Relevance of Debit Note

As per the provision of CGST Act, 2017 as contained in Section 34 which provides that 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 less than the actual value of the goods or services provided.
    • The supplier has erroneously declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied.
    • The quantity received by the recipient is more than what has been declared in the tax invoice.
    • Any other similar reasons

Further there are circumstances in which Recipient is required to issue Debit Note such as Purchase Return and Discount received by the recipient.

Tax Implication

In order to regularize these kinds of situations, the supplier is allowed to issue a debit note to the recipient. Once a debit note has been issued, the tax liability of the supplier stands increased. There will be simultaneous decrease in the tax liability of the recipient. Debit Note also includes a supplementary invoice.

Disclosure in Returns

Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued. Further it is to be noted that a supplier is required to file in his GSTR-1, Debit Note issued by him for errorneous Value/ Tax/ Quantity in the invoice due to which lower tax was previously charged. Alternatively, supplier can amend invoice in his GSTR-1.
In case of Purchase return and Discount received by the recipient, he/she shall not be required to file Debit Note rather his/her GSTR-2 shall be updated by GSTR-1 filed by supplier by filing Credit Note issued as per foregoing paragraphs.

Relevance of Credit Note

As Per the provision of CGST Act, 2017 as contained in Section 34 which provides that 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.
    • The recipient has returned the goods and such sale returns have been accepted by the supplier.
    • Any other similar reasons.

Tax Implication

In order to regularize these kinds of situations , the supplier is allowed to issue a credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce. There will be simultaneous increase of tax liability of recipient.

Disclosure in Returns

    • 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.

Further it is to be noted that a supplier is required to file in his GSTR-1, Credit Note issued by him in the following circumstances:

    • Sales Return
    • Errorneous Value/ Tax/ Quantity charged by supplier due to which more tax liability was made.

Recipient is not required to file Credit Note issued in respect of erroneous value/ tax/ quantity in the invoice rather his/her GSTR-2 shall be updated by GSTR-1 of the supplier in which supplier’s Debit Note has been filed as discussed above.

    • A supplier can adjust his tax liability only if the details of credit note have been provided in the return. The last date for furnishing details of such credit note is earlier of the following two dates:
      • 30th September following the end of the year in which such supply was made , or
      • The date of furnishing of the relevant annual return.

 

De-linking of ITC on Debit Notes with Invoice

Now, w.e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act. This can be understood with the help of an example:

Suppose Mr. X Sales goods worth Rs. 30,000 on 01.04.2020 to Mr. Y charging GST @5% of Rs. 1500. However, while finalising books in September, 2021 he realised that goods are of worth Rs. 40,000 & now issued debit note for Rs. 10,000 charging GST of Rs. 500.

As per the earlier provision said the input in respect of such debit note can only be availed upto the September 2021, as it is linked with original invoice date for claiming input.

Now, such linkage is been removed & date on which debit note was issued is relevant for claiming ITC, in this upto September, 2022. This change also enables to issue a single debit note in respect of multiple invoices.