Credit and Debit note under GST

Introduction of credit note

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:

  • Original tax invoice has been issued and taxable value in the invoice exceeds actual taxable value.
  • Original tax invoice has been issued and tax charged in the invoice exceeds actual tax to be paid.
  • The quantity received by the recipient is less than what has been declared in the tax invoice.
  • The quality 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.

Credit Note as per Section 34(1) of CGST Act 2017

Where one or more tax invoices have 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 one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.

Adjustment of tax liability

The registered 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, and the tax liability shall be adjusted in such manner as may be prescribed.

Important Circulars Regarding Credit Note

1 Circular No. 72/46/2018-GST Date 26-10-2018

2 Circular No. 92/11/2019-GST Date 07-03-2019

Conclusion-

The credit note is therefore 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.

Introduction of Debit Note

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:

  • Original tax invoice has been issued and taxable value in the invoice is less than actual taxable value.
  • Original tax invoice has been issued and tax charged in the invoice is less than actual tax to be paid.
  • The quantity received by the recipient is more than what has been declared in the tax invoice.
  • Any other similar reasons.

Debit Note as per Section 34(3) of CGST Act 2017

Where one or more tax invoices have 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 be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient one or more debit notes for supplies made in a financial year containing such particulars as may be prescribed.

Tax liability

The issuance of a debit note or a supplementary invoice creates additional tax liability of supplier. The treatment of a debit note or a supplementary invoice would be identical to the treatment of a tax invoice as far as returns and payment are concerned.

Conclusion

The debit note or a supplementary invoice is therefore a convenient and legal method by which the value of the goods or services in the original tax invoice can be enhanced. The issuance of the debit note will easily allow the supplier to pay his enhanced tax liability in his returns without requiring him to undertake any other tedious process.

Format of Credit and Debit Note as per Rule 53(1A) of CGST Rules, 2017 

A credit or debit note shall contain the following particulars, namely

(a) name, address and Goods and Services Tax Identification Number of the supplier;

(b) 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, and any combination thereof, unique for a financial year;

(d) date of issue;

(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;

(h) 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; and

(i)  signature or digital signature of the supplier or the supplier or his authorized representative.

Records

The records of the credit or debit note have to be retained until the expiry of seventy-two 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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