GST Credit Note is conditional

[Ganeshan Kalyani]

Sec.34(1) of CGST Act provides for Credit and debit notes.

The extract of said section is given below-

“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 containing such particulars as may be prescribed.”

Analysis of the section:

The section says a supplier ‘may’ issue a credit note with GST (in short “GST Credit note) on following grounds:

1. taxable value or tax charged on the tax invoice is found to be excess,
2. goods supplied are returned by the customer i.e. sales return,
3. goods or services or both are found to be deficient i.e. quality rejection

While point 2) and 3) above are clear in terms of the reason for raising GST credit note , point 1) is open to cover various other reasons like rate revision, discount given etc.

Time limit mentioned:

Sec.34(2) provides for the time limit for the supplier to raise credit note with GST.

The extract of said section is given below:

“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 thirtieth day of November 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.“

The abovementioned provision prescribes a time limit to the supplier to raise GST credit note. The GST credit note can be furnished in GST return to be filed not later than 30th November following the end of financial year. That means the GST Credit note can be furnished in the return to be filed for the month of October following the end of financial year to which the corresponding original invoice pertains to. In short, the timeline to furnish GST credit note is October month of following year.

In other words, a supplier cannot declare the details of GST credit note after October month return.

Thereafter, the supplier can issue a financial credit note i.e. credit note without GST thereafter to settle the accounts.

Further Section 15(3)(b) provides conditions to be fulfilled by the supplier to raise GST credit note.

GST credit note can be issued if discount is given –

1. before or at the time of supply by mentioning on invoice
2. after supply has happened and –
   • such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to original invoice
   • the input tax credit attributable to discount is reversed by the customer.

While point 1) is clear, point 2) is subjective i.e. only if the conditions given are fulfilled by the supplier GST credit note can be issued.

Conclusion:

Sec. 34(1) contains the word “may” for issuing GST credit note. Sec. 34(2) provides time limit to report GST credit note. Sec. 15(3)(b) imposes conditions to become eligible to raise GST credit note on discount.

So only if the conditions satisfy by the supplier GST credit note can be issued. This means GST credit note is optional /conditional and not mandatory.