Treatment for time barred Credit Note under GST

Treatment for time barred Credit Note which cannot be adjusted on account of no GST liability during the relevant period

Unresolved Technical fault of the GST portal

The GST portal of the Government is still in the process of development and every now & then, the taxpayers are facing one or more technical glitches but, there is one technical fault which is not fixed since the inception of the Act either because of the misinterpretation or the negligence and we will talk about the same in this article.

Many business organizations with no GST liability under IGST or CGST/SGST or both may have faced the practical problem that the credit note issued by them is not feasible to be adjusted on account of the fact that the GST Portal do not accept liability in negative figures and such pain is not limited upto this as subsequently, after specified period, the adjustment of credit note becomes time barred as per the GST provisions.

So, the question is whether the said credit note, after being time barred, can be adjusted with the subsequent liability?

With respect to above, let us consider following legal propositions and points-

At the outset, it is pertinent to mention that provisions regarding levy of tax under SGST and UTGST have been coined in the similar phraseology as in the case of CGST, accordingly, wherever CGST is applicable, SGST/UTGST shall also be applicable. Further, by virtue of Section 20 of the IGST Act, 2017, the provisions of CGST Act,2017 in respect of registration, Scope of supply, time of supply, Input Tax Credit, Reverse Charge, Exemptions, payment of tax etc. have been, mutatis mutandis, made applicable in relation to Integrated Tax also.

Thus, only the provisions of CGST Act have been referred

The term credit note is defined in Section 2(37) of the CGST Act, 2017 and the same states that credit note means a document issued by a registered person under subsection (1) of section 34.

Section 34 of the CGST Act, 2017 governs the provisions of Credit Notes and the sub-clause 1 and 2 of Section 34 are reproduced below for reference-

(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]61 containing such particulars as may be prescribed.

(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 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, and the tax liability shall be adjusted in such manner as may be prescribed:

Section 37 of the CGST Act, 2017 deals with furnishing the details of outward supplies. As per the explanation under this section, the expression ―details of outward supplies shall include details of invoices, debit notes, credit notes and revised invoices issued in relation to outward supplies made during any tax period.

In the present case, we have the situation that there is an unadjusted-credit note which is time barred as per the Section 34(2) of the CGST Act, 2017 (as the taxpayer was unable to adjust such credit note during the relevant period on account of nil GST liability).

So, let us assume that such credit note which is time barred, involves considerable amount of GST liability to be adjusted & all the other required compliances were done with respect to same. Also, consider that the tax payer is now making sufficient sales (for the purpose of adjustment). So, at this time, what treatment could be done to recover the funds blocked on account of non-adjustment of the said credit note?

In view of aforesaid, it is to be stated that one can argue that such credit cannot be termed as time barred as it is not procedurally feasible to adjust the same and no mechanism is prescribed by the Government to deal with such situation. So, why the tax payer shall suffer with excess payment of tax owing to shortcomings and negligence of the GST Portal?

It is to be submitted that as long as fundamental requirements are met no benefit can be denied on account of procedural deviation. In the situation at hand, the tax payer is having valid tax invoice against which the credit note had been issued and both tax invoice and credit note were correctly reported in GSTR 1 of relevant tax period. Had it been that there was no such technical fault in the GST portal, the tax payer would have adjusted such credit note within the limitation period itself.

Also, it is well established principle on the basis of various judgments that the substantial benefit cannot be denied even on the basis of procedural mistake of tax payer and over and above, the present case involves procedural fault of Government’s GST portal.

Without prejudice to above, it is to be stated that in GST laws there is no single restriction that Credit note could not be adjusted in return of the month, wherein the GST liability is nil.

It is to be stated that the GST portal must have option to take the liability in negative figures in return, for considering the scenario where only credit note is being issued by the taxpayer with no supplies.

Therefore, on taking the ground that the tax payer have no control over the technical problems of GST portal, why the time barred credit note could not be adjusted subsequently and why the tax payer suffer blockage of funds merely because of lack of facility and mechanism?

Kindly share your thoughts on same…..!!!!!