Rate difference Debit Note to Labour Service provider, Goods and Services Tax - GST

[Nihal Shaikh]

Dear Sir,

Our business type is Steel trading & we doing transactions of purchase and sale of steel only (no other service).

We had taken Labour service from a Labour Service provider and he charged us extra rate in his GST bill

Now we want to raise a debit note of a rate difference on him, In this debit note should we charge him GST? OR without GST?

Posts / Replies

[KASTURI SETHI]

A labour contractor has provided/supplied Manpower Service to you and he has charged for that. Should he not charge GST from you ? You are service receiver. Why the question of raising a debit note on account of rate difference ?

[Nihal Shaikh]

Sir,

This is not actually Manpower Service this service is Testing of material and he mentioned in his bill as "Labour Charges". Also he wants to charge us GST in BILL,

In this situation what can we do? He not agreed to raise Credit note, Should we charge him Debit note without GST? or We are liable to pay GST on it?

[KASTURI SETHI]

What is on record in books of accounts has legal value. Why has he written so ? Why not correct description ?

[MADAN RAHEJA]

From your query, it appears that service supplier has charged extra rate in his invoice and has charged GST on the full rate including extra rate and that you wish to issue a Debit Note to supplier rate difference. In my view your debit note would include both, the amount charged extra for services supplied and extra GST charged on it. Simultaneously your supplier has to issue a Credit Note in terms of Section 34 of CGST Act to the effect of reducing his tax liability. Further action in terms of Rule 73 of CGST Rules has to be taken by both, the supplier as well as registered recipient. Your Input tax credit will be restricted to the actual tax liability of service supplier.

[Nihal Shaikh]

Sir,

If He Corrects bill as Testing Charges with charging us GST & we want to raise Debit note on Him for extra charges then what should we do..? Charge him GST in Debit note or wthout GST?

[SHIVKUMAR SHARMA]

Dear Sir,

As per GST Rule debit note/Credit note will be issued only by Goods/Service Supplier.

[Rajagopalan Ranganathan]

Sir,

According to Section 34 (3) of CGST Act, 2017 " Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed 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 a credit note containing such particulars as may be prescribed. "

According to rule 53 (1) of CGST Rules, 2017 "

A revised tax invoice referred to in section 31 and credit or debit notes referred to in section 34 shall contain the following particulars, namely:-

(a) the word “Revised Invoice”, wherever applicable, indicated prominently;

(b) name, address and Goods and Services Tax Identification Number of the supplier;

(c) nature of the document;

(d) a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special charactershyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;

(e) date of issue of the document;

(f) name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;

(g) name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;

(h) serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;

(i) value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient; and

(j) signature or digital signature of the supplier or his authorised representative."

From the above it is clear that the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as indicated in rule 53 (1) of CGST Rules, 2017. The recipient cannot issue a credit/debit note under CGST Act.

[KASTURI SETHI]

Well explained by Sh.Ranganathan Sir. I agree with him entirely.

[Nihal Shaikh]

Thank You very much all of you Sir.

[Rajagopalan Ranganathan]

Sir,

I explained the legal position regarding Credit/Debit note in my reply dated 17.03.2017. From the practical point of view though the supplier had paid duty at higher rate and issued taxable invoice to you , you simply avail the credit of gst paid at higher rate by the supplier. Nobody including the Departmental Authorities can raise any objection regarding the credit availed by you. In my opinion the receiver of the goods need not bother about the classification of the goods/services supplied to him and also whether the rate of gst adopted by the supplier is high or lower than the statutory rate. If the supplier adopted lower rate the Department will not leave him. Therefore, in my opinion, it is better avail the credit of whatever gst paid by the supplier.

[KASTURI SETHI]

Nobody can charge excess amount from buyer on his own volition. If charged excess, excess ITC not allowed to buyer..

[Kishan Barai]

I totally agree with KASTURI SETHI Sir but from practical point of view Rajagopalan Ranganathan Sir is correct because I have seen department is not checking GST rates applied to products & for it, ITC could be easily claimed even if excess GST rate applied on a product then market prevailing rate. Its a mistake by the department {but they cant also introspect every transaction, they are humans} but unless un until with autofill of rates is given in common portal, In portal based on HSN auto populate of rates should come which is missing due to which many people are taking negative advantage of it.

[KASTURI SETHI]

We talk of legal aspects. Practically the department may or may not be able to detect/examine such lapse it does not mean we should shut our eyes. No assessee would like to take risk of interest and penalty. We cannot forget that every assessee is subject to audit. More over Range Officers and Preventive Officers are to monitor and supervise. For law abiding persons it is wise to take credit as per ITC Rules. Any party who charges in excess and deposit with Govt. can claim refund. In that situation, what would be the fate of ITC ? Govt. Has sufficient time period to detect such lapses that extended period. Whether it is pre-GST era or post GST era, it is not advisable to take credit on such excess amount. Rest depends upon assessee ' will.

[Kishan Barai]

I totally agree with you sir & because of your above views I liked you the most 

[Ganeshan Kalyani]

the primary responsibility of collecting correct tax from the buyer of the goods is on the supplier. however many buyer is now under GST are cross checking the HSN and rate adopted on a particular goods by the supplier as per relevant notification and seeking explanation from them. if found correct then process the bills for payment otherwise ask to revise the bill .

[Kishan Barai]

Reverse, edit of billing in not allowed in GST Portal, adjustments has to be made via issuing the credit or debit notes.

[KASTURI SETHI]

Overwriting always creates suspicion. Labour charges are already part of the cost of the product. No question of separate charging of labour charges. If done, it would amount to overvaluation. However, if the Querist can issue correct and true revised Invoice, then there is no problem. Legally correct revised invoice will not create any problems. Rightly advised by Sh.Ganeshan Kalyani Ji.

[KASTURI SETHI]

Sh.Kishan Barai Ji, Regarding credit note or debit note as per factual situation I agree with you.

[Kishan Barai]

Thank You Sir 

[YAGAY AND SUN]

Availing appropriate ITC is the essence of GST which is also to be matched in the returns of both the buyer/seller. Any excess payment of tax and accordingly availment should be knocked off through prescribed manner i.e. Debit Notes/Credit Notes as the case may be.