reverse charge import of services

[Madhavan iyengar]

A Company based X in India has imported services from its related party B in Germany, X has discharged IGST on RCM basis based on invoice of ₹ 100000/- ( converted value) issued by B and claimed ITC of say ₹ 18000

Issue: After 4 months B issues a credit note to A reducing the earlier invoice amount.by rs. 50000/-

Is A required to reverse the ITC of IGST taken earlier in proportion to reduction in value of the invoice - ie is IGST reversal of rs. 9000 to be done by A

If no then reasons for same

[Spudarjunan S]

Dear Sir,

No Need to reverse the same. Reasons for the same is provided below:-

The recipient of a supply has to reverse his Input tax credit if his supplier issues him a TAX CREDIT NOTE under section 34 of CGST Act, 2017. Credit notes can be a Tax Credit note or a Financial Credit note, in case of financial credit note there is no requirement of reversal of input tax credit as the supplier will not reduce his GST liability and no impact of revenue to government. In your case it is just a financial credit note where the supplier doesn't consider the GST for reduction in value of the supply. Further you have availed ITC of ₹ 18,000/- as you have paid ₹ 18,000/- to Government and ITC will not be denied as the supplier has issued financial credit note subsequently.

Further, the condition as per second proviso to section 16(2) of CGST Act, 2017 [Payment of consideration within 180 days from the date of issuance of invoice.] will not apply to reverse charge transactions as the same has been specifically excluded.

Thank You.

[Madhavan iyengar]

thank you for your detailed reply, kindly also address the following

In case of services

if the differential amount ie discount is booked as other income any gst implication ??

or in the books you reduce your purchase value in this case it is services received

but what happens in case of goods if it is a local sale and financial credit note issued by supplier and the differential amount is booked as income ??? is gst to be discharged.

[Spudarjunan S]

In case of financial credit notes in domestic supplies, the query of non-payment of consideration arises. However the same financial credit note can be treated as payment of consideration through book adjustments. so no need to reverse the ITC in relation to such financial credit note. There are CESTATdecisions in Service Tax regime supporting the same

[Madhavan iyengar]

thanks

in case of services there is a challenge if we look at sec 16 which talks about conditions for taking credit- if credit note is issued for deficient supply of services for a certain amount then to that extent can it be inferred that some part of services are not received hence reversal will trigger

iam only referring to cases in which credit note is given with out gst impact but then also can reversal get trigerred

the above needs to be looked into for both domestic / rcm as sec 16 is the basic section for entitlement of credit

kindly give your views

[Spudarjunan S]

Previous reply was erroneously posted without completing my reply. Read this in addendum to the same.

ST circular was issued for such book adjustments not CESTAT decision which can be reffered.

Further, the GST applicability on such financial credit notes has to analysed case to case basis. The reason for issuance of such credit note plays a vital role to take decision whether the same is treated as income i.e. outward supply for GST purpose.

If such credit note is issued for post sale discount and the same was established in terms of agreement entered into at or before the time of such supply, then such financial credit notes can't be treated as income to recipient since discount is not includible in taxable value. However you should be in a position to substantiate with documentation that the financial credit note has been issued for discount for taking this stand.

If the credit note has to been issued for doing anything or achieving anything which is been agreed between the supplier and the recipient the department may take a stand that such credit note is consideration for supply of services as per Schedule II - Sl.no.5(e) of CGST Act, 2017.

[Madhavan iyengar]

thanks

but pls see below points in light of section 16 for receipt of goods/services

in case of services there is a challenge if we look at sec 16 which talks about conditions for taking credit- if credit note is issued for deficient supply of services for a certain amount then to that extent can it be inferred that some part of services are not received hence reversal will trigger

i am only referring to cases in which credit note is given with out gst impact but then also can reversal get trigerred

the above needs to be looked into for both domestic / rcm as sec 16 is the basic section for entitlement of credit

kindly give your views

[Spudarjunan S]

The reason for receiving credit note will decide the eligibility of ITC which may differ from case to case due to its facts, documentation.

[KASTURI SETHI]

Dear Querist,. In the situation explained by you, revetare of credit in proportionate to reduction in value of the invoice is required without any doubt or confusion.

AI Summary

Reverse charge on imported services: ITC reversal hinges on whether the supplier credit note reduces taxable consideration.
When a supplier issues a credit note reducing an earlier invoice for imported services paid under reverse charge, entitlement to Input Tax Credit depends on the credit note's character: a Tax Credit Note reducing the supplier's taxable liability affects recipient ITC, while a Financial Credit Note treated as a book adjustment that does not reduce supplier tax liability does not automatically require ITC reversal; for reverse charge entries the usual payment within period proviso is not applicable, making documentation and the reason for the credit note decisive.