Issue of Credit Note on invoices raised for interest portion and gst discharged to the Government

[DHARIWAL AND SREENIVAS]

One of our clients has raised an invoice for interest payable for the delayed payment in respect of the original supply.  As they have raised an invoice charging GST on the interest value.  Presently, the interest amount is not received from customers, and customers are not willing to pay the interest.  Whether the client can raise a credit note for cancelling invoices raised for the interest portion.  Whether a credit note can be raised for this type of transaction.  Is there any legal way to reduce the gst amount discharged to the Government for the reason that amounts were not received (in respect of interest portion) from customers?     

[Raam Srinivasan Swaminathan Kalpathi]

Credit notes covered under Section 34 can be issued for the previous year only up to Nov 30 (i.e.) October 3B Returns.  Credit notes can be issued only towards "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"

Technically you should be able to issue a credit note provided the rationale encompasses the parameters set forth by Sec.34 further cirucumsribed by the clients customer accepting the CNs (and not rejecting the CNs) at their respective IMS portals.  Having availed full ITC (if they have!) which RTP will want to reverse?

The way forward will be to have a conversation with the customers, come to a concurrence that the credit notes to be issued by your client will be accepted by their customers at their respective accounts at the IMS portals and then proceed to issue the same (provided the timelines are adherred).  

[DHARIWAL AND SREENIVAS]

Dear Sir, thanks for your valuable clarification/advice. 

[Shilpi Jain]

The liability to pay GST on interest triggers only when the interest amount is received. This is coming out from the time of supply provisions under GST - section 12 & 13.

So you can issue a credit note only for the GST portion on the interest and the interest amount that has been considered as a taxable value. Interest can be regarded as "other amounts" in the invoice.

Or you could then consider issuing a commercial invoice mentioning the interest and GST thereon.

[DHARIWAL AND SREENIVAS]

Dear madam, thanks for your valuable views

AI Summary

Interest invoicing and GST: credit notes may reverse GST on unpaid interest if statutory criteria and acceptance are met. A credit note may be issued where the taxable value or tax charged in an earlier tax invoice exceeds the correct taxable value or tax payable, subject to the statutory temporal limits and the recipient's acceptance on their portal. GST on interest arises on receipt under the time of supply rules, so if interest is unpaid the supplier may issue a credit note limited to the GST attributable to that interest and should coordinate with customers to effect input tax reversals within prescribed timelines.