Credit Note under GST is issued by the supplier after it has issued the invoice to the buyer. It is issued under certain circumstances only. A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like:
- The supplier has erroneously declared a value which is more than the actual value of the goods or services provided.
- The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied.
- The quantity received by the recipient is less than what has been declared in the tax invoice.
- The quantity of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.
- Any other similar reasons.
Who can issue note?
As suggested above, the Credit Note is issued by the supplier to the recipient i.e., buyer. Once the credit note has been issued, the tax liability of the supplier will reduce.
Meaning of Credit Note
Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient what is called as a credit note containing the prescribed particulars.
Also Read: Various types of supplies under GST
Format of credit note
There is no prescribed format but credit note issued by a supplier must contain the following particulars, namely:
- Name, Address and Goods and Services Tax Identification Number of the supplier;
- Nature of the document;
- 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, and any combination thereof, unique for a financial year;
- Date of issue;
- Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
- 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;
- 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 to the recipient; and
- Signature or digital signature of the supplier or his authorised representative.
Adjustment of tax liability
The person who issues a credit note in relation to a supply of goods or services or both must declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier. In other words, the output tax liability cannot be reduced in cases where credit note has been issued after September.
Also Read: How to calculate GST?
Meaning thereby, the adjustment of tax liability can be done by:
– Due date of filing of GSTR-3B of September month following the end of financial year in which supply was made, or
– Due date of filing of Annual Return i.e., GSTR-10 for that financial year,
whichever is earlier.
Criteria for matching output tax liability of Supplier
In order to become eligible for a reduction in output tax liability, a supplier must raise a credit note and get it matched. The specifics of a credit note as furnished by the supplier for outward supply for a specific tax period must match:
- With the corresponding reduction in the claim for input tax credit by the recipient in his valid return for the same tax period or any subsequent tax period; and
- For duplication of claims for reduction in output tax liability.
The claim for reduction in output tax liability by the supplier that matches with the corresponding reduction in the claim for input tax credit by the recipient shall be finally accepted and communicated to the supplier.
Communication of discrepancy
In case of information mismatch, the discrepancies are to be communicated to both parties. Various circumstances under which discrepancies shall be notified include:
- The claim for reduction of output tax is higher than the corresponding reduction in input tax credit claim.
- The details of the Credit note are not declared by the recipient in return for the subsequent period.
Moreover, for discrepancies concerning duplication of claims, communication should only be made to the supplier. In such a situation, the supplier is committed to making suitable rectifications in his return of the month in which the discrepancy is communicated. Failure to do so will result in adding a discrepancy amount to the output tax liability of the supplier.
Similarly, if the discrepancy has been from the recipient’s side, he is liable to rectify it in the same month in which the discrepancy is made available. If not rectified, the discrepancy amount will be added to the tax liability of the recipient along with the payable interest rate.
On 1st January, 2021, Khan Sons & Co., a registered supplier from Delhi, supplied goods worth Rs. 1,00,000 to Kapoor Sons & Co., also a registered trader in Delhi.
On the same day, Khan Sons & Co. released a tax invoice, and Kapoor Sons & Co. cleared the payment.
Later, Kapoor Sons & Co. found that some goods were of inferior quality, therefore, decided to return the goods. Goods worth Rs. 50,000 were sent back.
Here, Khan Sons & Co. must issue a credit note to Kapoor Sons & Co. for return of goods and GST charged.
This credit note will act as proof that the amount equivalent to goods returned is to be credited to Kapoor Sons & Co. account. As per the original invoice clause, Kapoor Sons & Co. should reduce the amount it owes to Khan Sons & Co. which will result in reducing tax liability.
The credit note is a convenient and legal method by which the value of the goods or services in the original tax invoice can be amended or revised. The issuance of the credit note will easily allow the supplier to decrease his tax liability in his returns without requiring him to undertake any tedious process of refunds.
The credit note cannot be issued where the incidence of GST and interest on such supply has been passed on to any other person.
The records of the credit have to be retained until the expiry of 72 months from the due date of furnishing of annual return for the year pertaining to such accounts and records. Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally
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The author has taken views from the CBIC’s Portal.