Question

XYZ imported goods and availed credit of the IGST charged in the Bill of Entry. Subsequently, the foreign supplier issued a credit note to XYZ towards rate difference against which XYZ issued a debit note to the foreign supplier but without charging GST. Is XYZ required to proportionately reverse the credit of IGST in proportion to the value of Debit Note issued to foreign supplier?

Answer

As per section 34 of CGST Act the debit note are taken into GST if the same are issued by the supplier.

This is a case of payment of Custom. The tax is paid by importer. Although it is IGST but the same is paid under Customs Act.

The treatment of debit note will depend upon the reason of issuance of debit note.

If it is for rate difference or on account of agreement made at the time of sale, then no need to pay IGST because the tax was paid under the Customs Act as import duty.

If the amount is huge and ITC cannot be utilized/ refunded like in case of textile then the importer should go for refund claim of Customs duty. Otherwise the tax paid is available as ITC and not affecting the importer. So there is no need to do any process in GST.

If the debit note is issued on account of compensation or damage etc, then it will be subjected to IGST because it is a different transaction and treated as service as per Schedule II clause (5)(e) "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" (Reply dt. 27.09.2018)