INTRODUCTION
The recent reduction in GST rates has largely eased the complexity in the GST-related matters by aiming to bring uniformity in the whole process. However, there still persists a large scope of improvement that needs to be done. As the reforms intends to create systemic consistencies, the interplay between Section 9[1] and Section 35[2] of the CGST Act, 2017, depicts an inherent contradiction. Section 35 provides for the issuance of a credit note and debit note in case the taxable value exceeds or is less than the taxable value of the supply of goods or services, respectively.
The section allows a supplier to issue a credit note when the tax charged is found to be greater than the actual value of goods or services provided. For instance, an invoice of Rs. 10000 was created in favour of a person for selling goods to him, however later on the value of goods sold turn out to be Rs. 8000. In this case the supplier will issue a credit note of Rs. 2000 in favour of a buyer which will imply that the buyer had paid extra GST on Rs. 2000. On the other hand, a debit note is issued when the supplier sells goods or services whose value is found to be greater than the tax invoice created or tax charged. For instance, an invoice of Rs. 10000 was created in favour of a person for selling goods to him; however, later on, the value of the goods sold turned out to be Rs. 12,000. In this case, the supplier will issue a debit note of Rs. 2000 in favour of a buyer, which will imply that the buyer had paid less GST on Rs. 2000. The legislative intent of this section is to make post-supply adjustments in the taxable value after issuing an invoice through a credit note or debit note. While the transaction appears to be inherently simple, the concept of issuing Debit and Credit can be categorised into two categories based on the nature of the transaction- Domestic transactions and cross-border transactions. The transaction operates differently in the context of domestic transactions as compared to Cross-border transactions.
GST is an indirect tax where, although the buyer bears the burden of paying the tax, the seller is actually paying the tax. However, Section 2(98) of the CGST Act, 2017[3] provides for “Reverse Charge” and has defined it as “the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of Section 9, or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act”. Section 9(4) of the CGST Act, 2017 provides for a reverse charge mechanism where the liability to pay the GST dues (which are generally paid by the supplier) falls on the person who receives the goods or services (recipient). One such instance can be the import of services/goods. Since the foreign supplier is not registered under the GST Act, the liability to pay the Integrated Goods and Services Tax (IGST) shifts to the Indian recipient.
CONFLICTING INTERPRETATION OF REVERSE CHARGE MECHANISM
Although Section 9(4) intends to shift the tax liability and invoicing liability to the recipient, the recent CBIC circular creates confusion regarding adjustments that are required to be made post providing the goods or services. The CBIC circular 211/5/2024-GST[4] explicitly lays down that the recipient is responsible for issuing a self-invoice where the supplier is unregistered under the reverse charge mechanism. However, the situation becomes problematic when there exists a difference between the invoice issued and the actual tax liability on it. The circular is silent on who will be responsible for issuing a debit note or credit note under the reverse charge mechanism in case minor discrepancies persist in the taxable invoice and the actual value of the tax.
Although the recipient can issue a self-debit note or credit note by making an interplay between Sections 9 and 35, however, the use of the word “shall” in Section 35 makes it mandatory for the supplier to issue a debit note or credit note, which conflicts with the provision mentioned under Section 9, where the recipient can issue a self-invoice. The statutory paradox creates compliance impossibility, where the law mandates exact payment of GST dues, with the post-supply adjustments also required to be repaid or reimbursed.
The registered recipient must take on the documentation role as a result of this compliance impossibility. The recipient will have to pay tax on an undervalued amount if they are unable to provide a self-issued debit note to prove an upward price revision. This exposure creates serious risks, such as audit enquiries, Section 50[5] interest liabilities, and possible Section 122[6] penalties for underpayment of tax. As a result, issuing a Debit Note becomes more than just an administrative convenience; it is a crucial tactic for reducing regulatory risk and accurately stating the true tax liability.
CLARIFICATION ON IMPORT OF GOODS
The much-needed clarification was partially given in re: Becton Dickinson India Pvt. Ltd.[7], where the Authority for Advanced Ruling (AAR) Tamil Nadu interpreted that the debit note under the CGST Act, 2017, is only with respect to intra-state supplies (domestic supplies) under Section 9 and cannot be considered equivalent to the import documents like the Bill of Entry. Bill of entry is defined under Section 46 of the Customs Act, 1962[8], in which the importer of goods shall make a proper entry under the bill of customs for home consumption or warehousing. The AAR pointed out that the debit note is with respect to only the domestic supply of goods or services, while the Bill of Exchange is with respect to the import of goods. Consequently, a debit note or credit note is not required for the import of goods. All the taxation calculations will be made through the Bill of Exchange, including the post-supply adjustments for the accurate payment of GST.
However, the judgment is silent on the documents or other things required during the import of services. There persist legal lacunae around the conditions and documents required during the import of services. Although the recipient will be liable to pay the GST dues under the reverse charge mechanism, however, there is no substantial interpretation for the post-supply adjustments that are required to be paid for import of services. Since the AAR Tamil Nadu judgment has already clarified that the debit note and credit note are only meant for domestic transfer, it partially removes the conflict between Section 9 and Section 34, but still does not address the requirements for post-supply adjustments in taxable invoices.
CONCLUSION
The legal ambiguity concerning the relevant documents required during the import of goods or services still persists, leaving a lot of room for independent interpretation. While the Beckton Dickinson ruling has partly tried to clarify the treatment of imports with respect to goods, the treatment with respect to services remains largely unsettled. This article recommends that the government, either through a circular or an amendment in the GST laws to issue a clarification on the use of the word “shall” in Section 34, mentioning the recipients’ power to issue Debit Notes and Credit Notes during the import of goods or services or the other way around. Such measures would standardise the industry standards, ensure consistency and compliance procedure, leaving less scope for interpretation and uniform practices across the nation.
Notes:
[1] Central Goods and Services Tax Act 2017, s 9 (India).
[2] Central Goods and Services Tax Act 2017, s 35 (India).
[3] Central Goods and Services Tax Act 2017, s 2(98) (India).
[4] Central Board of Indirect Taxes and Customs, Circular No 211/5/2024-GST (26 June 2024).
[5] Central Goods and Services Tax Act 2017, s 50 (India).
[6] Central Goods and Services Tax Act 2017, s 122 (India).
[7] Re Becton Dickinson India Pvt Ltd [2025] 6 TMI 1232 (AAR Tamil Nadu).
[8] Customs Act 1962, s 46 (India).
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