Credit Note Issue in GST
This query is : Resolved
21 February 2025
HELLO, my query is> dealer A sold goods to B but bill recorded in C in R1 in 20-21. How to reverse this. Can Credit note issue to Dealer C for reverse. Since itc benefit got C, but original buyer is B. Is there any other way to reverse. Can interest be added in Credit, as C benefit ITC for 4 years.Learned experts opinions are sought..Thanks
12 August 2025
Corrective Steps:
Issue Credit Note to Dealer C
Dealer A should issue a Credit Note to Dealer C for the value of the goods wrongly recorded.
This will reduce Dealer C’s input tax credit (ITC) claim.
Credit note must reference the original invoice.
Issue Correct Invoice to Dealer B
Dealer A should issue a fresh invoice to Dealer B correctly reflecting the sale.
Adjustment in Returns:
Dealer A must adjust these documents in their GSTR-1 and subsequent returns accordingly.
Dealer C should reverse the ITC claimed wrongly in their GSTR-3B (if still possible).
Interest and Penalty:
GST law does not provide for charging interest in the credit note itself.
However, if C wrongly availed ITC and did not reverse timely, interest and penalties may be applicable on delayed reversal under GST provisions.
It’s the responsibility of dealer C to reverse the ITC with interest if delayed beyond the prescribed time.
If ITC claimed for 4 years:
Since ITC was claimed for a long time, the tax authorities can initiate proceedings against dealer C for wrongful ITC.
It’s advisable to rectify as early as possible to avoid penalty and litigation.
Other Alternatives:
Rectification in GST Returns:
If the returns for FY 20-21 are still open for amendment (generally, 1 year from filing), both dealers may amend their returns.
Audit and Legal Advice:
Considering the time lapse, professional legal advice and possibly involving GST authorities may be needed to avoid complications.
Issue Credit Note to Dealer C
Dealer A should issue a Credit Note to Dealer C for the value of the goods wrongly recorded.
This will reduce Dealer C’s input tax credit (ITC) claim.
Credit note must reference the original invoice.
Issue Correct Invoice to Dealer B
Dealer A should issue a fresh invoice to Dealer B correctly reflecting the sale.
Adjustment in Returns:
Dealer A must adjust these documents in their GSTR-1 and subsequent returns accordingly.
Dealer C should reverse the ITC claimed wrongly in their GSTR-3B (if still possible).
Interest and Penalty:
GST law does not provide for charging interest in the credit note itself.
However, if C wrongly availed ITC and did not reverse timely, interest and penalties may be applicable on delayed reversal under GST provisions.
It’s the responsibility of dealer C to reverse the ITC with interest if delayed beyond the prescribed time.
If ITC claimed for 4 years:
Since ITC was claimed for a long time, the tax authorities can initiate proceedings against dealer C for wrongful ITC.
It’s advisable to rectify as early as possible to avoid penalty and litigation.
Other Alternatives:
Rectification in GST Returns:
If the returns for FY 20-21 are still open for amendment (generally, 1 year from filing), both dealers may amend their returns.
Audit and Legal Advice:
Considering the time lapse, professional legal advice and possibly involving GST authorities may be needed to avoid complications.
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