GST credit and debit notes play a significant role in the regulation of transactions under the CGST Act. Section 34 of the Act outlines the provisions governing credit and debit notes, their issuance, and the conditions that must be met for eligibility. With the recent development of mandate credit and debit notes for e-invoicing and the revision of the e-invoicing threshold. It has become important for businesses to gain insights into the conditional nature of GST credit notes and their significance in the GST framework.
Section 34(1) of the CGST Act primarily addresses the issuance of credit and debit notes. This section allows a registered person who has supplied goods or services to issue one or more credit notes to the recipient under specific circumstances. For example, where the taxable value or tax charged on the original tax invoice exceeds the taxable value or tax payable for the supply, or where the goods are returned by the recipient, or where the supplied goods or services are found to be deficient.
According to Section 34(1) of the CGST Act, when a tax invoice is issued and it also needs to be amended to reduce the tax liability stated on it, the supplier may issue a credit note. The seller may issue a credit note for a variety of reasons, for example:
1. If the purchaser returns due to quality issues, service rejection, or damaged goods receipt.
2. Higher charges were incorrectly collected from the buyer, or the buyer paid more than the invoiced value.
3. If the supplier gives buyer a post-sale discount.
4. The amount received by the customer is less than the amount stated on the tax invoice.
5. Canceling any outstanding invoice payments.
6. Any other similar reason.
The reasons for issuing GST credit notes are clearly stated in Section 34(1) of the CGST Act to cover sales returns (goods returned by the customer) and quality rejections (deficient goods or services). And it also provides flexibility to cover scenarios such as rate revisions or discounts given,
Section 34(2) of the CGST Act sets a time limit for suppliers to issue GST credit notes.
“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 the 30th day of 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. Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest of such supply has been passed on to any other person“.
According to this provision, a registered person must declare the details of the credit note in the return for the month in which it is issued but no later than the 31st October following the end of the financial year in which the supply was made. This means that the GST credit note can be included in the return for the month of October following the end of the financial year to which the original invoice pertains. After this deadline, the supplier can issue a financial credit note (credit note without GST) to settle the accounts.
Section 15(3)(b) of the CGST Act lays out the conditions that a supplier must fulfill to issue a GST credit note in the case of discounts. These conditions include:
1. Mentioning the discount on the invoice before or at the time of supply,
2. If the discount is established through an agreement entered into before
3. At the time of supply and specifically linked to the original invoice.
Additionally, the customer must reverse the input tax credit attributable to the discount.
From the analysis of Section 34 of the CGST Act, it is evident that the issuance of GST credit notes is conditional and not mandatory. The use of the term "may" in Section 34(1), the time limits imposed by Section 34(2), and the fulfillment of conditions outlined in Section 15(3)(b) indicate that a supplier can issue a GST credit note only if the specified conditions are satisfied. It is important for businesses to understand these provisions and comply with the prescribed requirements when issuing credit notes under the GST framework.
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