Clarification on GST Credit Note Rejection and Return Adjustment
This query is : Resolved
09 May 2025
We need your guidance regarding a situation where credit notes issued by us have been rejected by the recipients in the new GST Invoice Matching System (IMS). As a result, we have repaid the GST amount related to those credit notes.
We seek your advice on the following points:
How should this be correctly reflected in the upcoming GSTR-3B return?
Do we need to reverse the adjustment made earlier for the credit notes or simply add back the tax liability?
Is there a provision to rectify or delete the credit notes in GSTR-1, or should they be retained as originally filed?
Are there any additional compliance or reporting steps we must follow in such cases?
Your expert opinion will help us ensure accurate reporting and compliance.
We seek your advice on the following points:
How should this be correctly reflected in the upcoming GSTR-3B return?
Do we need to reverse the adjustment made earlier for the credit notes or simply add back the tax liability?
Is there a provision to rectify or delete the credit notes in GSTR-1, or should they be retained as originally filed?
Are there any additional compliance or reporting steps we must follow in such cases?
Your expert opinion will help us ensure accurate reporting and compliance.
12 August 2025
Reflecting the Transaction in GSTR-3B
Since the credit notes were rejected and you have repaid the GST amount, you cannot claim ITC on those credit notes.
In the upcoming GSTR-3B return, you should:
Reverse the ITC claimed earlier on those credit notes under Table 4 (Eligible ITC) by reducing the ITC amount.
Add back the tax liability (GST amount repaid) under Table 3 (Output Tax Liability), as the original tax on the sale is now effectively restored.
2. Reversal of Earlier Adjustment
Yes, you need to reverse the credit note adjustment you made earlier, because the credit note has been rejected and the tax liability still exists.
Practically:
Debit your ITC reversal amount in GSTR-3B.
Credit the output GST liability accordingly.
3. Handling Credit Notes in GSTR-1
Once filed, credit notes cannot be deleted from GSTR-1.
You should retain the originally filed credit notes in your GSTR-1 for that period.
The rejection and repayment will be handled through GSTR-3B adjustments.
However, you should issue a debit note or adjustment note to correct the invoice value if required, and report this in the next GSTR-1 period.
4. Additional Compliance Steps
Maintain proper records and documentation related to:
Credit notes issued.
Communication/evidence of credit note rejection by recipients.
Repayment of GST amount.
Ensure correct disclosures in GSTR-3B to avoid mismatch notices or penalties.
If the issue is material or recurring, consider discussing with GST authorities or seek professional advice.
Since the credit notes were rejected and you have repaid the GST amount, you cannot claim ITC on those credit notes.
In the upcoming GSTR-3B return, you should:
Reverse the ITC claimed earlier on those credit notes under Table 4 (Eligible ITC) by reducing the ITC amount.
Add back the tax liability (GST amount repaid) under Table 3 (Output Tax Liability), as the original tax on the sale is now effectively restored.
2. Reversal of Earlier Adjustment
Yes, you need to reverse the credit note adjustment you made earlier, because the credit note has been rejected and the tax liability still exists.
Practically:
Debit your ITC reversal amount in GSTR-3B.
Credit the output GST liability accordingly.
3. Handling Credit Notes in GSTR-1
Once filed, credit notes cannot be deleted from GSTR-1.
You should retain the originally filed credit notes in your GSTR-1 for that period.
The rejection and repayment will be handled through GSTR-3B adjustments.
However, you should issue a debit note or adjustment note to correct the invoice value if required, and report this in the next GSTR-1 period.
4. Additional Compliance Steps
Maintain proper records and documentation related to:
Credit notes issued.
Communication/evidence of credit note rejection by recipients.
Repayment of GST amount.
Ensure correct disclosures in GSTR-3B to avoid mismatch notices or penalties.
If the issue is material or recurring, consider discussing with GST authorities or seek professional advice.
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