CHAPTER XV

Credit Note in GST

Introduction

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:

• 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

• 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.

Meaning

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
exceed the taxable value ortax payable in respect of such supply, or where
the goodssupplied are returned by the recipient, or where goods orservices
or both supplied are found to be deficient, theregistered person, who has
supplied such goods or servicesor both, may issue to the recipient what is
called as a creditnote containing the prescribed particulars.

Format

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 symbolised 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 credited to the recipient; and

i) 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.

The output tax liability of the supplier gets reduced once the credit note
is issued and 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 forinput tax credit by
the recipient in his valid returnfor 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 ofoutward supplies
exceeds the corresponding reduction in the claim for input tax credit or
the corresponding creditnote is not declared by the recipient in his valid
returns, thediscrepancy 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 iscommunicated and which is
not rectified by the recipientin his valid return for the month in which
discrepancy iscommunicated shall be added to the output tax liabilityof the
supplier in his return for the month succeeding themonth 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 iscommunicated.

Records

The records of the credit notes have to be retained until the expiry of
seventy-two months from the due date offurnishing of annual return for the
year pertaining to suchaccounts and records. Where such accounts and
documentsare 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

The credit note is therefore 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 tedious process of refunds.