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GST Update On Issuance Of Debit Notes And Credit Notes
November, 10th 2017

Section 34 of CGST Act 2017 prescribes provisions related to issuance of debit notes and credit notes. The sub-section (1) and (2) to this section reads as follows:-

"(1) 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 a credit note containing such particulars as may be prescribed.

(2) 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."

The analysis of this section makes it clear that where a tax invoice has been issued against any supply, credit note MAY be issued by the supplier in following cases:-
• Taxable value or tax charged in that invoice is found in excess of actual; or
• In case of goods returned by the recipient; or
• Where the supply (goods or services or both) is found deficient.

Thus, in any of the above cases, option has been given to the supplier to issue a credit note as the language contained in the above section uses the word "may". This shows that it is optional for the supplier to issue the credit note, but once issued, its details are supposed to be filed by the supplier in the return.

Further, section 34(3) & (4) of CGST Act prescribes the conditions related to issuance of debit notes. This section reads as follows:-

"(3) 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 be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed.

(4) Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.

Explanation.––For the purposes of this Act, the expression “debit note” shall include a supplementary invoice."

The analysis of above makes it clear that debit note SHALL be issued by the SUPPLIER in the cases where the tax amount or taxable value charged on the invoice is found to be less than actual. Further, where the debit note is issued, the supplier shall declare the details of such debit note in the return for the month during which such debit note has been issued.

The analysis of above provisions related to issuance of debit note or credit note makes it clear that in case of sales return, an option has been given to the supplier to issue the credit note. Since the language of this section uses the word 'may', we can conclude that it is an option lying with the supplier and alternatively, the debit note can also be issued by the recipient while returning the goods to original supplier.

But at the same time, the language of section 34(3) is also clear that the debit note "SHALL" be issued by the SUPPLIER. In other words, section 34(3) gives exclusive power to issue the debit note to the supplier only. It nowhere states that the debit note can be issued by the recipient also.

However, when we look into the returns prescribed under GST law, it shows some other picture. GSTR-2 in which details of inward supplies is to be given reflects that the debit note as well as the credit note, both can be issued by the buyer/recipient of supply also. Thus, the return formats which are the parts of CGST Rules, 2017 are giving altogether different interpretation than what is suggested by the section 34. If there arises any dispute, which one will prevail in such case.

If there is any conflict between the interpretation given by the Act and interpretation given by the Rules, the Act will always have the precedence. This is known as “Gunpradhan principle” which has been laid down by the hon’ble Supreme Court in the case of ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [ 2006 (9) TMI 181 - SUPREME COURT OF INDIA ]. In this case, it was held that the Act is primary and the rules framed there under are subsidiary to it. As such, in case of any conflict between the two, the Act will have precedence.

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