Sometimes, supplies affected by the supplier are returned back by the recipient or some other issues are arised due to quality, quantity, rate of tax etc., To cope up with these kinds of situations, provision for credit note has been inserted in the GST Law.
As per GST Law, 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 when the supplier wants to decrease or to make amendment / revision in the original tax invoice by the following reasons:
In order to cover these kinds of situations the supplier is allowed to issue a Credit Note to the recipient (buyer). Once the credit note has been issued, the tax liability of the supplier will reduce.
Note : Credit note can only be issued by the one who issued the tax invoice for the supply of goods or services or both to the recipient .
There is no prescribed format but credit note issued by a supplier must contain the following particulars, namely:
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.
Let’s understand the flow of the Credit Note by way of a diagram:
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