SCHOOL OF LAW, MUMBAI

Research Paper Submitted

On

Tax Invoice, Debit & Credit Note

IN COMPLIANCE TO THE PARTIAL FULFILLMENT OF THE MARKING SCHEME,

FOR SEMESTER VIII OF 2019-20, IN THE SUBJECT OF Principles of Taxation II

SUBMITTED TO - SUBMITTED BY: -

Preyash Parekh Aditya Raj Dutta

Visiting Faculty A020

B.B.A.,LL.B (Hons.)

(Fourth Year)

Received by………

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INTRODUCTION:

The present research paper deals with the concept of credit note & debit note where
in the concept of credit notes deals with the fact that a vendor or supplier after
selling his product got to knew that his product is of some faulty nature from the
recipient issues a note in favour of the recipient contending that the particular
damaged amount would be adjusted and hence that receipt is known as the credit
note. However the debit note is issued by the buyer for the seller where in it
contends that out of the credit purchase been made by the buyer from the seller he is
liable to pay the amount of money for which there was been no damage to the
product. In the latter part of the research paper the concept is been also explained
with the help of the characteristics and provisions of the CGST Act, 2017. At last
the research paper explained how an unregistered person cannot collect any amount
of money by the help of CGST Act, 2017 and the research paper also tried to
explain how a seller is solely liable to indicate the amount of tax in the various
invoices generated by him by virtue of section 33 of CGST Act.

SECTION 34:

1. Where a tax invoice has been generated with regard to supply of any goods or
services or both and the taxable value or tax charged on that particular 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.1
2. Any registered person who issues a credit note in relation to a supply of goods or
services or both shall declare the details of such credit note in the return for the month
during which such credit note has been issued but not later than September following
the end of the financial year in which such supply was made, or the date of furnishing

1
Cleartax.in. (2020). CGST Rules: Chapter 6 – Tax Invoice, Credit and Debit Notes. [online] Available at:
https://cleartax.in/s/cgst-rules-chapter-6-tax-invoice-credit-and-debit-notes.

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 of the relevant annual return, whichever is earlier, and the tax liability shall be
adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if
the incidence of tax and interest on such supply has been passed on to any other
person.

3. 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.
4. Any registered person who issues a debit note in relation to a supply of goods or
services or both shall declare the details of such debit note in the return for the month
during which such debit note has been issued and the tax liability shall be adjusted in
such manner as may be prescribed.
Explanation.––For the purposes of this Act, the expression “debit note” shall include a
supplementary invoice.2

CREDIT NOTE:

A credit note is a document sent by a seller to its buyer or, in other words, a vendor to the
customer, notifying that a credit has been provided to their account against the goods returned
by the buyer.

It reduces the amount due to be paid by the customer, (if the amount due is Nil) then it allows
further purchases in lieu of the credit note itself.

A credit note is issued for the value of goods returned by the customer, it may be less than
or equal to total amount of the order.

2
TaxGuru. (2020). Provisions of Credit and Debit Notes in GST. [online] Available at:
https://taxguru.in/goods-and-service-tax/provisions-credit-debit-notes-gst.html.

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Example – Company-B sells goods worth 1,00,000 to Company-A, however, 10,000 worth
of goods were found damaged due to some reason & this is notified to Company-B at the
time of actual delivery.

Company-B (seller) issues a credit note for 10,000 in the name of Company-A (buyer). This
reduces the receivables of the seller by 10,000 and the buyer is only required to pay 90,000.3

Important Characteristics:

1. It is sent to inform about the credit made in the account of the buyer along with the
reasons.

2. The sales return book is updated on its basis. (In case of return of goods)

3. It is usually sent by the seller if the goods are found incomplete, damaged or incorrect
at buyer’s end.

4. It shows a negative amount.

3
Accountingcapital.com. (2020). [online] Available at: https://www.accountingcapital.com/revenues/credit-
note/.

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A Credit Note may be issued in the following circumstances:

During the task of trade and commerce once the invoice has been issued there can be a
situation like:

• The supplier by mistake mention a value in the invoice which is more than the actual
value of the goods or services provided.
• The suppliers by mistake levy a higher tax rate than what is authentically applicable
upon such kind of goods or services provided.
• The quantity received by the buyer is lesser than the mentioned amount in the invoice.
• The quality of the goods or services provided is not satisfactory for the buyer & hence
he insists in the partial or total reimbursement on the invoice value.
• Any other similar reasons.

If any of the above mentioned situations persists, the supplier is allowed to issue a document
called as a credit note to the recipient. Once the credit note is been issued by the supplier his
tax liability reduces.

One of the advantages of the credit note is that the amount mentioned in the tax invoice can
be easily amended or revised. And hence the issuance of the credit note allows the supplier to
decrease his tax liability in his returns without requiring him to undertake any tedious process
of refunds.

Section 34(1) of The Central Goods and Services Tax Act, 2017 duly states that where one
or more tax invoices have been issued for the supply of any goods or services provided 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 instances 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.

It is important to note that credit notes are note issued in case of the secondary discounts
given by the supplier since the tax liability of the supplier does not get reduced in such case.

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With the circular number 92/11/2019 of GST dated 07/03/2019 however a supplier can issue
financial/ commercial credit notes in order to reduce the value of supply payable by the
recipient to the supplier.

DEBIT NOTE:

A debit note is a document sent by a buyer to its seller, or in other words, a purchaser to its
vendor while returning goods received on credit. The intent is to notify the seller that they’ve
been debited by the buyer against the goods returned.

It reduces the amount due to be paid to the seller, (if the amount due is Nil) then it allows
further purchases on behalf of that.

A debit note is issued for the value of the goods returned. In some cases, sellers are seen
sending debit notes which should be treated as just another invoice.

Example – Company-A buys goods worth 1,00,000 from Company-B, however, 10,000
worth of goods were found damaged due to some reason & this was notified to Company-
B at the time of actual delivery.

Company-A (buyer) issues a debit note for 10,000 in the name of Company-B (seller). This
reduces the obligation of the buyer by 10,000 and is now only required to pay 90,000.4

4
Accountingcapital.com. (2020). [online] Available at: https://www.accountingcapital.com/revenues/debit-
note/.

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Important Characteristics:

1. It is sent to inform about the debit made on the account of the seller along with the reasons
mentioned in it.

2. The purchase returns book is updated on its basis. (In case of return of goods)

3. It is usually used by the buyer to return goods on credit.

4. It is generally prepared like a regular invoice and shows a positive amount.

A Debit Note may be issued in the following circumstances:

There can be a circumstance when after the invoice has been issued:

• The supplier by mistake mention a value which is less than the actual value of the
goods or services or both provided.
• The supplier by mistake mention a lower tax rate than what is authentically applicable
upon such kind of goods or services provided.
• The quantity received by the buyer is more than the mentioned amount in the invoice.
• Any other similar reasons.

In order to regularise the above mentioned circumstances the supplier is allowed to issue a
document called as debit note to the recipient.

According to section 34(3) where a tax invoice has been issued for the supply of any goods or
service been provided or both and the taxable value or tax invoice has been charged less than
the taxable value or taxable rate payable for such supply or service been provided in that
situation the registered person who has supplied such goods or provided services or both shall
issue to the recipient a document which shall be referred as a debit note containing such
particulars as may be prescribed. The registered person shall issue one or more debit notes for
supplies made in a financial year containing the prescribed particulars and format.

The issuance of the debit note/ supplementary invoice creates additional tax liability upon the
registered person. In the books of accounts the treatment of the debit note/ supplementary
note is similar to the treatment of a tax invoice as far as returns and payment are concerned.

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The debit note/ supplementary invoice is a convenient and legal method by which the value
of the goods and/or services in the original tax invoice can be enhanced. The process of
issuance of the debit note by the supplier allows him to pay his enhanced tax liability in his
return itself without requiring him to do any other tedious process.

Particulars of the Debit and Credit Notes [Rule 53(1A)]

1. A revised tax invoice referred to in section 31 and credit or debit notes referred to in
section 34 shall contain the following particulars namely:
a) The word “Revised Invoice”, wherever applicable, indicated prominently;
b) Name, address and Goods and Services Tax Identification number of the supplier;
c) Nature of the document;
d) A consecutive serial number not exceeding sixteen characters, and one or multiple
series, containing alphabets or numerals or special characters hyphen or dash and
slash symbolised as “_” and “/” respectively, and any combination thereof, unique
for a financial year;
e) Date of issue of the document;
f) Name, address and Goods and Services Tax Identification Number or Unique
Identity Number, if registered, of the recipient;
g) Name and address of the recipient and the address of delivery, along with the name
of state & its code, if such recipient is un-registered;
h) Serial number and date of the corresponding tax invoice or, as the case may be, bill
of supply;
i) Value of taxable supply of goods and services, rate of tax and the amount of the tax
credited or, as the case may be, debited to the recipient: and
j) Signature or digital signature of the supplier or his authorised representative 5.

2. Every registered person who has been granted registration with effect from a date
earlier than the date of issuance or certificate of registration to him may issue
revised tax invoices in respect of taxable supplies affected during the period starting

5
https://www.taxmann.com. (2020). Rule 53 of CGST Rules 2017- Revised Tax Invoice and Credit Or Debit
Notes. [online] Available at: https://www.taxmann.com/BlogPostContent.aspx?AutoId=2000001700.

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 from the effective date of registration till the date of the issuance of the certificate of
registration.6

Provided that the registered person may issue a consolidated revised tax invoice in respect
of all taxable supplies made to a recipient who is not registered under the Act during such
period.

Provided further that in the case of inter-state supplies, where the value of a supply does not
exceed two lakh and fifty thousand rupees, a consolidated revised invoice may be issued
separately in respect of all the recipients located in a state, who are not registered under the
Act.

3. Any invoices or debit note issued in pursuance of any tax payable in accordance
with the provisions of section 74 or section 129 or section 130 shall prominently
contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”.

PROHIBITION OF UNAUTHORISED COLLECTION OF TAX

[SECTION 32]:

A person who is not a registered person shall not collect in respect of any supply of
goods/services any amount by way of GST. Moreover, a registered person shall not collect
tax except in accordance with the provisions of CGST Act, SGST Act, UTGST Act, IGST
Act or the rules made there under.7

6
Supra
7
Taxmanagementindia.com. (2020). Section 30 - Amount of tax to be indicated in tax invoice and other
documents - MODEL GST LAW - Draft The Central / State Goods and Services Tax Act, 2016 - November
2016. [online] Available at:
https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=23171&kw=Amount-of-tax-to-be-indicated-in-
tax-invoice-and-other-documents.

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AMOUNT OF TAX TO BE INDICATED IN TAX INVOICE AND
OTHER DOCUMENTS [SECTION 33]:

Where any supply is made for a consideration, every person who is liable to pay tax for such
supply shall prominently indicate in all documents relating to assessment, tax invoice and
other like documents, the amount of tax which shall form part of the price at which such
supply is made8.

CONCLUSION:

Though the credit note & debit note is been effectively used by the sellers and the buyer in
day to day basis it also become so important for the business because it is sent to inform
about the credit made in the account of the buyer along with the reasons. The credit note help
the businessmen to maintain its sales return book effectively and hence this helps the
Chartered Accountant and the advocate to effectively argue for the seller business. The debit
note is sent to inform about the debit made on the account of the seller along with the reasons
mentioned in it. In the CGST Act, 2017 the seller is not liable to collect the tax amount if he
is a unregistered seller and thus it promote the right of the buyer. And thus it was an
enthralling experience while making this project.

8
Sections, G. and documents, S. (2020). Section 33 of GST - Amount of tax to be indicated in tax invoice.
[online] GST India. Available at: https://gst.caknowledge.com/section-33-gst/.

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