📘 Background Scenario
- Exporter supplies goods to a foreign customer with payment of IGST under Section 16(3) of the IGST Act.
- Export invoice is declared in GSTR-1 and GSTR-3B.
- Refund of IGST is claimed via ICEGATE and successfully received.
- Subsequently, the foreign buyer returns the goods — due to defects, rejection, or other reasons.
Now the exporter wants to issue a GST credit note under Section 34. Let’s examine whether this is permissible.
🧾 Legal Provision – Section 34 of CGST Act, 2017
Section 34(1) – Conditions for Issuing a Credit Note:
Where a tax invoice has been issued... and the taxable value or tax charged exceeds the actual value/tax payable... the supplier may issue a credit note...
Section 34(2) – Time Limit:
Credit note must be declared in the return for the month of issue but not later than 30th November following the financial year of supply.
❌ Why a GST Credit Note Cannot Be Issued in This Case
| Reason | Explanation |
|---|---|
| IGST Refund already claimed | Refund under Section 54 has already been credited. If you now reduce tax liability via a credit note, it creates mismatch, and the department can demand reversal of refund and interest. |
| Section 34 intended for taxable recipients | Credit notes under GST law are for correcting taxable supplies within India, where the buyer is a GST-registered person. But an export involves a foreign recipient, not covered under GST input/output system. |
| No GST obligation on foreign buyer | The foreign buyer does not use or claim ITC in India. So, issuing a GST credit note serves no statutory function in correcting tax records. |
| CBIC Circular 37/11/2018-GST | Explicitly states: "Once refund is claimed for a supply, subsequent adjustment via credit note is not permissible unless refund is reversed." |
📌 Practical Treatment of Returned Export Goods
Since GST credit note is not allowed, here is the correct procedure:
1️⃣ Issue a Commercial Credit Note (Non-GST)
- This is for accounting and buyer settlement purposes only.
- No GST impact — do not declare in GSTR-1.
- Mention: “This is not a GST credit note. Issued for commercial purposes only.”
2️⃣ Treat Returned Goods as Import
-
When goods are physically returned:
-
File Bill of Entry at the port of re-entry.
- Pay Customs Duty + IGST as applicable.
- You can claim ITC of IGST paid at port (subject to usage in taxable outward supplies).
3️⃣ Stock Accounting
- Bring goods into books as new stock.
- Document linkage with original export invoice + Bill of Entry of re-import.
📘 Supporting Circulars and Case Law
| Reference | Summary |
|---|---|
| CBIC Circular No. 37/11/2018-GST | Prohibits credit note under GST for export invoices where refund has been claimed. |
| Section 54(8) of CGST Act | States refund of IGST is final upon proper export documentation. |
| Instruction No. 20/2019-Customs | Clarifies re-import of returned goods shall be allowed with reassessment and fresh IGST levy. |
🧮 Example Illustration
| Particular | Amount |
|---|---|
| Export Invoice Value (FOB) | ₹10,00,000 |
| IGST Paid on Export | ₹1,80,000 (18%) |
| Refund Received | ₹1,80,000 |
| Goods Returned After 3 Months | Yes |
| Can GST Credit Note Be Issued? | ❌ No |
| Treatment | Commercial CN + Re-import as new supply |
| IGST on Re-import | Say ₹1,20,000 (claimable as ITC) |
✅ Summary
| Question | Answer |
|---|---|
| Can I issue a GST credit note? | ❌ No |
| Can I issue a commercial credit note? | ✅ Yes |
| Can I reverse/refund IGST already claimed? | ✅ Yes, but via DRC-03, not practical in most cases |
| Can I claim ITC on IGST paid on return? | ✅ Yes, if goods used for taxable supply |
📝 Conclusion
When goods exported with payment of IGST are returned by the buyer after refund is received, you cannot issue a GST credit note under Section 34. Instead, use commercial documentation and treat the return as a fresh import.
Issuing a credit note under GST law in such cases may lead to mismatch, refund recovery, interest demand, and audit scrutiny.
Urukundu
