Sec 178 Issue of supplementary invoices, debit or credit notes where price is revised in pursuance of a contract
Applicability
The provision is applicable if-
- there is revision in price whether upward or downward,
- the revision is in relation to goods and/or services supplied prior to the appointed day and
- the revision is in pursuant to a contract entered prior to the appointed day.
Treatment
Case 1: Upward revision of price (sub sec 1)
The first sub-section deals with upward revision of price and provides that
- the registered taxable person who had supplied such goods and/or services may issue a supplementary invoice or debit note.
- such supplementary invoice or debit note shall be issued within thirty days of price revision and
- such supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply made under GST.
In simple words, the supplier shall issue an invoice by charging GST for any upward revision of price.
Case 2: Downward revision of price (sub sec 2)
The second sub-section deals with downward revision of price and provides that
- the registered taxable person who had supplied such goods and/or services may issue a supplementary invoice or credit note
- such supplementary invoice or debit note shall be issued within thirty days of price revision and
- such supplementary invoice or credit note shall be deemed to have been issued in respect of an outward supply made under GST.
The second sub-section puts a condition that a person shall be allowed to reduce his tax liability only if the recipient of such supplementary invoice or credit note has also reduced his input tax credit.
Note
The supplementary invoice, debit note or credit note mentioned above shall contain such particulars as prescribed in Rule 4 of the Invoice Rules.
Example
Mr. X hired M/s ABC Pvt. Ltd for the construction of his house. The contract was entered on 1st April, 2017 and contained an escalation clause that price can be increased from retrospective effect in case there is an increase in the price of cement/steel. For all supplies made between 1st April, 2017 to 30th June, 2017 bills was issued on monthly basis on the last day of the respective month. On 15th July, 2017 M/s ABC Pvt. Ltd evoked the escalation clause and issued a supplementary invoice on 30th July, 2017. In this case, ABC Pvt. Ltd. will have to charge GST on the said escalated amount.
Authors remarks
1. The provision provides clarity in relation to the revision of price pursuant to a contract entered into prior to the appointed day but does not provide for treatment in case there is a revision of price pursuant to a contract or agreement entered on or after the appointed day. Those revisions shall be considered on case to case basis and guidance could be taken from this provision for example if there is increase in price then one must pay GST and for decrease in price if the recipient has already taken input tax credit then the downward revision can be restricted only to prices/value of goods and/or services and not taxes.
2. The second sub-section which deals with a downward revision of price allows the taxable person issuing the credit note or supplementary invoice to reduce his tax liability only if the recipient of such credit note or supplementary invoice reduces his input tax credit. It may be noted that if supplementary invoice/credit notes are issued to unregistered persons then the condition of reducing input tax credit will pause problem. The government should be represented that if the principle of unjust enrichment are followed then the supplier shall be allowed to reduce his output tax liability similar provision is already provided in Sec 31 of the Model GST Law.
The author can also be reached at tarun@tsarora.com.
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