Introduction:

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 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.

In order to regularize these kinds of situations the supplier is allowed to issue what is called as credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce.

Credit Note in GST

Meaning

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.

Format

There is no prescribed format but credit note issued by a supplier must 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 to the recipient; and

i) 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.

The output tax liability of the supplier gets reduced once the credit note is issued and it is matched. The details of the credit note relating to outward supply furnished by the supplier for a tax period shall, be matched––

a) 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

b) 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. The reduction in output tax liability of the supplier shall not be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

Where the reduction of output tax liability in respect of outward supplies exceeds the corresponding reduction in the claim for input tax credit or the corresponding credit note is not declared by the recipient in his valid returns, the discrepancy shall be communicated to both such persons. Whereas, the duplication of claims for reduction in output tax liability shall be communicated to the supplier.

The amount in respect of which any discrepancy is communicated and which is not rectified by the recipient in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the supplier in his return for the month succeeding the month in which the discrepancy is communicated.

The amount in respect of any reduction in output tax liability that is found to be on account of duplication of claims shall be added to the output tax liability of the supplier in his return for the month in which such duplication is communicated.

Records

The records of the credit notes 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.

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.

Our Recommendation on GST

Sr No.  Particulars
1 Registration under GST Law
2 Cancellation of Registration in GST
3 The Meaning and Scope of Supply
4 Composite Supply and Mixed Supply
5 Time of Supply in GST
6 GST on advances received for future supplies
7 Concept of Aggregate Turnover in GST
8 Non-resident taxable person in GST
9 Casual taxable person in GST
10 Input Service Distributor in GST
11 Composition Levy Scheme in GST
12 Reverse Charge Mechanism in GST
13 Tax Invoice and other such instruments in GST
14 Accounts and Records in GST
15 Credit Note in GST
16 Debit Note in GST
17 Electronic Cash/Credit Ledgers and Liability Register in GST
18 Electronic Way Bill in GST
19 Input Tax Credit Mechanism in GST
20 Transition Provisions under GST
21 Integrated Goods and Services Tax Act
22 Compensation cess in GST
23 Imports in GST Regime
24 Zero Rating of Supplies in GST
25 Deemed Exports in GST
26 Pure Agent Concept in GST
27 Job Work under GST
28 Works Contract in GST
29 Valuation in GST
30 Margin Scheme in GST
31 Provisional Assessment in GST
32 Returns in GST
33 Statement of Outward Supplies (GSTR-1) in GST
34 Refunds under GST
35 Refund of Integrated Tax paid on account of zero rated supplies
36 Refund of unutilised Input Tax Credit (ITC)
37 Advance Ruling Mechanism in GST
38 Goods Transport Agency in GST
39 GST on Charitable and Religious Trusts
40 GST on Education Services
41 GST on Co-operative Housing Societies
42 Online Information Data Base Access and Retrieval (OIDAR) Services in GST
43 GST Practitioners
44 National Anti-Profiteering Authority in GST
45 Benefits of Goods and Services Tax (GST)
46 Special Audit in GST
47 TDS Mechanism under GST
48 TCS Mechanism under GST
49 Inspection, Search, Seizure and Arrest
50 Appeals and Review Mechanism under GST
51 Recovery of Tax
(Republished with Amendment as on 01.01.2018 – Source- CBEC)

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Category : Goods and Services Tax (6817)
Type : Articles (16937)
Tags : goods and services tax (5299) GST (4902)

4 responses to “Credit Note in GST- All You Want to Know”

  1. SUNDAR says:

    Customer not consuming the materials supplied at Jan 2018. Customer insists to pass Credit Note.
    Kindly clarify, 6 months is valid to pass credit note from the date of supply invoice date.

  2. BISWAJIT NAG says:

    IS A CREDIT NOTE VALID FOR 6 MONTH ONLY FROM THE DATE OF ISSUE?

  3. ASHOK SHARMA says:

    WHAT HAPPEN IF TAX INVOICE IS ISSUED IN THE NAME OF UNREGISTERED DEALER, THEREAFTER GOODS RETURNED IN PART BY URD. CREDIT NOTE ISSUED TO PARTY NOW NOT ACCEPTED IN GSTR-1 , BECAUSE DETAIL OF THAT TAX INVOICE NO. NOT FOUND IN GSTR PORTAL.

  4. Ravindra Kumar Sharma says:

    1. The supplier has erroneously charged a higher price for the goods or services or both supplied by him as agreed between or issue P.O.
    OR
    The quantity received by the recipient is less than what has been declared in the tax invoice.
    but supplier is not issuing credit note.

    Can purchaser issue debit note to supplier ?

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