Credit note and Discount under GST, and its impact on ITC of recipient of goods or services

Jharkhand HC Rules on Placement Agency Responsibilities & Monetary Loss to JSBCL Credit note and Discount under GST, and its impact on ITC of recipient of goods or Services Credit note and discount is very common in all kind of business.

In general parlance credit note and discount may have same meaning i.e reduction in effective cost to recipient of goods or services. However the act has given a wider meaning to credit note in comparison to discount.

The provisions of credit note is covered by sec 34 of CGST Act whereas provisions relating to discount is covered by sec 15(3).

Let’s discuss provisions of discount and credit note in detail.

Discount can be given under 3 different scenario:

1. Before or at the time of supply (i.e on the face of invoice itself)
2. After the supply has been effected but in accordance with the terms of agreement prior to or at the time of supply.
3. After the supply has been effected but without any agreement prior to or at the time of supply.

Discount if issued after the supply, then it has to be necessarily issued through issue of credit note. The provisions of sec 15(3) w.r.t discount is as below:

Timing of Discount                                              Impact on Transaction value                        Condition

On or before time of supply and recorded        Reduced from Transaction value                    No Condition

in tax invoice

After supply but in terms of agreement             Reduced from Transaction value          Recipient of supply has

before/at time of supply and can be traced to                                                                    reversed ITC on credit

relevant invoice                                                                                                                   note amount

Given after supply but without any             Not Reduced from Transaction value          No Condition

agreement before/at time of supply

(whether or not traceable to relevant invoice)

Credit note can be issued u/s 34 under the following circumstances:

1. the value declared in the invoice is more than the actual value of the goods or services provided; or
2. the rate of GST or Tax amount charged is at a higher rate than what is applicable for the kind of goods or services supplied; or
3. the quantity received by the recipient is less than what is mentioned in the tax invoice; or
4. the goods supplied are returned by the recipient
5. the goods or services are found to be deficient.                                                                                                                          The condition for issuing credit note is as below – Sec 34(2)                                                                                             1. A credit note can be issued within 30^th September from end of relevant financial year or before the actual date of filing annual return u/s 44 whichever is earlier.                                                                              2..The recipient must reverse the ITC amount claimed by him earlier on the amount of such credit note.    3....The credit note can’t be issued if the incidence of tax and interest on such supply has been passed by him to any other person.                                                                                                                                       In addition to Sec 15 and 34, Sec 16(2) 2^nd proviso also plays an important part in credit note as far as the ITC claimed by receiver of goods or services is concerned.                                                                                Sec 16(2) 2^nd proviso provides that where the receiver of goods or services fails to pay entire or part consideration to the supplier within 180 days from the date of invoice, then the recipient is required to reverse ITC (if availed earlier) along with applicable interest u/s 50 on unpaid portion of payment to supplier.                                                                                                                                                                                                    We can illustrate various scenario of discount and credit note with following example:                                        Exam ple   Situation    Impact on supplier of goods          Impact on receiver of                  Sec

                                                                 or services                                   goods or services                                                            

1	Trade discount	The trade discount	Receiver will be claiming ITC (if	15
	of 1% given on	amount will be	eligible) on reduced transaction
	the face of	reduced from	value
	invoice	transaction value and
		GST is required to be
		paid on reduced
		transaction value
2	Cash discount	The supplier will issue	Receiver will account for this	15
	of 2% given	credit note for cash	credit note issued by supplier
	upon the	discount amount and	and reverse the ITC (if claimed
	payment within	reverse his output tax	earlier) on the amount of such
	30 days as per	liability on amount of	cash discount.
	terms of	such cash discount.
	agreement
3	Due to liquidity	The supplier will issue	Receiver will account for this	15,
	problem	credit note but without	credit note issued by supplier	16
	supplier agreed	reversal of GST	and reverse the ITC (if claimed
	to give ad-hoc	amount. In short GST	earlier) on credit note amount
	discount of 5%	charged earlier can’t	and pay interest to comply with
	if payment	be reversed at all.	provisions of Sec 16(2) second
	made within 3		proviso, which provides that the
	days. (i.e not as		recipient will have to reverse
	per terms of		ITC if payment not made within
	earlier		180 days from date of Invoice.
	agreement)
4	Supply made	The supplier will issue	Ideally Receiver should not	34
	on 01.03.2018.	credit note and reverse	have claimed ITC. However if
	The goods	output GST amount.	he has claimed ITC earlier then
	were returned		he need to reverse the same
	on 30.06.2018.		along with Interest u/s 50.
5	Supply made	The supplier will issue	Ideally Receiver should not	34
	on 01.03.2018.	credit note but without	have claimed ITC. However if
	However the	reversal of GST	he has claimed ITC earlier then
	goods were	amount. GST amount	he need to reverse the same
	returned on	can’t be reversed	along with Interest u/s 50.
	01.12.2018 (i.e	since credit note is
	after	issued after 30th Sep
	30.09.2018).	from end of FY
		(Assuming actual date
		of filing annual return
		is after 30th Sep)

6	Bad debt by	No GST liability can be	Receiver will have to reverse	34,
	recipient of	reversed as this is not	the ITC (if claimed earlier) on	16
	goods or	fulfilling the conditions	the amount not paid to supplier
	services	under which credit	in terms of Sec 16(2)
		note can be issued u/s
		34.
7	Bill of Rs	Same treatment as	Same treatment as that of Bad	34,
	1,00,000 +	that of Bad Debt can	Debt can be given.	16
	GST raised by	be given.
	supplier.
	However
	deduction of Rs
	15,000+ GST
	made by
	receiver of
	service without
	assigning any
	reason
8	Bill of Rs	The supplier can issue	Ideally Receiver should not	34,
	1,00,000 +	credit note for Rs	have claimed ITC on Rs 15,000.	16
	GST raised by	15,000 +GST provided	However if he has claimed ITC
	supplier.	this is issued before	earlier then he need to reverse
	However	30th Sep from end of	the same along with Interest u/s
	deduction of Rs	FY or actual date of	50.
	15,000+ GST	filing of Annual Return
	made by	whichever is earlier.
	receiver of
	service by
	assigning the
	reason of
	overcharged

 

So we can conclude that GST Act and Rules contains detail provisions w.r.t credit note under different scenario. The reversal of output GST liability is not allowed in all cases of credit note. Again the recipient of goods or services also need to account for credit note and reverse ITC (Input Tax Credit) in applicable cases.

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