Credit Note in GST

Introduction

 

A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like:

 

•  The supplier has erroneously declared a value which is more than the actual value of the goods or services provided.

 

•    The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied.

 

•    The quantity received by the recipient is less than what has been declared in the tax invoice.

 

•    The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.

 

•    Any other similar reasons.

 

In order to regularize these kinds of situations the supplier is allowed to issue what is called as credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce.  or both, may issue to the recipient what is called as a credit note containing the prescribed particulars.

 

Format

 

There is no prescribed format but credit note issued by a supplier must contain the following particulars, namely:

 

(a)           name, address and Goods and Services Tax Identification Number of       the  supplier;

 

(b)           nature of the document;

 

(c)a consecutive serial number not exceeding sixteen characters, in 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;

 

(d)           date of issue;

 

(e)           name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;

 

(f)  name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;

 

(g)           serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;

 

(h)           value of taxable supply of goods or services, rate of tax and the amount of the tax credited to the recipient; and

Meaning

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 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

(i)   signature or digital signature of the supplier or his authorised representative.

 Adjustment of tax liability

The person who issues a credit note in relation to a supply of goods or services or both must 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. In other words, the output tax liability cannot be reduced in cases where credit note has been issued after September.

The output tax liability of the supplier gets reduced once the credit note is issued and it is matched. The details of the credit note relating to outward supply furnished by the supplier for a tax period shall, be matched:
(a) with the corresponding reduction in the claim for input tax credit by the recipient in his valid return for the same tax period or any subsequent tax period; and
(b) for duplication of claims for reduction in output tax liability.
The claim for reduction in output tax liability by the supplier that matches with the corresponding reduction in the claim for input tax credit by the recipient shall be finally accepted and communicated to the supplier. The reduction in output tax liability of the supplier shall not be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
Where the reduction of output tax liability in respect of outward supplies exceeds the corresponding reduction in the claim for input tax credit or the corresponding credit note is not declared by the recipient in his valid returns, the discrepancy shall be communicated to both such persons. Whereas, the duplication of claims for reduction in output tax liability shall be communicated to the supplier.
The amount in respect of which any discrepancy is communicated and which is not rectified by the recipient in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the supplier in his return for the month succeeding the month in which the discrepancy is communicated.
The amount in respect of any reduction in output tax liability that is found to be on account of duplication of claims shall be added to the output tax liability of the supplier in his return for the month in which such duplication is communicated.
Records
The records of the credit have to be retained until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records. Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.
Conclusion

The credit note is therefore a convenient and legal method by which the value of the goods or services in the original tax invoice can be amended or revised. The issuance of the credit note will easily allow the supplier to decrease his tax liability in his returns without requiring him to undertake any tedious process of refunds.

Debit Note in GST

Introduction

 

A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like:

 

•    The supplier has erroneously declared a value which is less than the actual value of the goods or services or both provided.

 

•    The supplier has erroneously declared a lower tax rate than what is applicable for the kind of the goods or services or both supplied.

 

•    The quantity received by the recipient is more than what has been declared in the tax invoice.

 

•    Any other similar reasons.

 

In order to regularize these kinds of situations the supplier is allowed to issue what is called as debit note to the recipient. The debit note also includes supplementary invoice.

 

Meaning

 

When 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 the prescribed particulars.

Format

 

There is no prescribed format but debit note issued by a supplier must contain the following particulars, namely:

 

(a) name,  address  and  Goods  and  Services  Tax

 

Identification Number of the supplier;

 

(b) nature of the document;

 

(c) a consecutive serial number not exceeding sixteen characters, in 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;

 

(d) date of issue;

 

(e) name,  address  and  Goods  and  Services  Tax

Identification Number or Unique Identity Number, if registered, of the recipient;

 

(f)   name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;

 

(g) serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;

 

(h) value of taxable supply of goods or services, rate of tax and the amount of the tax debited to the recipient; and

 

(i)   signature or digital signature of the supplier or his authorized representative.

Tax liability

The issuance of a debit note or a supplementary invoice creates additional tax liability. The treatment of a debit note or a supplementary invoice would be identical to the treatment of a tax invoice as far as returns and payment are concerned.

Records

The records of the debit note or a supplementary invoice have to be retained until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records. Where such accounts and documents are maintained manually, it should be kept at every related place of business mentioned in the certificate of registration and shall be accessible at every related place of business where such accounts and documents are maintained digitally.

Conclusion

 
The debit note or a supplementary invoice is therefore a convenient and legal method by which the value of the goods or services in the original tax invoice can be enhanced. The issuance of the debit note will easily allow the supplier to pay his enhanced tax liability in his returns without requiring him to undertake any other tedious process.

Pure Agent Concept in GST

INTRODUCTION

The GST Act defines an Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

Let’s understand the concept by taking an example.A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment.The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals.In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A.This, in sum and substance is the relevance of the pure agent concept in GST.

RELEVANCE OF PURE AGENT UNDER GST

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.
A “pure agent” means a person who:
(a)           enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both
(b)           neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply
(c)does not use for his own interest such goods or services so procured
(d)           receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account
The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.
Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilised at actuals. In this case, let’s say the value of transport service was Rs.10,000/-.If the Customs Broker charges any amount more than Rs.10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.
EXCLUSION FROM VALUE
Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The preceding para explains who will be considered as a pure agent.The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.
The supplier would have to satisfy the following conditions (in addition to the condition required to be satisfied to be considered as a pure agent)for exclusion from value:
(i)   The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient
(ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service
(iii)         The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account
In case the conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.
The following illustration will make the concept clearer:
•        Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B
•        Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies
•        The fees charged by the Registrar of the Companies registration and approval of the name are compulsorily levied on B
•        A is merely acting as a pure agent in the payment of those fees.
•        Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
Some examples of pure agent are:
1.   Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods.
2.   Expenses incurred by C&F agent and reimbursed by principal such as freight, godown charges.
Illustration:
Suppose a Customs Broker issues an invoice for reimbursement of a few expenses and for consideration towards agency service rendered to an importer. The amounts charged by the Customs Broker are as below:

S.No.	Component charged in invoice	Amount
1	Agency Income	Rs. 10000/-
2	Traveling expenses;	Rs. 15,000/-
	Hotel expenses
3	Customs Duty	Rs. 55,000/-
4	Docks Dues	Rs. 5000/-

In the above situation, agency income and travelling/ hotel expenses shall be added for determining the value of supply by the Customs Brokerwhereas Docks dues and the Customs Duty shall not be added to the value, provided the conditions of pure agent are satisfied.
CONCLUSION
A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation rules are also met so that only the real value of the service provided is subjected to GST.

E-REGISTRATION in GST

Introduction

In any tax system, registration is the most fundamental requirement for identification of tax payers ensuring tax compliance in the economy. Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input Tax Credit for the taxes on his inward supplies. Without registration, a person can neither collect tax from his customers nor claim any input Tax Credit of tax paid by him.

Need and advantages of registration

Registration will confer the following advantages to a taxpayer:

He is legally recognized as supplier of goods or services.

He is legally authorized to collect taxes from his customers and pass on the credit of the taxes paid on the goods or services supplied to the purchasers/recipients.

He can claim Input Tax Credit of taxes paid and can utilize the same for payment of taxes due on supply of goods or services.

Seamless flow of Input Tax Credit from suppliers to recipients at the national level.

Liability to register

GST being a tax on the event of “supply”, every supplier needs to get registered. However, small businesses having all India aggregate turnover below Rupees 20 lakh (10 lakh if business is in Assam, Arunachal Pradesh, J&K, Himachal Pradesh, Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland or Tripura) need not register. The small businesses, having turnover below the threshold limit can, however, voluntarily opt to register.

The aggregate turnover includes supplies made by him on behalf of his principals, but excludes the value of job-worked goods if he is a job worker. But persons who are engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax or an agriculturist, to the extent of supply of produce out of cultivation of land are not liable to register under GST.   

Nature of registration

The registration in GST is PAN based and State specific.

Supplier has to register in each of such State or Union territory from where he effects supply. In GST registration, the supplier is allotted a 15-digit GST identification number called “GSTIN”, and a certificate of registration incorporating therein this GSTIN is made available to the applicant on the GSTN common portal. The first 2 digits of the GSTIN is the State code, next 10 digits are the PAN of the legal entity, the next two digits are for entity code, and the last digit is check sum number. Registration under GST is not tax specific, which means that there is single registration for all the taxes i.e. CGST, SGST/UTGST, IGST and cesses.

A given PAN based legal entity would have one GSTIN per State, that means a business entity having its branches in multiple States will have to take separate State wise registration for the branches in different States. But within a State, an entity with different branches would have single registration wherein it can declare one place as principal place of business and other branches as additional place of business. However, a business entity having separate business verticals (as defined in section 2 (18) of the CGST Act, 2017) in a state may obtain separate registration for each of its business verticals. Generally, the liability to register under GST arises when you are a supplier within the meaning of the term, and also your aggregate turn over in the financial year is above the exemption threshold of 20 lakh rupees. However, the GST law enlists certain categories of suppliers who are required to get compulsory registration irrespective of their turnover that is to say, the threshold exemption of 20 lakh is not available to them. Some of such suppliers who need to register compulsorily irrespective of the size of their turnover are:

Inter-state suppliers

A person receiving supplies on which tax is payable by recipient on reverse charge basis

Casual taxable person who is not having fixed place of business in the State or Union Territory from where he wants to make supply

Non-resident taxable persons who are not having fixed place of business in India

A person who supplies on behalf of some other taxable person (i.e. an Agent of some Principal)

E-commerce operators, who provide platform to the suppliers to supply through it

Suppliers who supply through an e-commerce operator

Those ecommerce operators who are notified as liable for

GST payment under Section 9(5)

TDS Deductor

Those supplying online information and data base access or retrieval services from outside India to a non-registered person in India.

A Casual taxable person is one who has a registered business in some State in India, but wants to effect supplies from some other State in which he is not having any fixed place of business. Such person needs to register in the State from where he seeks to supply as a Casual taxable person. A Non-Resident taxable person is one who is a foreigner and occasionally wants to effect taxable supplies from any State in India, and for that he needs GST registration. GST law prescribes special procedure for registration, as also for extension of the operation period of such Casual or Non-Resident taxable persons. They have to apply for registration at least five days in advance before making any supply. Also, registration is granted to them or period of operation is extended only after they make advance deposit of the estimated tax liability.

In respect of supplies to some notified agencies of United Nations organisation, multinational financial institutions and other organisations, a unique identification number (UIN) is issued.

Standardisation of procedures

A total of 30 forms/formats have been prescribed in the GST registration rules. For every process in the registration chain such as application for registration, acknowledgment, query, rejection, registration certificate, show cause notice for cancellation, reply, cancellation, amendment, field visit report etc, there are standard formats. This will make the process uniform all over the country. The decision making process will also be fast. Strict time lines have been stipulated for completion of different stages of registration process.

An application has to be submitted online through the common portal (GSTN) within thirty days from the date when liability to register arose. The Casual and Non-Resident taxable persons need to apply at least five days prior to the commencement of the business. For transferee of a business as going concern, the liability to register arises on the date of transfer.

The Proper Officer has to either raise a query or approve the grant of registration within three working days failing which, registration would be considered as deemed to have been approved. The applicant would have to respond within seven working days starting from the fourth day of filing the original application. The Proper Officer would have to grant or reject the application for registration within seven working days thereafter.

Amendment of registration

Except for the changes in some core information in the registration application, a taxable person shall be able to make amendments without requiring any specific approval from the tax authority. In case the change is for legal name of the business, or the State of place of business or additional place of business, the taxable person will apply for amendment within 15 days of the event necessitating the change. The Proper Officer, then, will approve the amendment within the next 15 days. For other changes like the name of day-to-day functionaries, e-mail IDs, mobile numbers etc. no approval of the Proper Officer is required, and the amendment can be affected by the taxable person on his own on the common portal.

Cancellation of registration

The GST law provides for two scenarios where cancellation of registration can take place; the one when the taxable person no more requires it (voluntary cancellation), and another when the Proper Officer considers the registration liable for cancellation in view of certain specified defaults (Suo-motu cancellation) like when the registrant is not doing business from the registered place of business or if he issues tax invoice without making the supply of goods or services. The taxable person desirous of cancellation of registration will apply on the common portal within 30 days of the event warranting cancellation. He will also declare in the application, the stock held on the date with effect from which he seeks cancellation. He will also work out and declare the quantum of dues of payments and credit reversal, and the particulars of payments made towards discharge of such liabilities. In case of voluntary registration (taken despite not being liable for), no cancellation is allowed until expiry of one year from the effective date of registration. If satisfied, the Proper Officer has to cancel the registration within 30 days from the date of application or the date of reply to notice (if issued, when rejection is concluded by the officer).
Revocation of cancellation
In case where registration is cancelled suo-motu by the Proper Officer, the taxable person can apply within 30 days of service of cancellation order, requesting the officer for revoking the cancellation ordered by him. However, before applying, the person has to make good the defaults (by filing all pending returns, making payment of all dues and so) for which the registration was cancelled by the officer. If satisfied, the proper officer will revoke the cancellation earlier ordered by him. However, if the officer concludes to reject the request for revocation of cancellation, he will first observe the principle of natural justice by way of issuing notice to the person and hearing him on the issue.
Physical verification for registration
Physical verification is to be resorted to only where it is found necessary in the subjective satisfaction of the proper officer.
If at all, it is felt necessary, it will be undertaken only after granting the registration, and the verification report along with the supporting documents and photographs, shall have to be uploaded on the common portal within fifteen working days.