Credit Note: Issuing Single Credit Note against multiple invoices- Legal Situation with Practical difficulty, Time limit for issuance of Credit Note and other Important points

Legal Status:

The provisions relating to the debit note or credit note under GST is being contained under section 34 of the CGST Act, 2017. The said provisions have undertaken amendment, vide notification no. 02/2019 – Central Tax dated 29th January, 2019 through which the Central Goods and Service Tax (Amendment) Act, 2018 has been made effective from 1st February, 2019. The amendment is explained below:

Section 34(1):

Earlier Provision:

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.

Revised Provision:

Where [one or more tax invoices have 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 [one or more credit notes for supplies made in a financial year] containing such particulars as may be prescribed

Similar amendments have been made for Debit Notes as well.

After amendment i.e. from 1st February, 2019, the taxpayer can now issue a consolidated credit note or debit note against multiple tax invoices. The earlier provisions of issuance of a debit note or credit note against single invoice and linking the same have been removed.

Practical Difficulty:

GST portal does not accept more than one invoice against one credit note and even now after more than one year of amendment Portal is not designed to accept more than one invoice and date, so as of now only one invoice can be entered irrespective of the fact that a credit notes may contain goods from many invoices.

Possible solution:

This solution is purely as per my opinion. Other suggestions are welcome:

If one credit note has been issued against multiple invoices, then:

• For example, credit note 4/2020–21 has been issued for 2 invoices then show 1st invoice as 4/2020–21, 2nd invoice against 4A/2020–21
• You can also show the whole credit note against one of the invoices provided the total value of credit note does not exceed the total value of original invoice and quantity of product returned in credit note does not exceeds the quantity sold in that invoice.

However, we still recommend the best practice is issue separate credit notes for separate invoice.

Time limit for issuance of Credit Note

Section 34(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

The credit notes so issued must be declared by the supplier in the return for the month in which they are issued. However, maximum time limit for making such declaration is the earlier of the following two:

• The date of furnishing of the Annual return for the FY in which the original tax invoice was issued; or
• Return for the month of September immediately succeeding the FY in which the original tax invoice was issued (i.e., for a tax invoice issued in April 2019, as well as a tax invoice issued in March 2020, the relevant credit notes cannot be issued after September 2020);

Other Imp. points:

1. A credit note cannot be issued if the burden of tax and interest on such supply has been passed by supplier to any other person (i.e. if tax involved in original invoice transaction has already been recovered then GST Credit Note can not be issued, a financial credit note which does not impact the GST filings can however be issued between the parties for settlement of balances)
2. Although legally single credit note can be issued against multiple invoices but It is important to remember that there cannot be bunching of two financial years for issue of a credit note. So, for a tax invoice issued in March 2020 and another issued in April, 2020, a single credit note cannot be issued against both the invoices.
3. In case of a credit note issued for a discount, the discount must be provided in terms of an agreement entered into before or at the time of supply, as provided in clause (i) of Section 15(3) (b) of the Act
4. The GST Law provides an exhaustive list of situations under which the registered supplier is entitled to issue a credit note. In no other situation Credit Note can be issued.

• Actual value of supply is lower than that stated in the original tax invoice;
• Tax charged in the original tax invoice is higher than that applicable on the supply;
• Goods supplied are returned by the recipient;
• Goods or services supplied are deficient

Except in the circumstances specified, credit note is not permitted to be issued merely because a financial adjustment is required to be made in respect of the receivable or payable. Please note that any credit note / debit note not issued in terms of Section 34 would not be a valid document under the GST Law.

By FCA Praveen Gupta
Date: August 10, 2020

Disclaimer

The above write up has been compiled from various provisions of GST Act and notifications/circular/order issued there under. The compilation may not be entirely correct for reader to reader due to different interpretations by different readers. The readers are advised to take into the consideration the prevailing legal position before acting on any of the comments in this write up. Readers are also requested to convey the correct position as per their interpretation of the relevant provisions of law, which shall be most welcome for correcting this write up.