Section 42 of the Central Goods and Services Tax Act, 2017 was originally introduced to provide a statutory mechanism for matching input tax credit claimed by a recipient with the details of outward supplies furnished by the corresponding supplier. The provision dealt with the matching of invoices and debit notes, communication of discrepancies, reversal of unmatched input tax credit, and subsequent reclaim of credit after the discrepancy was rectified.
However, Section 42 is no longer a current operative provision of the CGST Act. It was omitted with effect from 1 October 2022 through Notification No. 18/2022-Central Tax dated 28 September 2022. The omission formed part of the wider changes made to the GST return and input tax credit framework through the Finance Act, 2022.
Therefore, when studying Section 42 today, it is important to distinguish between:
- what Section 42 originally provided;
- why the provision was introduced;
- how the proposed matching mechanism was intended to operate; and
- what changed after Section 42 was omitted from the CGST Act.
This article explains the provision in its original statutory context and its relevance to the present GST system.
What Was Section 42 of the CGST Act?
Section 42 was originally titled:
“Matching, reversal and reclaim of input tax credit.”
Its purpose was to establish a formal matching mechanism between the input tax credit claimed by a recipient and the corresponding supply details furnished by the supplier.
Under the original GST return architecture, the recipient’s claim of input tax credit was intended to be matched against information relating to the corresponding outward supply reported by the supplier.
The matching mechanism was based on important details such as:
- GSTIN of the supplier;
- GSTIN of the recipient;
- invoice or debit note number;
- invoice or debit note date; and
- tax amount.
The original framework contemplated electronic communication and reconciliation through the GST common portal. The GST Council’s records confirm that the matching provisions were designed around the earlier GSTR-1, GSTR-2 and GSTR-3 return architecture.
Why Was Section 42 Introduced?
Input tax credit is one of the most important features of the GST system. A registered person can generally claim eligible input tax credit on business purchases subject to the conditions and restrictions prescribed under the law.
Because the credit claimed by a recipient relates to tax charged by another supplier, the GST framework originally contemplated a system in which the recipient’s ITC claim could be compared with the supplier’s reported transaction.
Section 42 was intended to provide the legal framework for this reconciliation.
For example, suppose a supplier issued an invoice containing:
- Taxable value: ₹1,00,000
- GST: ₹18,000
- Recipient GSTIN: ABCD1234XXXX
The recipient could claim the eligible ₹18,000 as input tax credit, subject to the applicable conditions.
Under the original matching concept, the transaction information reported by the supplier and the ITC claim made by the recipient would be compared.
If the relevant information matched, the credit could proceed through the matching mechanism.
If there was a discrepancy, the law provided a process for communication, rectification, reversal and, where appropriate, reclaim of the credit.
Original Matching Mechanism Under Section 42
The original Section 42 contained a detailed matching framework.
The details of inward supplies furnished by the recipient were to be matched with the corresponding information relating to outward supplies furnished by the supplier.
The matching exercise contemplated comparison of transaction-level information.
The important matching particulars included:
- GSTIN of the supplier;
- GSTIN of the recipient;
- invoice or debit note number;
- invoice or debit note date; and
- tax amount.
The GST Council’s historical material describing the original Rule 69 also confirms these core matching parameters.
Example of Matching
Assume Supplier A reports the following invoice:
| Particular | Supplier’s Details |
|---|---|
| Supplier GSTIN | 07AAAAA1111A1Z1 |
| Recipient GSTIN | 07BBBBB2222B1Z2 |
| Invoice Number | INV-125 |
| Invoice Date | 15 May |
| GST | ₹18,000 |
The recipient also reports the same invoice for ITC purposes.
If the relevant particulars corresponded, the transaction was intended to be treated as matched under the original framework.
The system was therefore designed to reduce the possibility of one taxpayer claiming credit based on a transaction that was not correspondingly reported by the supplier.
What Happened When ITC Did Not Match?
The original Section 42 also dealt with situations where the ITC claimed by the recipient did not match the corresponding information reported by the supplier.
A discrepancy could arise for several reasons, including:
- the supplier failed to report an invoice;
- the supplier reported an incorrect invoice number;
- the supplier reported an incorrect invoice date;
- the taxable value or tax amount differed;
- the recipient entered incorrect details;
- the supplier amended the transaction in a later period; or
- the transaction was reported in a different tax period.
A mismatch did not necessarily mean that the transaction was fraudulent or that the recipient was permanently denied credit.
The original framework provided mechanisms for communication of discrepancies and subsequent rectification.
Reversal of Input Tax Credit Under the Original Section 42
One of the important features of Section 42 was the provision for reversal of unmatched input tax credit.
Where a discrepancy remained unresolved in the manner prescribed, the relevant amount of ITC could be added to the recipient’s output tax liability, effectively requiring reversal of the credit.
The original law also contemplated interest consequences in specified circumstances.
This was part of the broader design of the original GST return system, where the recipient’s credit was initially treated within the provisional framework and was subsequently subjected to matching and reconciliation.
Reclaim of Input Tax Credit
Section 42 did not stop at reversal.
The provision also contemplated reclaim of ITC where the discrepancy was subsequently resolved.
For example, assume:
- Supplier reported an invoice incorrectly;
- Recipient claimed ITC;
- The transaction was treated as unmatched;
- The credit was reversed; and
- Supplier subsequently corrected the relevant details.
Under the original matching framework, the corrected transaction could subsequently be matched, subject to the prescribed conditions and time limits, allowing the recipient to reclaim the eligible credit.
This is why the provision was specifically titled “Matching, reversal and reclaim of input tax credit.”
The Original Two-Way GST Return Architecture
To understand Section 42 properly, it is necessary to understand the GST return architecture that existed when the provision was drafted.
The original system contemplated three important returns:
- GSTR-1 – details of outward supplies;
- GSTR-2 – details of inward supplies; and
- GSTR-3 – consolidated GST return.
The supplier was expected to report outward supplies, while the recipient was expected to verify and furnish inward supply details.
The information would then be used for matching.
However, the planned GSTR-2 and GSTR-3 return mechanism was never implemented in the manner originally contemplated.
The GST Council has expressly recorded that the provisions relating to the earlier two-way communication process were subsequently removed and the return framework was aligned with the GSTR-1, GSTR-2B and GSTR-3B system.
Why Was Section 42 Omitted?
Section 42 was omitted as part of the GST return-system reforms implemented through the Finance Act, 2022.
The GST Council’s official records state that Sections 42, 43 and 43A were omitted to move away from the earlier two-way communication process in GST return filing and align the rules with the existing GSTR-1, GSTR-2B and GSTR-3B framework.
Section 42 was formally omitted with effect from 1 October 2022 through Notification No. 18/2022-Central Tax dated 28 September 2022.
This change is important because many older GST articles and study materials still reproduce the original text of Section 42 as though it were current law.
That is not correct for the current CGST Act.
Section 42 and the Change in Section 41
The omission of Section 42 was closely connected with the amendment of Section 41.
Before 1 October 2022, Section 41 contained the concept of provisional acceptance of input tax credit.
Finance Act, 2022 substituted Section 41 and removed the provisional ITC concept.
The GST Council explained that the amended Section 41 allows eligible ITC to be availed as self-assessed in the return, while a separate mechanism applies where tax payable by the supplier has not been paid.
Therefore, Section 42 should not be read in isolation from the changes made to Section 41.
The old system essentially contemplated:
Supplier reporting → Recipient reporting → Matching → Discrepancy communication → Reversal → Rectification → Reclaim
The current framework is different.
What Replaced the Old Matching Concept?
The omission of Section 42 did not mean that GST authorities stopped examining ITC eligibility.
Instead, the GST compliance system evolved around the current return and statement architecture.
Today, taxpayers commonly use information available through the GST portal, including GSTR-2B, while filing their GSTR-3B return.
GSTR-2B provides an important source of information for the recipient when determining eligible ITC, but the availability of an amount in an auto-generated statement does not by itself override the statutory conditions for claiming ITC.
The recipient must still satisfy the applicable requirements under the CGST Act and Rules.
This distinction is important:
GSTR-2B availability is not the same thing as unconditional legal entitlement to ITC.
The taxpayer remains responsible for ensuring that the credit claimed is eligible.
👉 Read More → Section 43 – Matching, reversal and reclaim of reduction in output tax liability
Section 41 Under the Current Framework
After the amendment effective from 1 October 2022, current Section 41 deals with “Availment of input tax credit.”
A registered person may avail eligible input tax credit, subject to the applicable conditions and restrictions, as self-assessed in the return.
Section 41(2) separately deals with ITC availed on supplies where the supplier has not paid the tax payable.
The GST Council records explain that the new framework provides for reversal of such ITC, along with applicable interest where prescribed, and permits re-availment when the supplier subsequently pays the tax.
This is different from the old Section 42 matching mechanism.
Rule 37A and Supplier Non-Payment
The current framework also introduced Rule 37A to provide a mechanism for reversal and re-availment of ITC in specified circumstances involving non-payment of tax by the supplier.
The GST Council explained the mechanism while discussing the implementation of substituted Section 41.
The broad situation considered was where a supplier had furnished details of a supply through GSTR-1 or the Invoice Furnishing Facility, but had not furnished the corresponding GSTR-3B return.
The recipient may initially avail eligible ITC based on the information available in the relevant system, but the prescribed mechanism can require reversal where the supplier has not paid the tax within the specified period. The credit can subsequently be re-availed after the supplier fulfils the relevant tax-payment requirement.
Thus, current GST law still contains mechanisms dealing with supplier compliance and ITC reversal, but these should not be described as the old Section 42 matching mechanism.
Section 42 vs Current ITC Compliance
The following comparison helps explain the change:
| Particular | Original Section 42 Framework | Current Framework |
|---|---|---|
| Section 42 | Operative originally | Omitted from 1 October 2022 |
| Main concept | Formal matching of ITC claims | Self-assessment and system-generated information |
| Provisional ITC | Linked with old Section 41 framework | Provisional acceptance removed |
| GSTR-2 | Part of original architecture | Not part of current return system |
| GSTR-3 | Part of original architecture | Not part of current return system |
| GSTR-2B | Not the original statutory matching mechanism | Important ITC information statement |
| GSTR-3B | Current return mechanism | Used for ITC availment and reporting |
| Supplier tax non-payment | Originally connected with Section 42 framework | Addressed under current Section 41 and prescribed rules |
| Reclaim | Originally contemplated under Section 42 | Current re-availment can arise under applicable provisions and rules |
Does Section 42 Apply to Current GST Returns?
No.
Section 42 was omitted with effect from 1 October 2022.
Therefore, a taxpayer should not treat the old Section 42 matching procedure as a current statutory requirement.
Similarly, the old GSTR-2/GSTR-3 based matching mechanism should not be presented as the current GST return process.
The GST Council has specifically noted that Section 42 was omitted and that references to Section 42, GSTR-2 and GSTR-3 were consequently required to be removed from older GST provisions and related guidance.
Importance of Section 42 for GST Students
Even though Section 42 is no longer operative, it remains important for students, tax professionals and anyone studying the evolution of India’s GST system.
It explains why many older GST books and articles contain terminology such as:
- provisional ITC;
- matching of invoices;
- unmatched ITC;
- communication of discrepancies;
- reversal under Section 42;
- reclaim after rectification;
- GSTR-2;
- GSTR-3; and
- GST MIS-1.
These concepts belonged to the original GST architecture and should be understood historically rather than automatically treated as current compliance requirements.
The GST Council’s records also contain the original proposed rules relating to matching, final acceptance and communication of discrepancies, demonstrating how the earlier framework was intended to function.
Example: Old Section 42 Mechanism
Consider the following hypothetical example.
ABC Ltd. purchased goods from XYZ Ltd.
The invoice contained:
- Taxable value: ₹2,00,000
- GST: ₹36,000
- Invoice number: XYZ/1001
- Invoice date: 10 August
ABC Ltd. claimed ₹36,000 as eligible ITC.
Under the original Section 42 architecture, the corresponding transaction reported by XYZ Ltd. would be matched with ABC Ltd.’s claim.
Situation 1: Details Match
If the supplier and recipient reported corresponding information, the transaction could be treated as matched.
Situation 2: Supplier Does Not Report the Invoice
If the supplier failed to report the invoice, the transaction could remain unmatched.
The original framework provided for communication and rectification.
Situation 3: Supplier Later Corrects the Details
If the supplier subsequently rectified the relevant discrepancy and the transaction became matched, the original framework contemplated reclaim of the credit subject to the applicable provisions.
This example illustrates the purpose of Section 42 but does not describe the current GST return procedure.
Section 42 and Section 43
Section 42 dealt primarily with the matching, reversal and reclaim of input tax credit.
Section 43 dealt with the matching, reversal and reclaim of reduction in output tax liability, particularly in relation to credit notes.
Both provisions belonged to the original matching architecture.
The GST Council subsequently recorded that Sections 42 and 43, along with Section 43A, were omitted to move away from the earlier two-way return communication model.
Therefore, older references to Sections 42 and 43 should be interpreted in their historical context.
Section 42 and Section 16
Section 42 should also be distinguished from Section 16.
Section 16 contains the fundamental statutory conditions governing entitlement to input tax credit.
Section 42 was a procedural matching mechanism within the original return architecture.
The omission of Section 42 did not eliminate the underlying conditions for ITC.
A taxpayer still needs to determine whether the credit is legally eligible under the current provisions of the CGST Act and Rules.
The important principle is:
Omission of Section 42 did not create unrestricted entitlement to input tax credit.
Instead, the method of reporting, verification and administration of ITC changed.
Common Mistakes About Section 42
Mistake 1: Saying Section 42 is currently operative
This is incorrect.
Section 42 was omitted with effect from 1 October 2022.
Mistake 2: Calling GSTR-2B the same as the old Section 42 matching mechanism
GSTR-2B is part of the current GST return and ITC information framework. It should not be described as a continuation of the statutory Section 42 matching procedure.
Mistake 3: Using old Section 41 language
Older material may state that ITC was provisionally accepted under Section 41.
That wording belongs to the earlier framework. Section 41 was substituted effective 1 October 2022.
Mistake 4: Saying unmatched ITC is automatically reversed under Section 42 today
Section 42 itself is no longer operative.
Current ITC reversals must be examined under the provisions and rules applicable today.
Mistake 5: Treating GSTR-2 and GSTR-3 as current returns
The earlier two-way return architecture involving these forms was not implemented in the manner originally contemplated and the relevant provisions were subsequently removed.
Key Points to Remember
The most important points about Section 42 are:
- Section 42 was originally titled “Matching, reversal and reclaim of input tax credit.”
- It was designed as part of the original GST return matching framework.
- It contemplated matching recipient ITC claims with supplier-reported supply information.
- Important matching details included supplier GSTIN, recipient GSTIN, invoice or debit note number, invoice or debit note date and tax amount.
- The original mechanism contemplated communication of discrepancies.
- Unresolved discrepancies could result in reversal of ITC under the original framework.
- Subsequent rectification could permit reclaim of eligible ITC.
- The provision was closely connected with the original GSTR-1, GSTR-2 and GSTR-3 architecture.
- Section 42 was omitted with effect from 1 October 2022.
- The omission was part of the reform of the GST return and ITC framework.
- Section 41 was also substituted from 1 October 2022, removing the old concept of provisional ITC acceptance.
- Current ITC compliance should be understood through the operative provisions of the CGST Act and Rules rather than the old Section 42 matching procedure.
- GSTR-2B and GSTR-3B are important parts of the current ITC reporting framework.
- Current supplier-tax-payment-related ITC reversal and re-availment mechanisms operate under current provisions such as Section 41 and the relevant rules.
Conclusion
Section 42 of the CGST Act was an important part of the original GST design for matching input tax credit claimed by a recipient with the corresponding supply information reported by the supplier.
Its framework covered matching, discrepancy communication, reversal of unmatched credit and reclaim after rectification.
However, Section 42 is no longer in force. It was omitted with effect from 1 October 2022 as part of the broader restructuring of GST return filing and input tax credit provisions. The GST Council specifically recorded that Sections 42, 43 and 43A were omitted to move away from the earlier two-way return communication model and align the system with the GSTR-1, GSTR-2B and GSTR-3B framework.
For current GST compliance, taxpayers should therefore not rely on the old Section 42 matching procedure. Instead, ITC should be examined under the provisions currently in force, including the applicable conditions under Section 16, the availment framework under Section 41, restrictions under Section 17, and the relevant GST Rules.
Understanding the historical Section 42 remains useful because it explains the origin of several concepts found in older GST study material, but it should not be confused with the current GST compliance mechanism.
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