ITC on Debit Notes-Time Limit

[ROHIT GOEL]

Dear Experts,

During recent internal audit of Mr. X, it came to notice that in FY 2021-22, rates on some of his sale items was increased from 12% to 18% however he continued to charge old rate of 12% on sale invoices. GSTR--1, 3B and GSTR-9/9C was filed timely by him and credit passed on at 12% only. Now Mr. X intends to correct this mistake and pay differential tax with interest.

Your opinion is required on following:

1. Whether Mr. X can issue debit note to Customers for differential tax of 6% for FY 21-22 now in April 2023? (I could not find any restriction in section 34 about time limit)

2. If yes, whether customers would be able to take ITC of such debit note as per section 16(4)? (As per 16(4), ITC of a invoice or debit note can be claimed till 30th November of year following the year to which the invoice or debit note relates to. Admittedly, debit note relates to FY 2021-22 but is being issued in April 2023, hence the confusion)

Kindly share your valuable views.

[Padmanathan KV]

1. There is no time limit to issue debit note. Hence, Mr.X can issue debit note to customers for differential tax of 6%.

2. Yes. Customers can avail the ITC:-

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the thirtieth day of November following the end of financial year to which such invoice or [****] debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Before 01.01.2021, section 16(4) read as "invoice relating to such debit note". It was omitted vide Finance Act, 2020 dated 27-03-2020w.e.f. 01-01-2021. In other words, the time limit for taking ITC was linked to invoice relating to the debit note. Now the timelimit is delinked from invoice and it is applicable only for the debit note.

[Shilpi Jain]

The time limit for availing credit on the debit notes is also linked to the date of the debit note and not to the period for which the debit note is issued or the invoice for which the debit note is issued.

Thus for a debit note issued in FY 23-24 the due date to avail would be by 30-11-2024, irrespective of the invoice date against which the debit note is issued.

[Amit Agrawal]

I agree with my professional colleagues. Kindly also see 'Issue at Sr. No. 1' of Circular No. 160/16/2021-GST dated 20th September, 2021.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

W.r.t. liability to pay interest u/s 50 (1) against such debit-notes so issued, you may refer to my article having Id: 5859 on TMI (having subject-line: Non-liability to pay interest against supplementary invoices under GST) at following address:

https://www.taxtmi.com/article/detailed?id=9859

P.S. These factual situation (i.e. in subject case under discussion here) is very different from the situation taken as a base-case in my article. And one needs to re-visit entire issue afresh before deciding not to pay interest. Moreover, needless to say, non-payment of interest will be litigation-prone with associated issues.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Input tax credit deadline tied to debit note date, permitting ITC until the statutory year end deadline following the debit note. No statutory time limit prevents issuance of a debit note to recover undercharged tax; entitlement to input tax credit is governed by the date of the debit note, since the post amendment rule delinks the ITC cut off from the original invoice and makes the debit note's financial year cut off (or earlier annual return filing) determinative for claiming ITC.