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Can provisions of Section 42 of CGST Act, 2017 read with Rule 69 of CGST Rules, 2017 be invoked for creation of demand for Input Tax Credit Mismatch for the Year 2017-18/2018-19?

These days notices under Section 73/74 of CGST Act, 2017 are being issued on account of mis-match of Input Tax Credit in GSTR-3B vs GSTR-2A merely by referring Section 73/74 of CGST Act, 2017.

That at the outset, it would be apt to mention that provisions of Section 73/74 of CGST Act, 2017 are provisions of Determination of Tax to be paid. However, for the purpose of invoking provisions of Section 73/74, there has to be a condition as imposed by any other provision of the Statute, which has been contravened to invoke provisions of Section 73/74 and to arrive at the Input Tax credit Wrongly availed.

The question is whether provisions of Section 42 of CGST Act, 2017 can be invoked for creating demand for the year 2017-18/2018-19 on account of mis-match of Input Tax credit in GSTR-3B vs GSTR-2A because other than that no provision of the statute requires matching of Input Tax credit. Not that as if it can be invoked for 2019-20 but that would be covered in another article.

The article briefly tries to analyse the situation as below-

Provisions of Section 42 are applicable only in cases for matching, reversal and reclaim of Credit and are based on details of inward supply filed by the registered person

Provisions of section 42 are applicable for matching, reversal and reclaim of input tax credit. It would be apt to quote the relevant provision of Section 42 which are as follows:-

42. Matching, reversal and reclaim of input tax credit.— (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––

Thus, it can be observed that Section 42(1) provides that details of every inward supply furnished by a registered person for a tax period shall be matched for the parameters as provided there in and discussed herein below.

Details of Inward Supply in GSTR-2 were required to be filed under Section 38 of CGST Act, 2017

That for applicability of provision of Section 42, details of inward supply had to be furnished. That detail of inward supply had to be furnished under Section 38 of CGST Act. Further provision of Section 38 of the CGST Act, 2017 are being reproduced herein under as follows:

(5) Any registered person, who has furnished the details under sub-section (2) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in the tax period during which such error or omission is noticed in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:

It can be observed from the above that Section 38 which provided for filing of GSTR-2 also provided that if recipient has furnished return in Form GSTR-2 and amounts have remained unmatched under Section 42 and 43, then in such case interest would be payable for short payment of tax on account of such error and omission.

Therefore, the basic premises of Section 42 rested upon the details of inward supply furnished under Section 38. The return to be furnished under Section 38 was GSTR-2.

That the time limit for furnishing GSTR-2 in Section 38 has not been notified till date

That due date for filing of Form GSTR-2 for the year 2017-18/2018-19 has not been notified till date. Para 2 of Notification No. 44/2018-Central Tax Dated 10th September 2018 provided as follows:-

2. The time limit for furnishing the details or return, as the case may be, under subsection (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2017 to March, 2019 shall be subsequently notified in the Official Gazette.

It is pretty clear from the above that the time limit for furnishing the return under section 38 have not been notified in official gazette till date and since the time limit for filing the return have not been notified till date therefore Section 42 itself cannot be used until then. The very basis of Section 42 is the details of inward supplies furnished under Section 38 and matching of the same in the manner as provided therein. Since GSTR-2 itself has not been brought in place therefore its matching procedure and implications of non-matching of the credit as provided under section 42 (3), 42(5) and 42(6) cannot also be implemented.

Rule 69 of CGST Rules provide that the matching under Section 42 of CGST Act, 2017 of Details of Inward Supply should be extended if the due date of filing of GSTR-2 under section 38 has been extended

The relevant extract of Rule 69 is being reproduced hereunder:

69. Matching of claim of input tax credit .-The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-

(a) Goods and Services Tax Identification Number of the supplier;

(b) Goods and Services Tax Identification Number of the recipient;

(c) invoice or debit note number;

(d) invoice or debit note date; and

(e) tax amount:

Provided that 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:

That it can be clearly seen that the rule provides that if the time limit for furnishing of GSTR-2 under section 38 has been extended then the date of matching relating to claim of input tax credit shall also be extended accordingly. That Form GSTR-2 for the period till date has not been notified till date and Para 2 of Notification No. 44/2018-Central Tax Dated 10th September 2018 provided as follows:-

2. The time limit for furnishing the details or return, as the case may be, under subsection (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2017 to March, 2019 shall be subsequently notified in the Official Gazette.

That since till date due date for filing of details of inward supply has not been notified, therefore matching as per the provisions of Section 42(1) read with Rule 69 should not be required to be done till date. The date has automatically been extended until the date of filing of GSTR-2 for the relevant period.

Conclusion-

That since the matching under Section 42 is only possible on filing of details of inward supplies under Section 38 and date of filing of Return under GSTR-2 under section 38 has not been notified till date, therefore the date of matching by virtue of First Proviso to Rule 69 has also been extended. Once the date of matching under Section 42 read with Rule 69 has been extended then any action on account of non-compliance of discrepancies as highlighted under the provision of Section 42 cannot be initiated.

It has to be borne in mind that provisions of Section 42 are a complete code in itself. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.

Therefore, in view of the above fact and since the law cannot compel the assessee to do the impossible, since firstly by virtue of Proviso to Rule 69 of CGST Rules Matching under Section 42 cannot be done until the due date for Return under Section 38 has been notified and the same has expired, therefore by virtue of the legal principle lex non cogitate ad impossible (the law does not compel the doing of impossibilities), no implications for non-compliance of Section 42 can be casted upon the assessee.