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.

Background

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:

  • 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.
  • Where the goods supplied are returned by the recipient.
  • Any other similar 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 .

Format

There is no prescribed format but credit note issued by a supplier must contain the following particulars, namely:

  • name, address and Goods and Services Tax Identification Number of the supplier;
  • nature of the document;
  • 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;
  • date of issue;
  • name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
  • 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;
  • serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;
  • value of taxable supply of goods or services, rate of tax and the amount of the tax credited to the recipient; and
  • 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.

Let’s understand the flow of the Credit Note by way of a diagram:

DISCLAIMER: The views expressed in this article are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation by the author. The author does not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

(For any queries, author can be reached at Email: cavrjsharma@gmail.com)

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Qualification: CA in Practice
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Location: Delhi, New Delhi, IN
Member Since: 25 Jan 2019 | Total Posts: 4

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3 Comments

  1. Nirmit Anjaria says:

    What is the suggested method for issuing credit note in case of material return? After material is received or is it allowed even before receipt of material? Does the Act clarity for this situation? Plain reading of the section suggests issuance after material receipt.

    1. cavrjsharma says:

      Dear Krishnamurthy Ji,

      I have already considered your concern in my article

      i.e. “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.”

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