Matching, reversal and reclaim of input tax credit of invoice and debit notes
As per section 42(1) of CGST Act, the details of every inward supply furnished by registered person (hereafter referred to as ‘recipient’) for a tax period are matched for following —
(a) with the corresponding details of outward supply furnished by the corresponding registered person (hereinafter referred to in this section as the ‘supplier’) in his valid return for the same tax period or any preceding tax period.
(b) with the IGST paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by and
(c) for duplication of claims of input tax credit.
Claim of ITC accepted or not accepted are communicated to recipient – 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 IGST paid on imports shall be finally accepted and such acceptance shall be communicated to the recipient in prescribed manner- section 42(2) of CGST Act.
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 the manner as may be prescribed – section 42(3) CGST Act.
The duplication of claims of input tax credit shall be communicated to the recipient in prescribed manner – section 42(4) of CGST Act.
Intimation of 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 – rule 13 of Return Rules.
If discrepancy not rectified, it will be added as output tax liability in next month – The amount in respect of which any discrepancy is communicated under section 42(3) and which is not rectified by the supplier in his valid return for the month in which the discrepancy is communicated shall be added to the output tax liability of the recipient in his return for the month succeeding the month in which the discrepancy is communicated – section 42(5) of CGST Act.
Duplication of claims to be added as liability – 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 – section 42(6) of CGST Act.
Adjustment if supplier files declares details in his valid return – The recipient shall be eligible to reduce, from his output tax liability, the amount added under section 42(5,) if the supplier declares the details of the invoice and/or debit note in his valid return within the time specified in section 39(9) of CGST Act – section 42(7) of CGST Act.
Note that under section 39(9) of CGST Act, rectification or correction is possible upto return of next September or filing of Annual Return for financial year, whichever is earlier.
Interest payable by supplier if output tax liability added – A recipient in whose output tax liability any amount has been added under section 42(5) or section 42(6), shall be liable to pay interest at the rate specified under section 50(1) on the amount so added from the date of availing of credit till the corresponding Refund of Interest to taxable person if reduction in output liability accepted – Where any reduction in output tax liability is accepted under section 42(7), the interest paid under section 42(8) shall be refunded to the recipient by crediting the amount in the corresponding head of his electronic cash ledger – section 42(9) of CGST Act.
The amount of interest to be credited in any case shall not exceed the amount of interest paid by the supplier – proviso to section 42(9) of CGST Act.
Procedure for refund of interest paid on reclaim of reversals – The interest to be refunded under section 42(9) or section 43(9) of shall be claimed by the registered person in his return in form GSTR-3 and shall be credited to his electronic cash ledger in FORM GST PMT-3 and the amount credited shall be available for payment of any future liability towards interest or the taxable person may claim refund of the amount under
section 54 of CGST Act – rule 18 of Return Rules.
Interest payable if output tax liability in contravention of provision – The amount reduced from the output tax liability in contravention of the provisions of section 42(7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place. The recipient shall be liable to pay interest on the amount so added. Interest will be at rate specified in section 50(3) of CGST Act – section
42(10) of CGST Act.