34.1.1 Circumstances for issue of CN

Question-1 [ICSI-P-D19-O-4(a)-5] [Provision of CN]

Explain the provisions of the CGST Act, 2017 relating to issuance of Credit Note in the context of CGST. What is its impact on GST liability in this regard?

Answer

Issuance of Credit Note

Section 34(1) of CGST Act, 2017 reveals that where one or more tax invoices have been issued for supply of goods or services or both and,

(i) Taxable value charged in the tax invoice is found to exceed the taxable value in respect of such supply; or

(i) Tax charged in invoice is found to exceed the tax payable in respect of such supply; or

(iii) Where goods supplied are returned by the recipient; or

(iv) Where goods or services or both supplied are found to be deficient registered supplier of goods and services or both may issue one or more credit note to recipient of such supply

Impact of issuance of Credit Note

As per Section 34(2) of the CGST Act,2017, provides that the details of credit note should be declared in the return for the month during which such credit note has been issued but not later than

(i) September following the end of the financial year in which such supply was made or

(ii) 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. However, such 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.

Question-1 [ICAI-I-Ch8-Q6] [Return of Goods]

Kidzee Toys Ltd., a wholesaler of toys registered in Chandigarh, is renowned in the local market for the variety of toys and their reasonable prices. Kidzee Toys Ltd. makes supply of 100 pieces of baby’s learning laptops and chat learning phones to Nancy General Store on 25th September by issuing a tax invoice amounting to Rs.1,00,000.

However, the said toys were returned by Nancy General Store on 30th September. Discuss which document Kidzee Toys Ltd. is required to issue in such a case?

Answer

Kidzee Ltd. is required to issue a credit note in such a case.

As per section 34, where one or more tax invoices have been issued for supply of any goods or services or both and the goods supplied are returned by the recipient 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. Therefore, Kidzee Ltd. is required to issue a credit note to Nancy General Store for the good returned.

Question-3 [ICAI-I-Ch8-Q7] [Consolidated CN for two or more invoice]

Rana Sanga Ltd., a registered supplier, has made following taxable supplies to its customer Babur in the quarter ending 30th June.

Goods in respect of bill no. 102, 230 and 254 have been returned by Babur.

You are required to advise Rana Sanga Ltd. whether it can issue a consolidated credit note against all the three invoices?

Answer

Where one or more tax invoices have been issued for supply of any goods and/or services and

(a) the taxable value/tax charged in that tax invoice is found to exceed
the taxable value/tax payable in respect of such supply, or

(b) where the goods supplied are returned by the recipient, or

(c) where goods and/or services supplied are found to be deficient,

the registered person, who has supplied such goods and/or services, may issue to the recipient one or more credit notes for supplies made in a financial year containing prescribed particulars. Thus, one (consolidated) or more credit notes can be issued in respect of multiple invoices issued in a financial year without linking the same to individual invoices.

Hence, in view of the above-mentioned provisions, Rana Sanga Ltd. can issue a consolidated credit note for the goods returned in respect of all the three invoices.

34.5 Miscellaneous Question

Question-1 [ICAI-I-M18-O-10a-5] [ICAI-I-M19-8(b)-5]

Under what circumstances does the need of issuance of debit note and credit note arise under section 34 of CGST Act, 2017?

Answer

Debit note is required to be issued

(i) if taxable value charged in the tax invoice is found to be less than the taxable value in respect of supply of goods and/or services or

(ii) if tax charged in the tax invoice is found to be less than the tax payable in respect of supply of goods and/or services

Credit note is required to be issued:

(i) If taxable value charged in the tax invoice is found to exceed the taxable value in respect of supply of goods and/or services, or

(ii) If tax charged in the tax invoice is found to exceed the tax payable in respect of supply of goods and/or services, or

(iii) if goods supplied are returned by the recipient, or

(iv) if goods and/or services supplied are found to be deficient.

Question-1A [ICAI-I-N18-O-12b-5]

Discuss the provisions relating to issuance of credit notes and debit notes under CGST Act and rules there under.

Answer

Credit note is required to be issued:

(i) if taxable value charged in the tax invoice is found to exceed the taxable value in respect of supply of goods and/or services, or

(ii) if tax charged in the tax invoice is found to exceed the tax payable in respect of supply of goods and/or services, or

(iii) if goods supplied are returned by the recipient, or(iv)if goods and/or services supplied are found to be deficient.

Debit note is required to be issued

(i) if taxable value charged in the tax invoice is found to be less than the taxable value in respect of supply of goods and/or services or

(ii) if tax charged in the tax invoice is found to be less than the tax payable in respect of supply of goods and/or services

Question-2 [ICAI-I-N19-O-8(a)-5]

Kartik & Co., a registered supplier under GST, provides the following information regarding various tax invoices issued by it during the month of March.

(i) Value of supply charged in invoice no. 1 was Rs.2,50,000 against the actual taxable value of Rs.2,30,000.

(ii) Tax charged in invoice no. 4 was Rs.32,000 against the actual tax liability of Rs.68,000 due to wrong HSN code being chosen while issuing invoice.

(iii) Value charged in invoice no. 8 was Rs.3,20,000 as against the actual value of Rs.4,20,000 due to wrong quantity considered while billing.

Kartik & Co. asks you to answer the following:

(1) Who shall issue a debit/credit note under CGST Act?

(2) Whether debit note or credit note has to be issued in each of the above circumstances?

(3) What is the maximum time-limit available for declaring the credit note in the GST Return?

Answer

(1) The debit/credit note shall be issued by the registered person who has supplied the goods and/or services, i.e. Kartik & Co.

Yes, debit/credit note need to be issued in each of the circumstances as under:

(i) A credit note is required to be issued as the taxable value in invoice no. 1 exceeds the actual taxable value.

(ii) A debit note is required to be issued as the tax charged in the invoice no. 4 is less than the actual tax payable.

(iii) A debit note is required to be issued as the value of supply charged in the invoice no. 8 is less than the actual value.

(3) The details of the credit note cannot be declared later than the return for the month 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.