Credit Note as per section 34 of CGST 2017

[SARAVANAN RENGACHARY]

Hi,

Customer has deducted 2% on total invoice value towards late supply (Liquidity Damage). Can we issue Credit Note and adjust the tax liability.

regards

saravanan.

[Rajagopalan Ranganathan]

Sir,

According to Section 34 (1) of CGST Act, 2017 "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.

The above provision does not cover the situation mentioned by you. In my opinion your case may be covered by the provision "where goods or services or both supplied are found to be deficient, "

Similarly, according to Section 34(3) of the same act "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.

In my opinion your customer has to raise a debit note on you for deduction of 2% of invoice value for late supplying.

[Ganeshan Kalyani]

In GST, credit or debit note has to be issued by supplier.

[Nash Industries I Pvt Ltd]

Customer to raise a debit note charging - deemed supply -to do an act (item 5e of Schedule II of CGST Act).

AI Summary

Credit and debit note scope: supplier-issued adjustments limited to overcharging, returns or deficiencies; payor should raise debit note for deductions
A supplier may issue a credit note where an invoice overstates taxable value, or where goods are returned or supplies are deficient; this does not extend to a recipient's unilateral deduction for liquidated damages. Under the adjustment regime, understatement of taxable value requires a debit note. The appropriate practical response to an invoice deduction by a recipient is for the recipient to raise a debit note, while characterisation of the deduction may engage deemed-supply concepts under Schedule II.