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The debit notes and credit notes are a very essential part of any relationship between the debtor and the creditor which are required to be issued under various circumstances. GST law has its own requirements for issue of these documents which must be met. This article does not deal with the particulars of these documents rather it deals with legal conditions for issue of these documents and practical situations and whether these documents may or may not be issued in those situations.

Credit Notes:
Statutory Definition :- As per section 2(37) “credit note” means a document issued by a registered person under sub-section (1) of section 34

Circumstances under which Credit Note maybe issued:- Under GST law as contained in Section 34(1) of the CGST Act credit notes can be issued only under the following three circumstances

   1. Taxable value or tax charged in a Tax Invoice exceeds the amount of   taxable value or tax to be charged for the taxable supply.

Illustration
Suppose tax rate applicable on a particular item sold by A to B is 5% and the taxable value is Rs 5,000. A inadvertently levies 12% GST in his invoice. The error is identified by the parties after 2 months. On discovery of this error A will issue a credit note to B for Rs 3,500 and A will reverse his output tax liability and B will reverse his input tax credit.

  2. Goods supplied by the supplier are returned by the recipient.
  3. Goods or services are found to be deficient.

Who may issue Credit Note:- Under the GST only a registered person making taxable supplies can issue a Credit Note. Credit Note issued by a recipient of taxable supplies is not a valid credit note under GST Law.

Till when can a Credit Note be issued for a particular financial year:- As per section 34 (2) credit note may be issued latest till the earliest of the following dates

   1. At the time of filing return for the month of September of the following financial year.
      2. Date of filing of relevant Annual Return.

Applicability of doctrine of unjust enrichment:- proviso to section 34(2) of the CGST Act states 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. So this one of the prerequisites for reversal of output tax liability for the supplier of taxable supplies.

Can we issue Credit Notes for bad debts?

A question often arises that the debtor is not paying the due amount and in all likelihood the amount will be bad. Whether in such circumstances output liability can be reduced through issue of Credit Note. The answer to this question no. Under GST credit note maybe issued and tax liability reduced only in three circumstances as herein before described. However if the debtor fails to make payment within 180 days of the tax invoice date a complaint maybe filed with the authorities where after the recipient will be liable to reverse the input tax credit availed by him against such tax invoice and further he will also be liable to pay applicable interest and can claim back input tax credit only on the payment of total due against the invoice.

Can we issue credit note for discounts?

As per section 15(3)(b) of the CGST Act
The value of the supply shall not include any discount which is given after the supply has been effected, if

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Both the aforesaid conditions are required to be mandatory satisfied for issue of credit notes for reversal of output tax liability under GST law. So if there is any connection between the discount and the original sales transaction supported by agreement on or before the supply of original goods credit note may issued for reversal of output tax liability. However credit note not allowed to be issued for agreement entered post the supply of original goods.

Debit Notes:
Statutory definition:- As per section 2(38) of the CGST Act, “debit note” means a document issued by a registered person under sub-section (3) of section 34;

Circumstance for issue of debit note:- As per section 34(3) of the CGST Act debit may be issued only when the taxable value or tax charged in a tax invoice issued for making taxable supply is found to be less than the taxable value or tax payable in respect of such supply.

Who can issue debit note:- Debit Note can be issued only the registered supplier of tax supply under the GST law.

Time limit for issue of debit note:- Unlike credit note there is no time limit prescribed for the issue of debit note under GST law. So practically the supplier identifies anomaly he is supposed to issue debit note and pay the applicable tax to the government.

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2 thoughts on “Important of Debit & Credit Notes in GST Era

  1. S K Das says:

    Is it so that being a receiver of the Goods or Supply, Con’nt the receiver issue debit note for receiving substandard quality of material from a registered supplier? Receiver can also issue debit note for the excess quantity charged by the supplier.

    1. Santosh V Sahani says:

      You are right sir
      From both end Debit note and Credit note should be generated

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