Credit Note under GST

In case when receiver returns the product or asks for a refund due to deficient service, a CREDIT NOTE is issued.

Credit Note is a financial instrument which is issued when there is a downward revision in prices of goods or services supplied.

Suppose a trader sold goods for Rs 50,000 to another dealer and issued invoice.

The dealer found some defects in the good and asked for a refund.

So, supplying dealer agreed to give refund of Rs 10,000.

In this case, supplying dealer will issue a credit note of Rs 10,000 against the original invoice.

Purpose of a credit note is to nullify the effects of an invoice. It offers a reduction in the value of the invoice and thus, reduces the liability of the purchaser.

In the above example, a credit note worth Rs 10,000 was issued, so now the purchaser has to pay Rs 40,000 against the original invoice only.

Credit note helps in settling the accounts in case of returning goods or refunds. It always has a negative impact on the accounting balance in the books of the seller.

There is no predefined format in which the credit note has to be issued; rather it is intimation to the purchaser about such credit being offered.

INTIMATION TO GOVERNMENT - Since it has a commercial impact, the same has to be informed or declared in GST returns in the month to which it prevails.

Credit notes must be mentioned in the returns of the following month about which the credit note has been raised. They have to be declared in earlier of the following dates:

·        Annual return filing date or,

·        By the 30th of September, following the year to which credit notes relate to.

From the above we can analyse that the due date of filing of annual return is 31st December and where the annual return is filed after 30th September, then the credit notes have to be declared on 30th September.

WHEN IS CREDIT NOTE ISSUED?

Credit notes can be issued in the following cases:

·        When the goods are returned by the recipient

·        When the supplier has charged excessive tax, where a lower rate should have been charged.

·        When the goods supplied are of inferior quality, and the same are returned to the supplier

CONTENTS OF CREDIT NOTE:

·       name, address, and GSTIN of the supplier,

·       nature of the document,

·       a consecutive serial number containing only alphabets and/or numerals, unique for a financial year,

·       date of issue of the document,

·       name, address and GSTIN/ Unique ID Number, if registered, of the recipient,

·       name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered,

·       serial number and date of the corresponding tax invoice or, as the case may be, bill of supply,

·       the taxable value 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

·       signature or digital signature of the supplier or his authorized representative.