QUESTION

X has supplied transformer to Y on 20/07/2019. In the same F.Y., Y supplied the material to Z. Z made the payment on 01/02/2022 and is asking to issue bill of current date. What to do in this case?

ANSWER

Facts of the case:

Goods were supplied to a party in the financial year 19-20. This party then further supplied the same goods to a third party in the same year of 19-20. The third has released the payment in financial year 21-22.

Law Applicable:

1. Sub section (2) of section 34 CGST prescribes the time limit for issuance of a credit note as follows;

" Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed: "

2. First proviso to subsection (3) of section 37 CGST provides the time limit for ratification in GSTR 1 as follows;

" Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier. "

Interpretation:

The act does not restrict the payment of an invoice which is outstanding for 2 years. Rather the act, through its third proviso to section 16(2), permits re-availment of credit in case payment is made after 180 days from the date of invoice.
In this case, the best strategy would be to clear the payment dues against the outstanding invoice of the year 19-20. By doing so, the recipient can reclaim the credit that they would have reversed under second proviso to section 16(2) CGST. If the original reversal did not happen after expiry of 180 days then there is no question of reclaiming the credit.
If however the party insists on a new invoice then following could be the challenges faced:

(i) Credit note against the original invoice can not be issued since the time limit under section 34 has passed.
(ii) GSTR 1 can not be rectified since the time limit under section 37 has passed.
(iii) By issuing a new invoice, the company would have to deposit the tax amount twice against a single supply since reversal of old liability can not be made.
(iv) The journal entry of the 19-20 invoice can not be squared off in books of accounts.

Conclusion:

Since all the time limits have passed, it is advised that payment should be requested on the original invoice of 19-20. (Reply dt. 08/02/2022)