplier or where the supplier has not at all declared the outward supply in his return, the discrepancies will be communicated to both parties
    When discrepancies communicated to the outward supplier are not rectified by supplier in a valid return for the month (not by revision of return for the month in which the discrepancy occurred within 17th), the tax amount involved will be added to the output liability of the recipient for the month succeeding the month in which the discrepancy is communicated
    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 furnished for the month during which such omission or incorrect particulars are noticed and interest is paid as required under this Act
    Rule 12. Communication and rectification of discrepancy in claim of input tax credit and reversal of claim of input tax credit
    Any discrepancy in the claim of input tax credit in respect of any tax period, specified specified in (iii) above and the details of output tax liable to be added by the recipient of supply as per (v) above on account of continuation of such discrepancy shall be made available to the registered person making such claim electronically in FORM GST MIS -1 and to the supplier electronically in FORM GST MIS-2 through the Common Portal on or before the last date of the month in which the matching has been carried out.
    The supplier to whom discrepancy is made available as above may make suitable rectifications in the statement of outward supplies to be furnished for the month in which the discrepancy is made available.
    Similarly, a recipient to whom any discrepancy is made available as above may make suitable rectifications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available within the time permitted.
    Where the discrepancy is not rectified by neither the supplier nor the recipient of supply, an amount to the extent of discrepancy shall be added to the output tax liability of the recipient in his return to be furnished in FORM GSTR-3 for the month succeeding the month in which the discrepancy is made available.
    Explanation 1. – Rectification by a supplier means adding or correcting the details of an outward supply in his valid return so as to match the details of corresponding inward supply declared by the recipient.
    Explanation 2. – Rectification by the recipient means deleting or correcting the details of an inward supply so as to match the details of corresponding outward supply declared by the supplier.
    E.     Interest on mismatched transactions
    Recipient will be liable to payment of interest in every case when discrepancy is added for the period starting from the date of availing the credit till the corresponding additions are made.
    If the supplier declares the details of invoice or debit note in his valid return filed within the time specified u/s 39(9) i.e. before the due date of filing of the return for the month of September of the subsequent financial year or filing of annual return whichever is earlier the recipient is eligible to reduce from his output tax liability the amount so added earlier.
    In case of such reduction in output tax liability, he is entitled for refund of interest paid as per (vi) above. However this interest shall not exceed the amount of interest paid by the supplier.
    A Comprehensive Illustration
    The recipient of supply has filed his return for the month of July, 2017 on 20th of August, 2017. The mismatch, not rectified either by recipient of supply or by the supplier shall be communicated to both on 31/08/2017.
    The supplier ideally should make rectification in his statement of outwards supply for the month of August 2017. Similarly the recipient may make rectification in the statement of inward supplies for the month of August, 2017. If neither of them rectify or only partially rectify the tax relating to unrectified value shall be added to the output tax liability of the recipient of supply in his return in FORM GSTR-3 for the month of September 2017. Interest is to be paid on such addition.
    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 2018, the recipient of supply can reduce the relevant tax amount from the output tax liability for the month of January 2018. He is also eligible for the refund of interest paid earlier.
    Example – 1
    Supplier      A Limited     A Limited
    Recipient      B Limited      B Limited
    Date of transaction     13-Jul-17     13-Jul-17
    Taxable value       1,000,000       1,000,000
    Tax rate      18%     18%
    Nature of error by B Limited      Duplication     Duplication
    Return by supplier on (due – 20 Aug)     19-Aug-17     19-Aug-17
    Communicated to parties on (due 31 Aug)     30-Aug-17     30-Aug-17
    Rectified by B Limited on      05-Sep-17     05-Sep-17
    Impact
    Add to output tax liability for Aug 2017      180,000       180,000
    Interest      18%     18%
    Return filed and paid on      20-Sep-17     20-Sep-17
    Period of interest (days)     69     32
    Interest amount      6,124.93       2,840.55
    Example – 2
    A Ltd supplies manufactured goods to B Ltd for Rs 1000 in May 2017; CGST thereon is, say, Rs. 120. Unfortunately, A Ltd did not furnish these details in its outward supply to B Ltd.
    While matching the credit, B Ltd failed to set this right and went ahead with credit claim and utilized the credit against CGST liability. Later, GST officer intimates this mismatch, say by August 2017. In the absence of A Ltd’s due response, B Ltd may pay back the credit with interest (for wrong credit).
    A Ltd rectifies the outward return with details omitted earlier, in October 2017. Accordingly, B Ltd can certainly take back the credit earlier reversed.
    Example – 3
    A Ltd, the supplier failed to furnish right details in time. B Ltd the recipient of supply had to pay back the credit utilised for mismatching credit figures, with interest.
    Of late, A Ltd has corrected its returns reflecting B Ltd’s name and interest for the same paid by A Ltd. B Ltd is entitled for the credit now; it is eligible to claim back the interest paid. This interest cannot exceed the interest paid by A Ltd.

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