This is an attempt to briefly discuss the provisions with regards to issuance of credit note in case of exempt supply and simultaneous reclaiming/reavailing of input tax credit under GST regime.
Taxpayer has entered into an arrangement for rendering of exempt supply of service to a government entity which has been notified as exempt supply by CBIC and accordingly issued and reported a bill of supply say in ‘March 2020’ along with reversing the proportionate ITC w.r.t. rule 42 and 43 of CGST Rules, 2017. Now say in ‘May 2021’, due to some negotiations with its customer, taxpayer has to issue a credit note to the customer against this supply.
Please find below a brief discussion with regards to the provisions of GST law on this aspect and backdrop of documents to be issued for such credit note and whether there is a provision to re-claim/re-avail the ITC already reversed in FY 2019-20.
Central board of Indirect Taxes (CBIC) has vide various notifications to exempt certain supplies from levy of GST either permanently or temporarily, fully or partially.
Further, Rule 49 of CGST Rules, 2017 provides the details and particulars which shall be contained in a BoS issued as referred to in clause (c) of sub-section (3) of section 31.
Vide the above provisions, GST law explicitly provided a separate set of provisions w.r.t. BoS to be issued in case of exempt supply and barred the issuance of a tax invoice in such case. Basis this, Taxpayer has issued bill of supply (BoS) in ‘March 2020’ for exempt supply made to its customer
Rule 42 ‘Manner of determination of input tax credit in respect of inputs or input services and reversal thereof’ and Rule 43 ‘ Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases’ of CGST Rules, 2017 provides the manner of proportionate reversal of ITC, in case the input tax credit, which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies.
Basis the above provisions, Taxpayer has reversed the proportionate ITC in the return period ‘March 2020’.
Basis the above provisions, it is clear that credit note can only be issued against a tax invoice and that the time limit for issuance and reporting/declaring of the same in return for September period of following financial year or GSTR9, whichever is earlier, shall apply strictly to credit notes issued against a taxable supply only.
Further, it is pertinent to highlight here that GST law does not provide for issuance of any credit note apart from the one mentioned in section 34(1) i.e. against a tax invoice and that in this case, taxpayer may have to issue to commercial credit note (CCN) only. Also, the same might not be contradictory to GST law considering no tax impact in issuance of a CCN. Also, it can be inferred that time limit to issue a CCN has not been provided under GST law and thus the same can be issued at any point of time.
Furthermore, since no mention of CCN has been given under the GST law, thus, it remaining a question of deliberating as to whether such CCN can be reported in the periodic GST returns or not. In our view, taxpayer can report such CCN in the GSTR1 return for the period in which said note is issued and w.r.t. GSTR3B return, taxpayer can net-off/reduce the exempt supplies as and when available since the functionality on common GST portal does not allow to report negative figures.
Above provision restricts the time limit to claim ITC till September of following financial year or GSTR9, whichever is earlier, and once can take a standpoint that only the time limit for original/first-time availment of ITC is restricted and same does not apply to the reavailment/reclaiming of ITC already reversed in the past which comes out to be in excess of the actual.
Please note that the GST authorities might take a contrary/different view and question/dis-allow the aforesaid view of re-claiming/re-availing the ITC and relief can be expected to be granted at the higher forums.
Trust the above suffices and helps.
Should you require any clarification, please feel free to revert back in the comment section.