Section 34 (1) of the CGST Act, 2017 has defined the meaning of credit note and specified that where a tax invoice has been issued for supply of any goods or services or both and 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 what is called as a credit note containing the prescribed particulars. The particulars to be included in credit notes have been prescribed under Rule 53 of CGST Rules,2017.

An analysis of above statutory provision reveals that registered supplier of goods or services or both may issue credit note to recipient of such supply in the cases where a tax invoice has been issued but:

1. Taxable invoice is more than Taxable value in respect of such invoice; or
2. Tax charged in invoice is more than Tax payable in respect of such supply; or
3. Where the goods supplied are returned by the recipient; or
4. Where goods or services or both supplied are found to be deficient.

Declaration of detail in return

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 month during which such credit note has been issued but not later than:

1. September following the end of financial year in which such supply was made, or
2. The date of furnishing of the relevant annual return, whichever is earlier.

Impact of Credit Note on tax liability

The tax liability shall be adjusted in such manner as may be prescribed. However, 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.