Credit Note

[mk Jain]

Dear Team,

If Transporter lost or damaged the goods and agreed by transporter to provide the credit notes then transporter shooud provide the credit note with GST or can issue the commercial credit note without GST.

MK

[Ganeshan Kalyani]

It would amount to tolerating an act of the transporter. GST is applicable on this. Tax invoice with GST to be raised on the transporter. Further to net of the original supply to customer you have to raise separate credit note with GST.

[mk Jain]

Thanks for prompt reply but if i am not raising the debit note and transporter is issuing credit note then is it GST credit note or commercial credit note as total ( Value -Basic+GST) and my  accounting is Basic +GST. Can we do ?

MK 

[Ganeshan Kalyani]

Only supplier of goods can issued credit note or debit note. The goods belongs to you and you want to recover money from transporter. So, in no case the transporter can raise debit or credit note.

[Ganeshan Kalyani]

The transporter can raise credit note only against his transport charges. He may raise credit note assuming he is giving discount for the loss he has made. In that case he can raise credit note with GST.

But since the freight cost would be lower than the value of goods, the credit note amount would not get adjusted against the value of transport service.

[Padmanathan KV]

Mr MK Jain, the query is not clear. Kindly elaborate the exact transaction and against which amount, the transporter wants to issue credit note?

[mk Jain]

Thanks to all for your valuable advise.

Dear Padamnathan,

I cleared goods worth Rs 1 lakh and some of the goods got damaged during transit. The customer has deducted that amount from my payment. Now I want to recover that amount from the registered transporter. He has agreed and issued a credit note without GST, whereas I am asking for GST credit note. Can he issue a credit note without GST or should I issue a debit note for GST?

MK

 

[KASTURI SETHI]

Sh. M.K. Jain Ji,

You have drafted the query incorrectly inasmuch as credit note 'with GST or without GST' is not the issue involved here. The issue involved here is whether it is liquidated damages or not. It is a separate service covered under Schedule-II at serial no. 5 (e) as rightly advised by Sh.Ganeshan Kalyani Ji.

You want compensation from transporter on account of damage caused to the goods during transportation. Have you executed any agreement with the GTA ? Whether it is liquidated damages or not ? It has to be determined on the basis of terms and conditions of the agreement, if any.

In this context, go through the Board's circular No. C.B.I. & C. Circular No. 178/10/2022-GST, dated 3-8-2022.

[KASTURI SETHI]

It is worthwhile to go through the following case law. It is applicable to the issue  even in  GST regime.

NORTHERN COALFIELDS LTD. Versus COMMISSIONER OF CGST, C.E. & CUS., JABALPUR - 2023 (1) TMI 934 - CESTAT NEW DELHI 

 

[KASTURI SETHI]

In this scenario, an assessee must know the difference between liquidated damages and unlquidated damages.

DIFFERENCE BETWEEN LIQUIDATED DAMAGES AND UNLIQUIDATED DAMAGES

Liquidated damages are such damages as have been agreed upon and fixed by the parties in anticipation of breach of contract.

Unliquidated damages are such damages as are required to be assessed.

This is as per legal dictionary and should be read with Section 73 of the Indian Contract Act, 1872

[Shilpi Jain]

The transporter mentions he will issue a credit note meaning that he wants to give a discount to you in his service cost for deficiency of service. 

You could take it. I am not sure why would you want a gst credit note?

[mk Jain]

Thanks to all again sethi ji and shilpi for expert advise.

MK

[KASTURI SETHI]

In this scenario, compensation is not income and hence not consideration. Therefore, out of definition and scope of supply.

AI Summary

GST treatment of transporter-issued credit notes hinges on whether damages are contractual liquidated damages or taxable adjustments to transport services.
A transporter cannot issue a credit or debit note adjusting the supplier's sale of goods; only the original supplier issues credit notes for the supply. The transporter may issue a GST-bearing credit note for its own transport service (e.g., as a freight discount). Recovery from a transporter for damaged goods must be characterised-liquidated damages versus compensation-to determine whether it constitutes consideration for a supply or falls outside GST scope; contract terms and administrative guidance control the outcome.