Section 42 originally created a statutory mechanism for matching input tax credit claims with supplier declarations, communicating discrepancies, reversing unmatched or duplicate credit and permitting reclaim after correction. The provision is now omitted and should not be presented as a currently operative ITC-matching section.
Before its omission, Section 42 of the Central Goods and Services Tax Act, 2017 dealt with matching, reversal and reclaim of input tax credit (ITC). In broad terms, the section contemplated matching the recipient's inward-supply details with the supplier's outward-supply details, checking import-related IGST and detecting duplicate ITC claims.
Where a mismatch or duplicate claim remained unresolved, the former provision contemplated addition of the relevant amount to the recipient's output tax liability, together with interest in specified circumstances. It also contained a mechanism for reduction of liability when the supplier subsequently reported the invoice or debit note within the statutory time.
From 1 October 2022, the old statutory matching mechanism under Section 42 no longer operates. ITC entitlement and reversal must instead be examined under the provisions that currently govern credit, particularly Section 16, Section 38, Section 41 and the applicable CGST Rules.
Section 16Prescribes eligibility and conditions for taking ITC. Among other requirements, supplier-furnished invoice or debit-note details must be communicated to the recipient, and credit communicated under Section 38 must not be restricted.
Section 38Provides for electronic communication of inward-supply details and a statement containing details of input tax credit, including credit that may be available and credit that cannot be availed wholly or partly in prescribed circumstances.
Section 41Deals with availment of eligible self-assessed ITC and requires reversal, with applicable interest, where tax payable on the relevant supply has not been paid by the supplier, while allowing re-availment after the supplier pays the tax.
Rule 37AAddresses reversal where specified supplier return compliance is not completed within the prescribed timeline and permits re-availment after the supplier subsequently furnishes the relevant return.
The exact availability of ITC depends on the facts, the tax period, the version of the Act and Rules applicable to that period, and other conditions or restrictions under GST law.
A taxpayer reviewing ITC should not rely on the former Section 42 matching procedure as the current statutory mechanism. The present analysis ordinarily begins with the eligibility conditions in Section 16, the inward-supply and ITC communication framework under Section 38, the supplier-payment consequence under Section 41 and the relevant CGST Rules. Return data, including the recipient's electronically communicated ITC details, remains important for compliance, but the legal basis is the amended framework rather than the omitted Section 42.
Historical text of Section 42 - prior to omission
The following text is retained for historical and research purposes. It is not the current operative Section 42.
(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.
For the current statutory text and amendment history, consult the official India Code version of the Central Goods and Services Tax Act, 2017 and the CBIC GST notifications portal. The commencement notification for the 2022 amendments is Notification No. 18/2022-Central Tax dated 28 September 2022.
