Can GST Credit Notes Be Issued to Unregistered Dealers Under Section 34?

CAN A REGISTERED PERSON ISSUE GST CREDIT NOTE U/S 34 WRT B2C SUPPLIES?

Introduction

This document makes an attempt to see whether a Goods and Service Tax (GST) Credit Note as enumerated under Section 34 can be issued even with respect to supplies of goods or services made to Unregistered dealers. There is an ambiguity in the trade and industry that GST Credit note can be issued only with respect to Tax Invoices which are issued to Registered Dealers (B2B supplies) and not to Unregistered Dealers (B2C Supplies), on the contention that such unregistered dealer will not be in a position to reduce the input tax covered by GST Credit notes, if so issued, hence not acceptable. This Article deals with the legal provisions relating to issue of GST Credit notes under GST Law , based on the provisions of GST Law as existing today, whether such GST Credit notes can be issued with respect to B2C transactions.

Relevant Legal Provisions

We start with discussing the relevant legal provisions as covered under the Central Goods and Service Tax Act, 2017, Central Goods and Service Tax Rules, 2017, Integrated Goods and Service Tax Act, 2017 and the State/Union Territory Goods and Service Tax Act, 2017 read with the Rules made thereunder, Circulars and notifications issued under the said Act/Rules.

Section 34 of the CGST/SGST Act, dealing with issue of Credit notes reads as below:

Section 34 (1):

(1) 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. [See Rule 53]

Analysis:

Section 34 (1) provides of issue of credits under the following situations:

• where a tax invoice has been issued (or more than one);
• for supply of either goods or services or both (that means it covers both supply of good, services as well as composite supplies like works contract services);
• where the taxable value charged in the tax invoice is more than the taxable that would have been chargeable;
• where the tax charged in respect of such supply in the tax invoice is more than what is chargeable;
• where the goods supplied are returned;
• where the goods or services or both so supplies found to be deficient and not acceptable to customer.
• Such credit note can be issued to the recipient of goods or services or both.

In all the above situations a credit note can be issue.

Section 34 (1) does not differentiate between issue of credit notes to B2B and B2C it uses the word – “recipient of such goods or services or both”, thereby extending the scope of the provision even to B2C supplies.

Section 34 (2):

(2) 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 3[the thirtieth day of November] 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:

Provided that 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.

Analysis:

• Section 34 (1) provided that a Supplier of goods or services or both can issue a credit note under the situations covered therein.
• Section 34 (2) provides for the procedure to be followed with respect to the credit note so issued:
  • A registered person who issues a credit note in relation to supply of goods or services or both shall upload the details of such credit note in GSTR 1.
  • It should be uploaded in GSTR 1 of the month in which such credit note has been issued to the recipient of goods or services.
  • However, it cannot be uploaded after 30th November of the following financial year or the date of furnishing of Annual Return in form GSTR 9 whichever is earlier.
  • Therefore, a credit note issued relating to a Financial Year say 2023-24 cannot be uploaded in a GSTR 1 which is filed after 30th day of November 2024 or date of filing of Annual return whichever is earlier.
  • If such credit note is uploaded belatedly after 30th day of November of subsequent financial year, or after filing of annual return (if filed before 30th November of such subsequent financial year) the benefit of reduction of output tax will be lost.
  • The proviso to the Section 34 (2) provides that reduction in output tax in the hands of the supplier against the credit note cannot be allowed if the incidence of tax for which credit note is so issued is passed on to the buyer of goods or recipient of services.
  • In other words, the supplier has to prove that he has not collected the amount by way of tax or value as reflected in the credit note, this can be proved –
    • with respect to B2B supplies – that the recipient has reduced his Input tax credit to the extent covered in the credit note;
    • with respect to B2C supplies, NO amount has been collected with respect to the tax mentioned in the Credit note. One should note that in the case of B2B supplies the question of claim of ITC on the Tax Invoice issued does not arise as he is a Unregistered Person. Therefore the supplier can prove that the incidence of tax has not been passed on to such consumer by showing documentary evidence of settlement of transaction net of credit note values.

To sum up, Section 34 (1) and (2) of the Act as discussed above, does not restrict issue of credit notes to B2C supplies neither makes an attempt to differentiate between B2B supplies and B2C supplies and hence when the customer is refunded with certain value or excess tax has been collected from him or excess value is recovered from him and paid to the Government, the supplier can return such excess value or tax so charged, by issued a GST credit note by reducing his output tax.

Rule 53 (1A) of CGST/SGST Rules

The legal stand that GST credit notes can be issued with respect to B2C supplies is further evidenced by the provisions of Rule 53 which reads as below:

(1A) A credit or Debit note referred to in section 34 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 of the document;

(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(s) and date(s) of the corresponding tax invoice(s) or, as the case may be, bill(s) 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 his Authorised representative.]

Analysis of Rule 53 (1A):

• Rule 53 (1A) makes is abundantly clear that a GST Credit note can be issued even with respect to B2C supplies, where one of the contents of the credit that should form part of the credit note is –

“(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;”

• This provision strengthens the view that GST credit note can be issued even with respect to B2C supplies so long as the transaction is settled with such consumer net of credit note and one can always submit this documentary evidence of settlement of transaction net of credit note, when required by the department or objected by the department.

Circular No. 188/20/2022-GST dated 27th December 2022 para 4.4 reads as below:

CBIC Circular makes it clear that a GST credit note can be issued even to a unregistered recipient of services. Though this circular discusses about issue of credit notes to service recipients it is equally applicable to supply of goods.

4.4 Where the time period for issuance of credit note under section 34 of the CGST Act has not expired at the time of cancellation/termination of agreement/contract for supply of services, the concerned suppliers can issue credit note to the unregistered person. In such cases, the supplier would be in a position to also pay back the amount of tax collected by him from the unregistered person and therefore, there will be no need for filing refund claim by the unregistered persons in these cases. Accordingly, the refund claim can be filed by the unregistered persons only in those cases where at the time of cancellation/termination of agreement/contract for supply of services, the time period for issuance of credit note under section 34 of the CGST Act has already expired.

Argument that GST Credit note cannot be issued to Un- registered dealers since he will not be in a position to reverse the corresponding ITC is not tenable:

In the case of B2C supplies the buyer of goods or services being an unregistered dealer, the question of claim of ITC on Tax Invoice against which supplies were effected does not arise. When the ITC on tax invoice itself is not availed, there is no need whatsoever for reversal of the same. The only condition that Section 34 (2) Proviso put forward is that, the burden of tax should not have been passed, in other words so long as the credit note amount whether it is value of supply or tax thereon, is refunded to the customer, the supplier can very much issue a GST credit note and reduce the tax covered by such credit note, if it is issue within the time limit prescribed under Section 34 and uploaded in GSTR 1.

Conclusion:

Based on the above legal provisions one may come to a conclusion that GST Credit notes can be issued even for B2C supplies so long as the incidence of tax has not been passed on to the consumer.

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Disclaimer: The views expressed in this article are the views of CA Rama Krishna Sangu LLB, Mcom, FCA founder RK SANGU & ASSOCIATES. This article is not intended for public circulation. The author can be reached at srkaca@gmail.com.