Recently, the 56th GST council has made some important changes to help businesses, especially in the fast-moving consumer goods (FMCG) sector. One key change is that credit notes are no longer directly linked to invoices. This adjustment is aimed at reducing confusion for companies and sellers when they handle these documents. Overall, it’s a step to make things clearer and more manageable for businesses.
In business, the credit notes are common and are used in the chain for transactions – from the manufacturer to the wholesaler to the dealer and the retailer – for every transaction made by them.
Businesses do not encounter issues when the goods are sold to retailers via the supply chain. However, problems do occur with products that have a shorter lifespan. For instance, toothpaste typically has a shelf life of about a year. If it is not sold by the retailer within 9 or 10 months, it is returned to the company. In these cases, the credit notes are issued throughout the whole supply chain.
The previous rules mandate every credit note to be correlated with the invoice, which means that billions of invoices and credit notes must be reconciled for a large company. Now, the requirement to match the two documents has been removed.
In the future, there will no longer be a need to link credit notes to specific invoice numbers, alleviating a long-standing pain for all businesses.
Businesses have argued since the introduction of GST that credit notes are issued for various reasons. It is essential for GST, as a business tax, to align its provisions with business practices rather than the other way around.
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Towards the case of discounts, it facilitates the compliance burden. In distinct sectors, taxpayers issue commercial credit notes for reasons, like post-sale discounts. Taxpayers, with the proposed relaxation of the need to establish a prior agreement for discounts before or during the supply, might be qualified for reductions even when such discounts are given after the sale.
The same amendment improves the commercial flexibility and aligns with the rising business practices. In a forthcoming circular, the other clarifications for the treatment of the after-sales discounts are expected.
