Sec 34 – Credit and debit notes

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Sec 34 – Credit and debit notes 2017-04-14T14:14:07+00:00

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  • Ashish BadalaCA Ashish Badala
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    #1473 |

    (1) Where a tax invoice has 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 a credit note containing such particulars as may be prescribed.

    (2) 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 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 on such supply has been passed on to any other person.

    (3) Where a tax invoice has 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 be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed.

    (4) 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 and the tax liability shall be adjusted in such manner as may be prescribed.
    Explanation.–For the purposes of this Act, the expression “debit note” shall include a supplementary invoice.

    Priya MadrechaPriya Madrecha
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    34.1  Analysis
    (a)    Credit note and debit note cause some hardship to quickly understand – who owes whom. Credit note is issued when ‘I OWE’ money to someone, that is, it is issued by the person who owes money. Debit note is issued when ‘THEY OWE’ money to me, that is, it is again issued by the person who is the receive money. When a cash discount is allowed at the time of collecting payment from a customer, then the issuer of the relevant note is the supplier (not customer) who agrees to reduce the amount due from the customer. So, to the extent of such cash discount, the supplier declares ‘I OWE’ money and when ‘I OWE’ money, the relevant note is a ‘credit note’. And here the supplier issues the credit note to the customer to the extent of the cash discount. Then, the original amount due MINUS the credit note is the revised amount that the customer pays the supplier. Now, if the supplier charges a penalty for delayed payment to the same customer and is accepted, then again, the supplier (not customer) is issues the relevant note for the accepted amount of delay penalty. So, to the extent of such delay penalty, the supplier declares that ‘THEY OWE’ money and when ‘THEY OWE’ money, the relevant note is a ‘debit note’. And here the supplier issues the debit note to the customer to the extent of the delay penalty. Then, the original amount due PLUS the debit note is the revised amount that the customer pays the supplier.
    (b)    Now, this provision considers four situations where supplier says, ‘I OWE’ and issues credit note:
    —     value of supply is lower than that stated in the tax invoice issued previously
    —     Tax charged in that invoice is higher than that correctly applicable on the supply
    —     goods supplied are returned by the recipient
    —     goods or services supplied are deficient
    (c)    And it considers two situations where the supplier says, ‘THEY OWE’ and issues debit note:
    —     value of supply is higher than that stated in the tax invoice issued previously
    —     Tax charged in that invoice is lower than that correctly applicable on the supply
    (d)    Credit note and debit note must be considered in the return for the month when it is issued. But, a credit note is required to be issued not later than September of next year as it involves reducing the tax liability. And where these is such reduction in tax liability by a credit note, the same is permitted with a corresponding responsibility to ensure that the recipient of supply has made a corresponding downward revision in the claim of tax credit.
    (e)    Scenario-1 Credit note issue

    Scenario 1: Tax Charged/ Taxable Value/ Goods returned/ Deficient Services > Tax Charged/ Taxable Value (w.r.t. that supply), then

    (f)    Scenario-2 Debit note issue (include Supplementary invoice )

    Scenario 2: Tax Charged/ Taxable Value < Tax Charged/ Taxable Value (w.r.t. that supply), then

    (g)    Supplementary tax invoice and credit or debit notes
    A revised tax invoice referred to in section 31 and credit or debit note referred to in section 34 shall contain the following particulars –
    (a)    The word “Revised Invoice”, wherever applicable, indicated prominently;
    (b)    name, address and GSTIN of the supplier;
    (c)    nature of the document;
    (d)    a consecutive serial number containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
    (e)    date of issue of the document;
    (f)    name, address and GSTIN or UIN, if registered, of the recipient;
    (g)    name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;
    (h)    serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;
    (i)    value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient; and
    (j)    signature or digital signature of the supplier or his authorized representative:
    (3) Any invoice or debit note issued in pursuance of any tax payable in accordance with the provisions of section 74 or section 129 or section 130 shall prominently contain the words “Input tax credit not admissible”.

    (h)    Manner of issue of invoices
    Sl. No     Description      Original to     Duplicate to      Triplicate to
    1     Invoice to be issued in respect of goods     Recipient     Transporter     Supplier
    2     Invoice to be issued in respect of services within 30 days from date of supply of
    services     Recipient     Supplier      Not required
    a.    If the supplier of services is an insurer, banking company, financial institution or a NBFC invoice is to be issued within 45 days from the date of supply of service.
    b.    If the supplier of services is an insurer, banking company, financial institution or a NBFC or a telecom operator or a notified class of supplier of services between distinct persons as per section 25 of the CGST Act (refer entry 2 of schedule I) then an invoice, is to be issued before or at the time the supplier records in his books of account or before expiry of the quarter during which supply is rendered.
    (i)    Transportation of goods without issue of invoices – exceptional circumstances
    The Rules prescribed lists out certain special circumstances for transportation of goods when tax invoice cannot be issued. In such situations, the Rules also specifies the nature of other documents to be carried along with the goods under transportation. Please note that this list is illustrative and not exhaustive.
    Nature of supply     Mandatory documents     Particulars to be contained in the document
    (1)    Supply of liquid gas where the quantity at the time of removal from the place of business of the supplier is not known
    (2)    Transportation     of goods for job work
    (3)    Transportation of goods for reasons other than by way of supply, or
    (4)    Such other supplies notified by the
    Board     1.    The consignor to issue a delivery challan
    2.    Serially
    numbered
    Delivery challan to be issued in lieu of invoice at the time of removal of goods for transportation
    (i)    Date and number of the delivery
    challan,
    (ii)    Name, address and GSTIN of the
    consigner, if registered,
    (iii)    Name, address and GSTIN or UIN of the consignee, if registered,
    (iv)    HSN code and description of goods,
    (v)    Quantity (provisional, where the exact quantity being supplied is not known),
    (vi)    Taxable value,
    (vii)    Tax rate and tax amount – central tax, State tax, integrated tax, Union territory tax or cess, where the transportation is for supply to the consignee,
    (viii)    Place of supply, in case of inter-State movement, and (ix) Signature.
    Note:
    1.    The delivery challan shall be prepared in triplicate, in case of supply of goods, in the following manner: –
    (a)     ORIGINAL FOR CONSIGNEE; (b)     DUPLICATE FOR TRANSPORTER; and (c)     TRIPLICATE FOR CONSIGNOR.
    2.    Where goods are being transported on a delivery challan in lieu of invoice, the same shall be declared in FORM [WAYBILL].
    (j)    Where the goods are being transported in a semi knocked down or completely knocked down condition
    1.    The supplier to issue the complete invoice before dispatch of the first consignment;
    2.    The supplier shall issue a delivery challan for each of the subsequent consignments, giving reference of the invoice;
    3.    Each consignment to be accompanied by copies of the corresponding delivery challan along with a duly certified copy of the invoice; and
    4.    The original copy of the invoice shall be sent along with the last consignment.
    (k)     Credit/Debit Notes
    (i)    No credit note shall be issued if the incidence of tax and interest on such supply has been passed by him to any other person.
    (ii)    The details of credit notes/debit notes should be declared (i) in the return for the month during which they are issued or received; or (ii) in the return for any subsequent month. However, such declaration cannot be later than (i) September following the end of the financial year in which the supply was made or (ii) date of filing of the relevant annual return, whichever is earlier.
    (iii)    If the details are not shown as above, the credit / debits notes may not be considered for adjustment of tax liability.
    34.2 Comparative review
    (i)    Rule 9 of CENVAT Credit Rules, 2004 gives details of the documents and accounts which need to be mandatorily adhered to in ordered to avail the benefit of CENVAT Credit.
    (ii)    As per the Rule, CENVAT Credit can be availed based on: –
    (a)    An invoice
    (b)    Supplementary invoice
    (iii)    In the context of excise laws, though credit notes may be issued in situations where taxable value is reduced, typically, no adjustment is made for excise valuation purpose (except when the assessment is provisional). Instead of debit notes for increase in taxable value/tax, supplementary invoices are issued (this is a valid document for taking CENVAT credit). There is no time limit for issuance of credit/debit notes (supplementary invoice).
    (iv)    In the context of service tax laws, notes credit notes may be issued in situations where taxable value is reduced. Adjustment of excess tax paid is permissible in specified situations. Instead of debit notes for increase in taxable value/tax, supplementary invoices are issued (this is a valid document for taking CENVAT credit). There is no time limit for issuance of credit/debit notes (supplementary invoice).
    However, credit availed on tax paid on supplementary invoices could be disputed in circumstances where additional tax was payable by reason of fraud, collusion, wilful mis-statement, suppression of facts, contravention of any of the provisions with intent to evade duty/taxes.
    (v)    Most State VAT laws have provisions relating to issue of Credit or Debit notes for difference in value of supply and tax. Time period (usually 6 months from the date of sale) is prescribed for issuance of credit/debit notes for adjustment against taxable value. Some States provide that if the credit has already passed on in the original invoice, the tax component shall not be adjusted by issuance of credit note (this is because the buyer would have taken credit in such cases and the credit is left undisturbed).
    34.3    FAQ’s
    Q1.     Can credit notes/debit notes be raised without raising an appropriate tax invoice?
    Ans. No, credit notes/debit notes have to be raised with reference to specific invoice and not otherwise to get the benefit of tax adjustment.
    Q2.     Is it mandatory to show the details of credit/debit notes in the periodic returns?
    Ans. Yes, the details of debit note and credit note is required to be mentioned in periodic returns. If not shown, it is not considered for adjustment of tax liability.
    Q3.     Are there any situations where credit note cannot be issued?
    Ans. Credit note cannot be issued if the incidence of tax and interest on such supply has been passed by tax payer to any other person.
    34.4    MCQ
    Q1.     What is the last date by which you need to issue debit/credit note?
    (a)    On or before Sept 30, following the end of financial year
    (b)    The date of filing of the relevant annual return
    (c)    Earlier of the two dates mentioned in (a) and (b) above
    (d)    None of the above
    Ans. (c) Earlier of the two dates mentioned in (a) and (b) above

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