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ITC Reversal required in case of Financial Credit Note?
Big Question is there, Whether ITC reversal required on Financial Credit Note received from supplier ? (in which supplier has not mentioned GST ).It is ambiguous issue since implementation of GST. Our Summary on the issue of ITC reversal for financial credit notes under Goods and Services tax is well-articulated. Here's a detailed breakdown of the legal history and current understanding regarding this matter:
Legal History and Interpretations:
Initially Goods and Services Tax authority started taking view that Input tax Credit reversal is required from Buyer, if supplier issue financial credit note. Thereafter Government has issued Circular No. 105/24/2019 -GST dated 28th June 2019 and clarified that ITC reversal is not required for Financial Credit received by buyer from supplier. However, vide Circular no 112/31/2019 Goods and Services Tax dated 3rd Oct 2019, above referred circular no 105 has been withdrawn by government. Due to which said issue again opened up for different interpretation. Recently Tamil Nadu Authority of Advance Ruling “Input tax Credit reversal is not required in case of Financial Credit Note”
Tamil Nadu AAR Ruling (2019):
- MRF Limited (AAR No 5/AAR/2019 dated 22nd Jan 2019): The authority took the view that ITC reversal is required if a supplier issues a financial credit note without mentioning GST.
Government Circular No. 105/24/2019 (June 28, 2019):
ITC reversal is not required when a buyer receives a financial credit note from the supplier. This circular provided relief to taxpayers, clarifying that ITC reversal is not necessary in such cases.
Withdrawal of Circular No. 105 (Circular No. 112/31/2019 dated Oct 3, 2019):
The government withdrew the earlier circular (No. 105/24/2019). This reintroduced ambiguity and allowed for varying interpretations regarding ITC reversal for financial credit notes.
Recent Tamil Nadu AAR Ruling (2023):
M/s Vedmutha Electricals India Private Limited (AAR No 05/AP/GST/2023 dated 26th May 2023): ITC reversal is not required in the case of financial credit notes. This ruling reiterates that ITC reversal is unnecessary for financial credit notes, adding to the body of opinion supporting no reversal requirement.
Current Understanding and Best Practices:
- Based on the legal history and the most recent rulings, the prevalent view is that ITC reversal is not required when a financial credit note is issued by a supplier, where GST is not mentioned. However, due to the withdrawal of Circular No. 105/24/2019, there remains a degree of ambiguity that might lead to differing interpretations by various authorities.
- Ensure that all financial credit notes are well-documented, noting the absence of GST. Follow the most recent rulings and authoritative interpretations unless new guidance is issued. In
- our view, ITC reversal is not required on receipt of Financial Credit Note from supplier.
Conclusion:
While the recent rulings suggest that ITC reversal is not required for financial credit notes, the ambiguity due to the withdrawal of earlier circulars means that taxpayers should remain cautious and stay informed about any new developments in this area. ITC reversal is not required in case of financial credit note.
