Ramesh Chandra Jena

Ramesh Chandra Jena

The term Credit and Debit Notes are oldest concept, generally used in day to day business for accounting purposes. These two documents used as easy negotiation instrument to rectify if any mistake in amount or any deficiency after issuance of invoice for commercial transaction. The adjustment of short or excess value or amount has occurred in tax invoice is being rectified by credit note and debit note.

Therefore, the provisions of credit and debit notes have rightly incorporated under GST laws for smooth operation of business transaction to rectify any mistake in value or amount with issuance of Tax invoice on supplies of goods and services. Section 34 of the CGST Act, 2017 has specified the provisions of credit note and debit note.

Requirement of Credit Note in GST:-

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 situation like:

(i) The supplier has erroneously declared a value which is more than the actual value of the goods or services provided.

(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.

(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.

(v) 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. Therefore, the issuance of credit note by supplier is required to settle the correct transaction between supplier and purchaser in the GST regime.

Meaning of Credit Note:-

Section 34 (1) of the CGST Act, 2017 has defined the meaning of credit note and specified that where a tax invoice has been issued for supply of any goods or services or both and 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 and particulars of Credit Note:-

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 symbolized as “-“ and “/” respectively , and any combination thereof, unique for a financial years;

(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.

Principles of Adjustment of tax liability:-

Section 34(2) of the CGST Act, 2017 has prescribed that any registered 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 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 30’th September.

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.

The output tax liability of the supplier gets reduced once the credit note is issued 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.

Preservation of Credit Note:-

The records of the credit have to be retained until the expiry of 72 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.

Requirement of Debit Note in GST:-

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:

(a) The supplier has erroneously declared a value which is less than the actual value of the goods or services or both provided.

(b) The supplier has erroneously declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied.

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

(d) Any other similar reasons.

In order to regularize these kinds of situations the supplier is allowed to issue what is called as debit note to the recipient. The note also includes supplementary invoice. Therefore, the requirement of issuance of debit note is to settle the correct transaction between supplier and buyer in the GST regime.

Meaning of Debit Note:-

Section 34 (3) of the CGST Act, 2017 has defined the meaning of debit note and specified that 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 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 a debit note containing the prescribed particulars.

Format and particulars of Debit Note:-

There is no prescribed format but debit 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 symbolized 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 unregistered;

(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 debited to the recipient; and

(i) signature or digital signature of the supplier or his authorised representative.

Principles of Adjustment of tax liability:-

Section 34(4) of the CGST Act, 2017 has prescribed that any registered 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 and the tax liability shall be adjusted in such manner as may be prescribed. The treatment of a debit note or a supplementary invoice would be identical to the treatment of a tax invoice as far as returns and payment are concerned.

Preservation of Debit Note:-

The preservation of records of the debit note or a supplementary invoice have to be retained until the expiry of 72 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: In short, the credit and debit note plays an important role in the GST regime. The credit note is 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 difficult process of refunds. Similarly, the debit note or a supplementary invoice is a convenient and legal method by which the value of the goods or services in the original tax invoice can be enhanced. The issuance of the debit note will easily allow the supplier to pay his enhanced tax liability in his returns without requiring him to undertake any other difficult process.

Author Details:-

Ramesh Chandra Jena, B. A (Hons)., M.A (Eco)., D.M.M., LL.B.

Senior Manager- Indirect Taxation,  KSK Energy Ventures Limited.

Author Bio

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Category : Goods and Services Tax (5313)
Type : Articles (14940)
Tags : goods and services tax (3861) GST (3453)

3 responses to “Provisions of Credit and Debit Notes in GST”

  1. Sona says:

    In case of debtors not make payment on due date and we raise debit note for interest on late payment, gst is applicable or not??

  2. K Kumar says:

    We act as Import Indenting Agents and get commission from our overseas suppliers in USD through Bank.
    Foreign supplier is not concerned with Indian law of GST and does nor pay any GST.
    Do we as commission agents have to pay GST or will it be treated as export receipt as money is coming in USD and no GST is applicable.
    Under which code we have to issue our Debit Note on foreign supplier.

  3. lochan says:

    can v show sales return on the basis of original invoice. ie. prepare credit note on the basis of orignal invoice .. as buyer has rejected goods on orignal invoice itself . and has not taken such sales in his books

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