There may be mistakes when doing different kinds of transactions. When these discrepancies arise, it’s necessary to use debit or credit notes, respectively, to reconcile them. Each party involved in a transaction issues a debit note or credit note when goods are returned or when an adjustment is made to an invoice. Commercial Credit notes are also issued by a supplier to the recipient of Goods. Can this commercial credit note generated by suppliers to the recipient of Goods be regarded as service rendered by the recipient? This issue is being raised by field officers across the country. The issue is also being especially raised for trading and manufacturing organizations. In this article, we will be understanding about commercial credit notes in GST.
What is a Commercial Credit Note?
A supplier can issue one of two distinct credit notes. An example is the tax credit note, which is used to request a reduction in one’s output tax due by the amount shown on the credit note. In other words, the goal of issuing such a tax credit note is to lower the output tax burden. Likewise, tax amounts are not shown on commercial credit notes. As a result, no tax refund is being sought on the basis of this credit note. A change is made only to the base value.
When are Commercial Credit Notes passed?
Credit Notes are passed u/s 34 of CGST Act incase of:
- Taxable Value and Tax Charged is more than that payable
- Deficiency in Service/Goods
- Sales Return
Important things to know about Credit Note under GST
- If prices are renegotiated after supply, a credit note will not be given with GST to reflect the lower price. This allows a credit note to be issued without including GST details.
- Filing this credit note alongside your monthly tax return is optional.
- Bad debt credit notes are not allowed to be issued with GST.
- For business-to-consumer transactions, a GST credit note cannot be provided since the tax invoice does not include the GSTIN of the consumer.
When are GST Credit Notes under 1st Limb passed for Post Sale Discounts?
- There is a pre-sale agreement.
- The CN Can be linked to original invoices.
- The recipient has reversed the ITC.
Important Note: If these three transactions are not passed, a Commercial Note (Non- GST) must be issued.
What are the Secondary Discounts?
Secondary Discounts are the discounts which are not known at the time of supply or are offered thereafter. Even if the requirements listed in clause (b) of sub-section (3) of section 15 of the Act are not met, the provider may issue financial/commercial credit note(s). Credit notes, or promissory notes, are a form of commercial notes that can be issued as part of a transaction between two businesses. Since secondary discounts are not known at the time of delivery and the requirements given forth in clause (b) of subsection (3) of section 15 of the act are not met, secondary discounts should not be subtracted in determining the value of supply. That is to say, credit note discounts are not to be factored into the value of the supply.
In conclusion, issuing a credit note is a practical and legitimate way to adjust the amount of the products or services listed on the original tax invoice. The credit note will make it simple for the supplier to report a lower tax due on his tax returns without having to go through a time-consuming refund process. However, It is not advisable to color a transaction against the principles of Sec 15(2) simply because other officers take a position that is going opposite to the law.
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