Credit and debit notes [section 34 of CGST Act, 2017

Article explains about Credit Note and Debit Note under GST, Purpose of GST Credit/Debit Note, Conditions for issuing GST Credit/Debit Notes, Implications on issue of GST Credit/Debit Note, Time Limit for issuance of GST Credit/Debit Note and When to issue Financial Credit/Debit Note.

1) Credit Note under GST:-

I. Purpose of GST Credit Note:-

During the course of trade or commerce, after the invoice has been issued, there can be situations like:-

(i) The supplier has erroneously declared a value which is more than the actual value of the goods or services provided {i.e. to decrease value of Supply}.

(ii) The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied {i.e. to decrease GST}.

(iii) The quantity received by the recipient is less than what has been declared in the tax invoice.

(iv) 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 {i.e. Goods rejected or returned}.

(v) Any other similar reasons.

• In order to regularize these kinds of situations, the supplier is allowed to issue a document called as GST Credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce.
• Section 34(1) provides that 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/those tax invoice(s) 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 the prescribed particulars.

II. Conditions for issuing GST Credit Notes:-

• To be issued within the time limit specified in Point (IV).
• Original Invoice number should be mentioned on GST Credit Notes.

III. Implications on issue of GST Credit Note:-

• Supplier Liability will decrease
• Recipient should reverse ITC
• However, no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person (i.e. Recipient).

IV. Time Limit for issuance of GST Credit Note:-

• Any registered person who issues a credit note in relation to a supply of goods or services or both shall 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:-

a) September following the end of the financial year in which such supply was made, or

b) Date of filing of the relevant annual return {i.e. Date of filing GSTR-9 of that F.Y}, whichever is earlier.

V. When to issue Financial Credit Note:-

• It is important to note that credit note(s) are not permitted to be issued in case secondary discounts are allowed by the supplier since the tax liability of the supplier does not get reduced in such case. However, supplier can issue financial/ commercial credit note(s) to reduce the value of supply payable by the recipient to the supplier [Circular 92/11/2019 GST dated 07.03.2019].
• Impact on issuance of Financial Credit Note- Supplier liability will not decrease and Recipient need not reverse ITC/Pay Tax {Circular No.105/24/2019 & Circular No.112/31/2019}.

2) Debit Note under GST

I. Purpose of GST Debit Notes:-

There can be situations when after the invoice has been issued:-

(i) The supplier has erroneously declared a value which is less than the actual value of the goods or services or both provided {i.e. to increase the value of Supply}.

(ii) The supplier has erroneously declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied {i.e. to increase Tax}.

(iii) The quantity received by the recipient is more than what has been declared in the tax invoice.

(iv) Any other similar reasons.

• In order to regularize these kinds of situations, the supplier is allowed to issue a document called as debit note to the recipient.
• Section 34(3) provides that 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 the prescribed particulars.
• Issuance of a debit note/supplementary invoice creates additional tax liability. The treatment of a debit note/supplementary invoice is identical to the treatment of a tax invoice as far as returns and payment are concerned.
• Debit note/supplementary invoice is a convenient and legal method by which the value of the goods and/or services in the original tax invoice can be enhanced. The issuance of the debit note allows the supplier to pay his enhanced tax liability in his returns without requiring him to undertake any other tedious process.

II. Conditions for issuing GST Debit Note:-

• To be issued within the time limit specified in point (IV).
• Original invoice number must be mentioned in Debit Note.

III. Implications upon issuance of GST Debit Note:-

• Supplier liability to pay tax will Increase
• Recipient can claim ITC.

IV. Time limit for issuance of GST Debit Note:-

• Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued.

V. Issuance of Financial Debit Note:-

• Concept of Financial Debit Note does not exist in GST.
• Issue of GST Debit Note is mandatory.