Receipt of Commercial Credit Note—No Requirement of Reversal of Input Tax Credit—D.K. Saxena

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The Tax Publishers GST--Reversal of Input Tax Credit Receipt of Commercial Credit Note--No Requirement of Reversal of Input Tax Credit D.K. Saxena The learned author seeks to make an overview of provisions of section 16, 17 and 32 of the Central Goods and Services Tax Act, 2017 on the issue as to whether there is need of reversing input tax credit by a taxpayer upon receipt of commercial/financial credit note from the supplier/distributor/wholesaler. 1. GST credit note v. commercial credit note The provisions relating to issuance of credit notes are enshrined under section 34 of the Central Goods and Services Tax Act, 2017 (in short "the CGST Act"). The term credit note is defined under clause (37) of section 2 of the CGST Act to mean a document issued by a registered person under sub-section (1) of section 34. As per sub-section (1) of section 34 of the CGST Act, 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. Sub-section (2) of section 34 requires that 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. It is 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. With the issuance of credit note, the input tax credit of the recipient of supply stands reduced to the extent of tax amount liability reduced by the supplier. Now, let us make a discussion about the commercial credit note. A commercial credit note is quite difference from the GST credit note. A commercial credit note is issued by the supplier/distributor/wholesaler to a dealer allowing some discount, incentive, rebates, etc. based on the quantum of purchase made by the dealer or for any other reason for granting some rebates and incentive to the purchasing dealer. In a commercial credit note, no GST amount is reflected, hence the supplier of goods cannot reduce his tax liability. At the same time, the recipient of supply also not required to reverse input tax credit. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Reversal of Input Tax Credit

Receipt of Commercial Credit Note--No Requirement of Reversal of Input Tax Credit

D.K. Saxena

The learned author seeks to make an overview of provisions of section 16, 17 and 32 of the Central Goods and Services Tax Act, 2017 on the issue as to whether there is need of reversing input tax credit by a taxpayer upon receipt of commercial/financial credit note from the supplier/distributor/wholesaler.

1. GST credit note v. commercial credit note

The provisions relating to issuance of credit notes are enshrined under section 34 of the Central Goods and Services Tax Act, 2017 (in short "the CGST Act").

The term credit note is defined under clause (37) of section 2 of the CGST Act to mean a document issued by a registered person under sub-section (1) of section 34.

As per sub-section (1) of section 34 of the CGST Act, 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.

Sub-section (2) of section 34 requires that 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.

It is 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.

With the issuance of credit note, the input tax credit of the recipient of supply stands reduced to the extent of tax amount liability reduced by the supplier.

Now, let us make a discussion about the commercial credit note. A commercial credit note is quite difference from the GST credit note. A commercial credit note is issued by the supplier/distributor/wholesaler to a dealer allowing some discount, incentive, rebates, etc. based on the quantum of purchase made by the dealer or for any other reason for granting some rebates and incentive to the purchasing dealer.

In a commercial credit note, no GST amount is reflected, hence the supplier of goods cannot reduce his tax liability. At the same time, the recipient of supply also not required to reverse input tax credit.