Matching, Reversal, and Reclaim of Reduction in Output Tax Liability – Section 43 of GST

Section 43 of the CGST Act was originally introduced to regulate the matching, reversal, and reclaim of reduction in output tax liability. However, this section was omitted with effect from October 1, 2022, through Notification No. 18/2022 – CT dated 28.09.2022, as per Section 107 of the Finance Act 2022. In this article, we will explore the provisions of Section 43 before its omission and its implications on GST compliance.

Key Provisions of Section 43 of the CGST Act

Before its removal, Section 43 laid out a framework for credit note reconciliation between suppliers and recipients, ensuring accuracy in tax adjustments. Let’s break down its main provisions:

1. Matching of Credit Notes (Sub-section 1)

• Suppliers were required to furnish credit notes for outward supplies within a prescribed time and manner.

• These credit notes were matched against the corresponding reduction in input tax credit (ITC) claimed by the recipient.

• Any duplication of claims for reduction in output tax liability was checked.

2. Final Acceptance of Reduction (Sub-section 2)

If the supplier’s reduction in output tax liability matched the recipient’s ITC reduction, it was accepted and communicated accordingly.

3. Discrepancy Notification (Sub-sections 3 & 4)

• If the supplier’s tax reduction exceeded the recipient’s ITC reduction or if the credit note was not declared in the recipient’s return, the discrepancy was flagged.

• Any duplicate claims for output tax reduction were also communicated to the supplier.

4. Correction of Discrepancies (Sub-section 5)

If the discrepancy was not rectified in the recipient’s subsequent return, the excess amount was added to the supplier’s output tax liability.

5. Duplicate Claims (Sub-section 6)

Any reduction in tax liability found to be duplicated was reversed and added back to the supplier’s output tax liability.

6. Reclaim of Output Tax Reduction (Sub-section 7)

The supplier could reclaim the previously added tax liability if the recipient later declared the credit note within the specified timeframe.

7. Interest Liability (Sub-section 8 & 9)

• If any amount was added back to the supplier’s tax liability due to non-compliance, interest was levied as per Section 50 of the CGST Act.

• If the claim was later accepted, the interest paid was refunded.

8. Penalty for Contravention (Sub-section 10)

If any reduction was found to be non-compliant, it was reversed along with applicable interest charges.

Why Was Section 43 Omitted?

With the introduction of new compliance mechanisms, the government streamlined ITC reconciliation processes, making Section 43 redundant. The removal of this provision aimed at simplifying GST compliance and reducing the burden on businesses.

Impact of Omission on Businesses

• Simplified ITC Claims: Businesses now follow a more streamlined approach for ITC reconciliation through GSTR-2B and GSTR-3B.

• Reduced Compliance Burden: Suppliers and recipients are no longer required to match credit notes in a complex manner.

• Minimized Tax Disputes: The removal of Section 43 prevents unnecessary disputes arising from mismatched tax liabilities.

Conclusion

Section 43 of the CGST Act played a crucial role in tax liability matching and reversal before its omission in October 2022. Its removal is part of the government’s efforts to simplify GST compliance. Businesses must now rely on updated provisions and tools like GSTR-2B for ITC reconciliation.

For GST-related queries and compliance support, consult with a tax expert to stay updated with the latest changes in the GST framework.

FAQs 

1. What was the purpose of Section 43 in the CGST Act?
   Section 43 was designed to ensure proper matching of credit notes and prevent duplication or wrongful tax reductions.

2. Why was Section 43 removed?
   It was omitted to simplify GST compliance and introduce a more effective ITC reconciliation system.

3. How do businesses now reconcile ITC claims?
   Businesses use GSTR-2B and GSTR-3B for seamless ITC matching without the need for manual reconciliation under Section 43.

4. What happens if ITC claims are mismatched now?
   The GST portal provides automated ITC matching, reducing discrepancies and eliminating the need for complex reversals.