Traders who deal with taxable goods and services have to issue a tax invoice for their buyers. This tax invoice acts as a liaison between the goods and services sold by the company and the consumer of the product. Sometimes, situations arise where the invoice needs changes. This alteration of the invoice can occur due to several unprecedented reasons. It is the credit notes which solve those unforeseen predicaments.
Credit notes in GST
After the Indian government implemented the GST act from the year 2015, suppliers had to issue an invoice before conducting any transaction with the buyers. During the transaction, several unanticipated events happened for which the buyer returns the product or the seller cancels the transaction. In such cases, suppliers cannot issue a tax invoice because according to the GST rule once an invoice is issued it cannot be nullified. Hence, what a purveyor does is issue credit notes. Credit notes act as an acknowledgement receipt between the two parties. It also apprises the buyer that the goods or services which have been returned have been recorded and credit has been issued for it.
Example of a credit note
As an example, we can consider Bunnel Ltd. a registered distributor from Mumbai who supplied goods worth rupees 100000/- to another registered customer Vulpix and Co. who resides in the same city. The same day Bunnel Ltd. issued a tax invoice which was paid by their customer Vulpix and Co. Later on, Vulpix and Co. found out that …