Section 42 provides for procedure of matching of reduction in output tax through CN by supplier with the corresponding reduction in claim of ITC by the recipient.

Meaning of claims for reduction in output tax liability

When supplier issues credit note, then it reduces output tax liability of supplier.

Section 43 and related rule 73, 74, 75, 76 and 77 was omitted wef 01-10-2022. Before omission, related provision were as follows.

Section 43(1)

The details of every credit note relating to outward supply furnished by the supplier for a tax period shall, in such manner and within such time as may be prescribed, be matched–

(a) with the corresponding reduction in the claim for ITC by the corresponding recipient in his valid return for the same tax period or any subsequent tax period; and

(b) for duplication of claims for reduction in output tax liability.

Rule 73

The following details of CN shall be matched u/s 43 after the due date for furnishing the return in GSTR-3, namely:-

(a) GSTIN of the supplier;

(b) GSTIN of the recipient;

(c) credit note number;

(d) credit note date; and

(e) tax amount:

Provided that where the time limit for furnishing GSTR-1 u/s 37 and GSTR-2 u/s 38   has been extended, the date of matching of claim of reduction in the output tax liability shall be extended accordingly:

Provided further that the Commissioner may, by order, extend the date of matching relating to claim of reduction in output tax liability to such date as may be specified therein.

Explanation to Rule 73

For the purposes of this rule, it is hereby declared that –

(i) the claim of reduction in output tax liability due to issuance of credit notes in GSTR-1 that were accepted by the corresponding recipient in GSTR-2 without amendment shall be treated as matched if the said recipient has furnished a valid return.

(ii) the claim of reduction in the output tax liability shall be considered as matched where the amount of output tax liability after taking into account the reduction claimed is equal to or more than the claim of input tax credit after taking into account the reduction admitted and discharged on such credit note by the corresponding recipient in his valid return.

Section 43(2) read with Rule 74(1)

The claim for reduction in output tax liability (i.e CN) by the supplier that matches with the corresponding reduction in the claim for ITC by the recipient

shall be finally accepted and communicated, electronically to supplier in FORM GST MIS-1 through the common portal.

Rule 74(2)

The claim of reduction in output tax liability (i.e. CN) in respect of any tax period which had been communicated as mis-matched 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.

Section 43(3) read with Rule 75(1)

Where the reduction of output tax liability through CN exceeds the corresponding reduction in the claim for ITC or the corresponding credit note is not declared by the recipient in his valid returns,

the discrepancy shall be communicated to supplier making such claim electronically in GST MIS-1 and the recipient electronically in GST MIS-2 through the common portal on or before the last date of the month in which the matching has been carried out.

Rule 75(2)

A supplier to whom any discrepancy is made available u/sr (1) may make suitable rectifications in the statement of outward supplies to be furnished for the month in which the discrepancy is made available.

Explanation to Rule 75

(i) rectification by a supplier means deleting 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;

Rule 75(3)

A recipient to whom any discrepancy is made available u/sr (1) may make suitable rectifications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available.

Explanation to Rule 75

(ii) rectification by the recipient means adding or correcting the details of an inward supply so as to match the details of corresponding outward supply declared by the supplier.

Section 43(5) read with Rule 75(4)

The amount in respect of which any discrepancy is communicated u/ss (3) and

which is not rectified by the recipient in his valid return for the month in which discrepancy is communicated

shall be added to the output tax liability of the supplier, and debited to the electronic liability register and also shown in his return in GSTR-3 for the month succeeding the month in which the discrepancy is made available.

Section 43(4) read with rule 76

The duplication of claims for reduction in output tax liability shall be communicated to the supplier in GST MIS-1 electronically through the common portal.

Section 43(6)

The amount in respect of any reduction in output tax liability that is found to be on account of duplication of claims shall be added to the output tax liability of the supplier in his return for the month in which such duplication is communicated.

Section 43(8)

A supplier in whose output tax liability any amount has been added u/ss (5) or (6),

shall be liable to pay interest at the rate specified u/s 50(1) in respect of the amount so added from the date of such claim for reduction in the output tax liability till the corresponding additions are made under the said sub-sections.

Section 43(7)

The supplier shall be eligible to reduce, from his output tax liability, the amount added under sub-section (5) if the recipient declares the details of the credit note in his valid return within the time specified u/s 39(9).

Section 43(9) read with Rule 77

Where any reduction in output tax liability is accepted u/ss (7),

the interest paid u/ss (8) shall be refunded to the supplier on claim by the RP in his return GSTR-3 and shall be credited to his electronic cash ledger in GST PMT-05 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.

Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the recipient.

Section 43(10)

The amount reduced from output tax liability in contravention of sub-section (7) shall be added to the output tax liability of the supplier in his return for the month in which such contravention takes place and such supplier shall be liable to pay interest on the amount so added at the rate specified u/s 50(3).