Matching and auto reversal of Credit Notes :
In case of Credit Note, however, the nature of transaction and its impact is different. When a supplier issues a credit note, the value of supply and the tax liability reduces in his hands. Simultaneously, the recipient should reduce the ITC claim by an equivalent amount. Thus, in case of mismatch, if the recipient does not reduce his ITC claim, the reduction of tax liability in the hands of the supplier should be reversed. The process followed in case of credit notes is also same except for this one basic difference.
Even in case of credit notes, the claims would be first checked for duplicates and duplicate claims shall be communicated to the supplier. If there is a mismatch, i.e. the recipient has not reduced the ITC claim at least by an equivalent amount, both of them will be intimated. If the recipient reduces the ITC claim accordingly, along with the payment of tax and interest, the credit note will be considered as matched. In case the recipient does not take any such corrective action, the amount of tax liability reduced by the supplier will be added to his tax liability in the subsequent returns and shall become payable along with interest for two months.
Even in the case of credit note, the supplier shall automatically be given the benefit of the credit note if the recipient acknowledges it and reduces his ITC claim at any print and provisions similar to that for invoice and debit notes apply to credit notes as well.