CREDIT/DEBIT NOTE UNDER GST

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CREDIT/DEBIT NOTE UNDER GST

INTRODUCTION:

There comes a situation when human makes errors in entering a transaction. These cases often leads to anomalies and reconciliation is required from both the side of the parties. Credit Notes & Debit Notes have been used in accounting since a very long time. Credit and Debit Notes in GST have a specified meaning attached to them.

In this article we will be explain the meaning of these two terms as per GST Law, difference between Accounting or Financial Credit Debit Notes and GST Credit Debit Notes, Various Legal provisions of GST Law regarding Credit/Debit Notes.

A. Credit/Debit Notes -Meaning and Conditions for Issuing these Documents:
1. Credit Notes – Under CGST Act, Sec 34(1) states the three scenarios in which supplier issue Credit Note to the Recipient which are as:

  • Where Taxable Value present in Invoice is more than the Actual Taxable amount or
  • Where Tax Rate Charged in Invoice is more than actual tax rate or
  • Where Goods returned by the recipients
  • Where the Goods/Services are found to be deficient

As per the provisions of Section 2(38) of the CGST Act “debit note” means a document issued by a registered person under sub-section (3) of section 34.

Considering the above provisions we may interpret that:

1. GST will only recognize the credit notes which are issued by Supplier of Goods or Services or both. Which means, though the practice of issuance of credit notes by recipient of supply will continue for all commercial purposes, yet the same has no relevance in GST parlance or GST compliance requirements, e.g., filing of Returns. Only the supplier will disclose the Credit Notes issued by him/her in the returns filed periodically.

2. The above provision can be explained with example:

A. The taxable value shown in the invoice exceeds the taxable value of the supply Example: Taxable value shown in Invoice as 105 plus taxes instead of 100 plus taxes. So credit note is to be issued for 5 plus taxes.
B. The tax charged in the invoice exceeds the tax payable on the supply. Example: Tax payable in Invoice of 100 @ 18% instead of @12%. So credit note should be issued for tax of Rs. 6 (Please note that there are still some technical issues to show the said credit note in GSTR-1)
C. The goods supplied are returned by the recipient. Example is any standard goods rejection transaction.
D. The goods/services are found to be deficient. Example if Invoice issued for 100 quantities and supplied 98 quantities. Proportionate reduction should be allowed.

There may be other credit notes as discussed earlier which are commercial/accounting credit notes which as per prevailing practice in the industry are used but not recognized by the GST, the examples of which are as follows:
a. Credit Note issued by the recipient in the name of the supplier to record the accounting of Debit Note issued by Supplier.
b. Credit Note issued by the supplier for any other reason than above

2. Debit Notes – Under CGST Act, Sec 34(2) states the two scenarios in which supplier issue Debit Note to the Recipient which are as:

  • Where Taxable Value present in Invoice is less than the Actual Taxable amount or
  • Where Tax Rate Charged in Invoice is less than actual tax rate or

As per the provisions of Section 2(38) of the CGST Act “debit note” means a document issued by a registered person under sub-section (3) of section 34.

Considering the above provisions we may interpret that:

1. GST will only recognize the debit notes issued by Supplier of Goods or Services or both, which means, though the practice of issuance of debit notes by recipient of supply will continue for all commercial purposes, the same has no relevance in GST parlance or GST compliance requirements, e.g., filing of Returns. Only the supplier will disclose the Debit/ Notes issued by him/her in the returns filed periodically.
2. Debit Notes in GST shall only be issued for specific reasons mentioned in the Section 34 and not in all cases when it can be issued, e.g., to rectify the mistakes done in invoicing or accounting. So only the debit notes issued by the supplier for the following purposes shall be recognized in GST:
(a) The taxable value shown in the invoice is lesser than the taxable value of the supply. To illustrate, Taxable value shown in Invoice as 95 plus taxes instead of 100 plus taxes. So debit note to has to be issued for 5 plus taxes.
(b) The tax charged in the invoice is less than the tax payable on the supply. Example: Tax payable in Invoice of 100 @ 12% instead of @18%. So debit note should be issued for tax of Rs. 6. (Please note that there are still some technical issues to show the said credit note in GSTR-1)
3. There may be other debit notes as we discussed earlier which are commercial/accounting debit notes which as per prevailing practice in the industry are used but not recognized by the GST, the example of which are as follows:
(a) Debit Note issued by the recipient in the name of the supplier to record the accounting of Credit Note issued by Supplier.
(b) Debit Note issued by the supplier for any other reason than above

B. Contents of Credit-Debit Notes:

As per Rule 53, read with Section 34 of the CGST Act, following should be the contents of Credit – Debit Notes:

(a) Name, Address and Goods and Services Tax Identification Number of the supplier
(b) Signature or Digital Signature of the supplier or his authorised representative nature of the document.
(c) A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters-hyphen or dash and slash symbolised as “-” and “/”, respectively.
(d) Date of issue of the document
(e) Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient
(f) Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered
(g) Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient

C. Timelines to issue Debit/Credit Note:

The credit note cannot be issued any time after either of the following 2 events:
(1) Annual return has been filed for the FY in which the original tax invoice was issued, or
(2) September of the FY immediately succeeding the FY in which the original tax invoice was issued (i.e., for a tax invoice issued in April 2018, as well as a tax invoice issued in March 2019, the relevant credit notes cannot be issued after September 2019)

Further, there is no such condition in case of issuance of debit notes. Hence, a debit note related to say FY 2018-19 may also be issued by the supplier after September 30, 2019. But there is one provision which restricts the benefit of input tax credit of Debit Notes issued after September 30 of following year which are related to the invoices issued in earlier year.

As per the views of some of the experts, ‘Rights that are not yet vested can lapse by limitation unless effective steps to actualize those rights are taken by the person, but once the right stands vested, it becomes indefeasible except by operation of subsequent inherent conditions’..

Once the credit is availed, it is available without any time limit except a condition that if the outward supplies become exempted, the credit availed needs to be reversed. Other than the said situation, the credit availed is available in entirety to the taxable person.

Now, in a situation where the credit that is ‘available’ is due to any reasons ‘not availed’ or missed, it may still be available but not beyond the limitation prescribed in Section 16(4). Therefore, in case of doubts one may avail of the credit and then reverse it under protest with specific intimation to the department. This is to ensure that the time limitation would not be the reason for non-availment till the time the principle is settled through court decisions.

5. Other miscellaneous points regarding credit & debit notes:

a. The credit note issued as per the provisions must be declared in the GSTR 1 for the month in which they are issued, by the supplier and also the impact of the same on tax payment by the recipient,
b. The recipient, to show the impact, should reduce the input tax credit if the same has been availed against the original tax invoice
c. Every credit note must be linked to specific original tax invoice
d.
In case of a credit note issued for a discount, the discount should be as per the provisions of Section 15(2) of the Act
e. The debit note needs to be linked to the original tax invoice
f. A debit note issued under Sections 74, 129 or 130 would not entitle the recipient to avail of credit in respect thereof, and the supplier shall specify prominently on such debit note the words “INPUT TAX CREDIT NOT ADMISSIBLE
g. As per the current provisions of law, a consolidated credit-debit note cannot be issued for multiple invoices. Additionally, the date and serial number of the original tax invoice is mandatory to be disclosed. The proposed amended law may exclude this requirement.
h. Credit -Debit notes have to be raised with reference to specific invoice and not otherwise to get the benefit of tax adjustment

Conclusion:

Thus, A credit note or a debit note, for the purpose of the GST Law, can be issued by the registered person who has issued a tax invoice, i.e., the supplier, only under specific scenarios before the time-limits discussed above. Any such document, by whatever name called, when issued by the recipient to the registered supplier, is not a document recognized under the GST Law.

Shrutika Jain (CA Final)

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