How Business and Services will get GST ITC Credit if goods are returned by customer during COVID-19
Covid- 19 has certainly brought life to standstill. The spread and outbreak of this pandemic has effected the entire world with both life and economic hit. The supply chains, trade and commerce are all effected around the entire globe. The business are no exception to this hit. In all this situations few extensions of compliance have although proven to be some relief but some areas need some clarity. One of which we will be dealing in this article. How will business and services deal and get GST ITC credit in case if goods are returned by customers during the current Covid-19 scenario.
What is meant by ITC under GST law?
ITC or Input Tax Credit means reducing the taxes paid on inputs from the taxes paid on output. It is claiming of credit of the GST paid on purchases used for furtherance of business.
E.g. If a person output or sales is Rs. 200 on which he has paid GST of 18% say CGST 18 and SGST 18 and his purchase is of Rs 100 on which he has paid GST of 18% say CGST 9 and SGST 9. The concept of Input Tax Credit is applied by reducing the purchase GST amount paid from the sales GST amount thereby the effective taxable amount of GST payable is CGST as Rs. 9 and SGST as Rs 9.
How can a Business get GST ITC credit if goods are returned by the customer under current circumstances?
If the goods are returned by the recipient, credit notes can be raised and issued by the supplier in order to adjust the GST liability which is already paid.
Further, If there is a cancellation or a downward revision in the prices of any existing contracts, there will be a need to adjust the liability already discharged, for this situation for services as well you are required to issued a credit note. This credit note can be issued only when taxable value of tax charged in the tax invoice exceeds the taxable value or tax payable value in respect of such supply or in case where the service so supplied are found to be deficient.
- The burden and onus of proof lies of the supplier where there is issuance of credit note.
- Also the supplier will have to prove that the ITC pertaining to credit note has been paid back by the recipient to the government.
What is a credit Note under GST?
Section 34 of the Act gives clarity about Credit Note :
- 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 what is called as a credit note containing the prescribed particulars.
- 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.
Format of Credit Note:
There is no specific format although few things are to be considered while issuing a credit note.
- Name, address and Goods and Services Tax Identification Number of the supplier;
- date of issue;
- a consecutive serial number;
- nature of the document;
- name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
- serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;
- value of taxable supply of goods or services, rate of tax and the amount of the tax credited to the recipient;
- signature or digital signature of the supplier or his authorized representative.
What is the Time Limit to Issue a Credit Note?
As dealt earlier in Section 34 (2) the time limit to issue a credit note is:
- On or before the 30th day of September following the end of the financial year in which such supply was made, or
- The date of filing of the relevant annual return for the financial year,
whichever is earlier.
Cautions and measures to be taken into consideration
You are required to consider that this period of COVID -19 is where the Department may in the years ahead focus on assessments and scrutinizes and is certainly a risk area for high tax demands. Also the credit notes issued during this period of Covid- 19 during March 2020 and the FY- 2020-21 will not be missed in the Departments’ assessment and monitoring. So you are advised to take this area into consideration and maintain your workings, invoices and the entailment of ITC and credit notes raised during this period for evidences to be furnished during assessments in near future.