Delinking of Credit Note and Debit Note with Original Invoice

Section 34 of CGST Act provides that normally Credit Notes are issued when the taxable value or tax charged in the tax invoice is found to exceed the taxable value or tax payable in respect of supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient. Credit Notes are issued only by the (registered) supplier.

And Debit Notes are issued when the taxable value or tax charged in the tax invoice is found to be less than the taxable value or tax payable in respect of such supply. Debit Notes are issued only by the (registered) supplier.

Both Debit / Credit Note is required to be reported in GSTR – 1 by the registered supplier of goods or services or both, who has issued such debit / credit note. The supplier may issue to the recipient one or more credit notes for supplies made in a financial year, containing such particulars as may be prescribed.

One of the important point to be taken care of is that a credit note cannot be issued if the incidence of tax and interest on such supply has been passed by supplier to any other person

Section 34 of CGST Act (Amendment Act), 2018, was amended & it was provided that one or more credit / debit note may be issued for one or more tax invoice. This amendment was made effective w.e.f 01st February, 2019.

Brief History of de-linking of Credit / Debit Notes with Tax Invoice

issuance of credit / debit note under GST regime, initially when GST was introduced w.e.f 01st July, 2017, law provides for issuance of one credit / debit note for an invoice. Meaning thereby linking of each debit / credit note was required invoice wise. It was quiet a cumbersome task and practically not feasible in many cases. To cater to need of tax payers and understanding the practical difficulty faced by them, this matter was taken up and discussed in the 28th GST Council meeting held on 21st July 2018. Council recommended that “Registered persons may issue consolidated credit/debit notes in respect of multiple invoices issued in a Financial Year”.

This recommendation of GST Council was duly introduced and received President’s assent on 29th August, 2018. Thereafter same was published in the Official Gazette of India on 30th August, 2018. However corresponding amendments in Rule 53 of CGST Rules were made only on date 29th January, 2019 by issuing Notification No. 03/2019 (Central Tax). Amendment to Section 34 of CGST (Amendment) Act, 2018 was made effective from 01st February, 2019.

The flow of activity in the matter

Originally, from 1^st July 2017, the provisions of section 34 of the Central Goods and Services Tax mandates the registered person to issue two or more number of a credit note or debit note in respect of multiple tax invoice issued/ raised in a Financial Year.
To overcome the hurdle, in 28^th GST council meeting, held on 21^st July 2018, it was proposed to permit the registered person to consolidate the credit note/ debit note in respect of multiple invoices issued in a Financial Year.
Accordingly, provisions of section 34 sub-section (1) and sub-section (3) of the Central Goods and Services Tax Act, 2017 was amended (vide the Central Goods and Services Tax (Amendment) Act, 2018) and made effective from 1^st February 2019.
Interestingly, even though the amendment was made effective from 1^st February 2019, the corresponding changes were not incorporated in GSTN portal. After a long break of more than one and a half year, finally, on 14^th September 2020, the delinking facility is incorporated in the GSTN portal.

Prior and amended provisions of section 34 of the Central Goods and Services Tax Act

Provisions of section 34(1) deal with the credit notes, whereas, provisions of section 34(3) deals with the debit notes.

Prior provisions of section 34, mandates the registered person to provide one to one correlation between the credit or debit notes issued against the tax invoice. However, post amendment, the registered person was allowed to consolidate the credit or debit notes for supplies made in a financial year.

Analyzing delinking facility in GSTN portal

the delinking is made available in the GSTN portal only from 14^th September 2020. The details of credit notes and debit notes as covered in Table-9B, of Form GSTR-1, before and after delinking facility is explained hereunder.

Details in Table-9B of Form GSTR-1 before delinking facility incorporated in GSTN portal-

Receiver GSTIN/ UIN.
Receiver Name.
Debit/ Credit Note No.
Debit/ Credit Note Date.
Original Invoice Number.
Original Invoice Date.
Note Type.
Note Value.
Supply Type.

Details in Table-9B of Form GSTR-1 after delinking facility incorporated in GSTN portal-

Select the appropriate option.
Receiver GSTIN/ UIN.
Receiver Name.
Debit/ Credit Note No.
Debit/ Credit Note Date.
Note Type.
Note Value.
POS
Supply Type.

In nut-shell, before incorporation of delinking facility in GSTN portal, the registered person was required to mention ‘Original Invoice Number and Original Invoice Date’. However, only after incorporation of the delinking facility (i.e. from 14^th September 2020), the consolidation of credit note and debit note gets possible.

Critical Issues Involved related to Input tax Credit

Sub-section 2 of Section 34 of CGST Act, “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 of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed”

Sub-section 4 of Section 16 of CGST Act, “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 due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The above provisions raises following concern:

(a)		As per section 34(2) of CGST Act, the supplier can issue & reflect credit note for reducing his tax liability within the time allowed, meaning thereby it need to be reflected 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 original supply was made, or the date of furnishing of the relevant annual return, whichever is earlier. Now that linking of one to one invoice with credit note is not required, the onus will be on supplier to justify & prove that credit notes issued is related to a which particular period.
(b)		Similar kind of issue arises with availment of Input Tax Credit by recipient of Debit Note. As per section 16(4) of CGST Act, recipient of debit note is entitled to take input tax credit upto the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.Now again that since linking of one to one invoice with debit note is not required, the onus will be on supplier to justify & prove that debit notes issued is related to a which particular period.
		So there is always a possibility that either supplier will bear the GST charged on such debit note for the reason that input tax credit not available to recipient or Recipient will bear the cost of GST depending upon terms of agreement between supplier & recipient.
		Although the corresponding tax invoice(s) number and date is now not required to be filled in GSTR-1, but it is to be noted that sub-rule (1A) of Rule 53, CGST Rules, which talks about the content of credit note & debit note, still mandates compulsory mention of serial number(s) and date(s) of the corresponding tax invoice / bill of supply as the case may be. So a registered person should take utmost care in preparation & issue of credit / debit note and mention all the original invoices number and date on the face of credit / debit notes issued and maintain all the necessary documentations to prove his case to the satisfaction of proper officer.

FAQs

What does it mean to delink credit notes and debit notes from the original invoice?

Delinking credit notes and debit notes from the original invoice means that these documents can be issued independently without referring to the specific original invoice they relate to. This simplifies the process of issuing and managing these notes.

Why has the GST Council decided to delink credit and debit notes from the original invoice?

The GST Council decided to delink these notes to reduce compliance burdens on businesses. This change simplifies the process of adjusting tax liabilities and ensures smoother handling of returns.