CA Hemant Singhal
Model GST law has introduced concept of Matching which forms the backbone of ITC (Input Tax Credit) under the GST regime. Section 29, (Matching, reversal and reclaim of ITC) practically explains how ITC will be allowed under GST. It states that ITC of the recipient for inward supply to be accepted only if corresponding outward supply of supplier is matched. Before going to the Matching concept firstly we need to understand returns and how they are populated.
GSTR 1 (Details of Outward Supply)
Details of all the outward supplies during the month made by the registered taxable person (supplier) to be furnished in GSTR 1 by 10th of succeeding month. Outward supplies include Taxable Supply, Zero Rated Supply, Exempt Supply, Purchase Return, exports, interstate supply, supplies made to unregistered dealers (consumers), supplementary invoices, Non GST Supplies, debit/ credit notes. Advances received during the month are also required to be furnished in the return of the month in which they are received as ‘Time of supply’ as per Sec 12 is earlier of Invoice Issued, Goods Transferred, goods shown in the books of recipient or advance received. For each outward supply tax liability (IGST, CGST and SGST) is also required to be furnished. Information furnished in GSTR 1 will be used for calculation of Output Tax Liability in GSTR 3.
GSTR 2 (Details of Inward Supply)
Details of Inward supply for every registered taxable person (recipient) are automatically populated on the basis of GSTR 1 furnished of the corresponding supplier. So on the basis of GSTR 1 furnished by various suppliers’ of registered taxable person his details of Inward Supply (GSTR2) will be automatically populated by the GSTN Portal. However the details auto- populated are required to be verified by the recipient. For the supplies where recipient is not in agreement with details furnished by the supplier, he is allowed to modify or delete the inward supply auto populated. Further he is required to add details of any other inward supplies received by him (Supplies form Unregistered supplier, supplies not furnished by registered supplier, Import of Goods/ services).
Details of all the Inward supplies so obtained after verifying, modifying, deleting the auto populated details (auto- populated on the basis of GSTR1 of corresponding supplier) and further adding any other supplies received is required to be furnished in GSTR 2 every month electronically by 15th of succeeding month. For each inward supply eligibility of ITC and quantum thereof is also required to be furnished in the return. Information furnished in GSTR 2 will be used for calculation of Input Tax credit in GSTR 3.
GSTR 3 (Monthly Return)
Every registered taxable person shall for every calendar month furnish a return (GSTR 3) of Inward and outward supply, ITC , Tax payable and Tax paid by 20th of succeeding month. All the claims of ITC as self assessed shall be provisionally accepted as per section 28 and are credited in electronic credit ledger of the registered person. Return submitted without payment of tax will not be treated as valid return and thus ITC for such supplies will be later denied to the recipient of goods.
MATCHING, REVERSAL AND RECLAIM OF ITC (Sec 29)
After due date of filling monthly return in GSTR 3, details of every inward supply furnished in GSTR 2 shall be matched with corresponding details of outward supply furnished in GSTR 1 of the corresponding supplier.
Matched supply: Claim of ITC in respect of inward supply that match with the corresponding outward supply shall be finally accepted. For imports claim of ITC shall be matched with the additional duty of customs paid. (ITC claim earlier provisionally accepted becomes final).
Unmatched Supply: Where ITC claimed by recipient in respect of inward supply is in excess of tax declared by supplier or the outward supply is not declared by the supplier, the discrepancy shall be communicated to both. Duplicate claims if any shall be communicated to the recipient only. Duplicate claims are not required to be communicated to the supplier as they are error only in the GSTR 2 submitted by the recipient. (ITC Claim earlier provisionally accepted continues to be provisionally accepted)
ITC claimed in respect of such inward supply shall be finally accepted only on rectification of discrepancy in the valid return of supplier in the month in which such discrepancy is communicated. (On rectification the supply becomes matched and ITC provisionally accepted becomes final)
Reversal: ITC in respect of which discrepancy is communicated and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added as output tax liability of the recipient in his return GSTR 3 of the month succeeding the month in which discrepancy is communicated. (ITC claim provisionally accepted is reversed as output tax liability of recipient)
ITC of Duplicate claims made by the recipient shall be added to the output tax liability in his return GSTR 3 in the month in which the discrepancy was communicated.
Reclaim: The recipient can reclaim the ITC reversed due to non rectification by supplier when the supplier declares the details of outward supply in his valid return. Such reclaim shall be eligible by the recipient to be reduced from Output Tax liability in his return GSTR 3. However no such reclaim can be made after the due date of filling of return for the month of September following the end of financial year or the Actual date of filling of Annual return whichever is earlier (i.e. 20th October of next financial year or actual date of filling of annual return whichever is earlier).
Similar provisions are inserted in Model GST law for Reduction in Output Tax Liability. Reduction in output tax liability will be claimed in GSTR 1 for credit notes issued by supplier.
Under the GST regime seamless flow of ITC credit will be maintained throughout the supply chain on the basis of details furnished by suppliers and recipients till the chain is not broken by default in furnishing the details of supplies in their valid returns. Thus under GST framework inorder to avail the benefit of ITC not only the recipient of goods has to furnish all the returns and pay taxes due but also ensure that his supplier has also furnished all the returns and paid all the dues under the Act. This is unlike the situation now and will have far reaching impacts on the industry.
SOME BASIC QUESTIONS
1) Credit of Input tax where return is not furnished by the supplier, whether available to the recipient of goods or not?
ITC available to the recipient of goods provisionally. Same can also be utilized for payment of output tax liability. However this will be an unmatched supply thus ITC will be reversed by adding to output tax liability of recipient, if return is not filled by supplier even after communication of discrepancy.
2) Credit of Input Tax where Tax is not deposited by the supplier, whether available to the recipient of goods?
Every registered taxable person shall pay tax due to the credit of government not later than last date of filling GSTR 3. Return furnished without payment of tax shall not be treated as valid return. Thus as in Question 1 above supply will become unmatched supply on matching and ITC will be reversed by adding to Output Tax Liability of recipient.
3) Whether ITC provisionally accepted as per section 28 for both matched and unmatched supplies allowed to be utilized?
Yes. ITC for both matched as well as unmatched transactions accepted provisionally is allowed to be utilized for payment of tax by the recipient. Provisionally accepted claim of ITC will not be allowed to be utilized if a valid return in GSTR 3 alongwith his self assessed tax liability is not furnished by the recipient. However for unmatched transactions such ITC claimed will be reversed later as addition to output tax liability.