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January 15, 2021

Delinking of Debit Notes w.r.t Original Tax Invoices for availing GST Credit

by CA Shivam Jaiswal in GST, GST Circular Notification

Delinking of Debit Notes w.r.t Original Tax Invoices for availing GST Credit

GSTN Portal introduced a utility whereby delinking of Debit and Credit Notes with Individual Tax Invoices was provided. This was a long-standing demand of the stakeholders who were facing issues of matching each Debit or Credit Note with each individual Tax Invoice raised by the supplier of the goods or services.

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 or less than the actual value of the goods or services or both provided.
  • The supplier has erroneously declared a lower or higher tax rate than what was applicable for the kind of the goods or services or both supplied.
  • The quantity received by the recipient is more or 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.
  • Any other similar reasons

In order to regularize these kinds of situations the supplier is allowed to issue a credit note or a debit not as applicable to the recipient.

What do you mean by a Credit Note?

Where a tax invoice has been issued for supply of any goods or services and the following situations arises:

  • taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply
  • goods supplied are returned by the recipient
  • goods or services supplied are found to be deficient

then the registered person, who had supplied such goods or services, may issue to the recipient a credit note containing the prescribed particulars.

What do you mean by a Debit Note?

When a tax invoice has been issued for supply of any goods or services 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, shall issue to the recipient a debit note containing the prescribed particulars.

Delinking of Credit/Debit Note from Invoice in Form GSTR 1/GSTR 6 or Filing Refund

Recently GSTN enabled the facility to delink reporting of debit note or credit note corresponding with their original invoice. Before such delinking facility, original invoice number was mandatorily required to be quoted by the taxpayers, while reporting a Credit Note or Debit Note in Form GSTR-1 (for outward supplies) or Form GSTR-6 (for ISD Returns).

However, now the taxpayers now been provided with a facility on the GST Portal to:

  • Report in their Form GSTR-6, single credit note or debit note issued in respect of multiple invoices
  • Choose the supply type as Regular, SEZ, DE, Export etc., to identify the table to which such credit notes or debit notes pertain.
  • Place of Supply (POS) can be sealed against each credit note or debit note, to identify the supply type i.e., Intra-State or Inter-State(State-wise POS Debit note or Credit notes to be reported)
  • Debit /Credit Notes can be declared with tax amount, but without any taxable value also i.e. if credit note or debit note is issued for difference in tax rate only, then note value can be reported as ‘Zero’. Only tax amount will have to be entered in such cases.

Similar changes have been made while reporting amendments to credit note or debit note.

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What do you mean by ITC?

  • Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output.
  • When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.
  • According to Section 16(1) of the CGST Act, every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
  • Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

What is the effect of Delinking of ITC on Debit note with Invoice Date?

  • According to Section 16(4) the registered person would not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing GSTR 3B for the month of September following the end of financial to which such invoice or invoice relating to such debit note pertains or furnishing of relevant annual return, whichever is earlier.
  • The time limit to avail ITC with respect to the tax charged on the debit note before the amendment u/s 16(4) of the CGST Act, 2017 was linked to the invoice date and not the date of the debit note.
  • This had resulted in hardships to the industry especially cement industry where retrospective price increase is a very common feature.
  • However, in recent Finance Bill, 2020, clause 118 sought to amend section 16(4) of the CGST Act so as to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit.
  • Hence the time limit for availment of credit based on the debit note would be computed from the date of the debit note and not based on the invoice related to such debit note.
  • After the amendment, section 16(4) would state that a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. 
  • The amendment proposed by the Finance Bill, 2020 by way of amendment of section 16(4) seems to be clarificatory in nature to clear the ambiguity in enforcement of the provisions of the GST law which is new and developing.
  • Therefore, the amendment could be applied retrospectively w.e.f. 1st July 2017 onwards.
  • However, Notification No. 92/2020-CT dated 22nd December, 2020 has notified that the same would be effective from 1st January 2020.

If an invoice was issued, during February2019 and a debit note pertaining to such invoice is issued during September2019 then, prior to this amendment, the last date for taking credit in respect of this debit note would have been the due date of filing Form GSTR-3B for the month of September 2019.

However, post this amendment, the last date for taking such credit would be the due date of Form GSTR-3B for the month of September 2020 as the debit note was issued in the FY 2019-20.

Therefore, we can take a view that ITC in respect of debit note issued now with respect of invoices issued for 2017-18 can be availed by the recipient. The delinking process would ease the stress of matching Debit and Credit Notes with Individual Tax Invoices and help all Registered Tax Payers to report such Debit and Credit Notes in a hassle-free manner. This would lead to saving of time, effort, and cost thereby promoting the efficiency of an enterprise.

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