GST Credit Note on Returned Goods: Applicable Rate is Original Invoice Rate, not the Revised One
Taxpayers often face confusion when goods are returned after a change in GST rates. A common question is whether the revised rate or the rate applicable at the time of the original supply should be applied while issuing a credit note.
GST Credit Note - Returned Goods - Applicable Rate - Original Invoice Rate - Revised One - taxscan
GST Credit Note - Returned Goods - Applicable Rate - Original Invoice Rate - Revised One - taxscan
Taxpayers often face confusion over the rate of GST applicable when goods sold at one tax rate are returned after a subsequent reduction. The question commonly arises whether the revised rate or the original rate should be applied while issuing a credit note.
In a recent case scenario, goods were supplied on 20 September at a GST rate of 12%. On 22 September, the rate was reduced to 5%, and the customer returned the goods on 23 September. The issue was whether the credit note should reflect the new 5% rate or the old 12% GST rate.
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Under the Central Goods andServices Tax Act, 2017, the answer is clear. As per Section 34, a credit note must always be linked to the original invoice, and the tax rate mentioned in the credit note must mirror the original supply. This prevents distortion of liability and ensures consistency in records.
Further, Section 14, which deals with changes in the rate of tax, is applicable only to new supplies made after the date of GST rate change. In the case of returned goods, there is no fresh supply, but merely a cancellation of the earlier supply. Therefore, Section 14 does not apply to such cases.
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Applying the law, the supply on 20 September was taxed at 12%, and the return on 23 September only cancels the earlier transaction. Hence, the credit note must reflect 12% GST, being the rate applicable at the time of the original invoice.
To conclude, Taxpayers issuing credit notes for returned goods after a rate change must apply the rate of the original invoice and not the revised rate. Maintaining proper invoice-credit note linkage is crucial for compliance under Section 34, while Section 14 is relevant only for supplies occurring after the change in tax rate.
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