FBR introduces 'credit and debit notes' facility in excise rules

The Federal Board of Revenue (FBR) has introduced the concept of 'credit and debit notes' in the federal excise regime on the pattern of sales tax to facilitate both the suppliers and the buyers in business transactions. The FBR has removed a major confusion in the excise law through amending the Federal Excise Rules 2005 on Saturday.
The amendments have been made to incorporate the provision of debit-credit notes and harmonise filing of return with the sales tax return, omitting special FED returns. The amendments have allowed the supplier to adjust the excise duty already paid in respect of returned supplies and, similarly, the buyers have been required to offset adjustment in excise duty of the corresponding amount as applicable to the returned goods.
Sources said that the concept of "credit and debit notes" was not available in the Federal Excise Act. The absence of law in the Act had disallowed the registered suppliers to payback the federal excise duty (FED) or special excise duty (SED) to the customers in case of returns of goods.
Usually, goods are returned during normal course of business and there appeared to be undue burden on the suppliers as well as customers due to absence of the provision in the Federal Excise Rules. It was a big loophole in the excise system, which has been rectified through changes in the Federal Excise Law. On the other hand, the customers purchasing goods might have taken adjustment in the return and the suppliers have discharged their tax liability.
Explaining the credit note, sources said that the credit note is issued in cases where the original supplies are returned or cancelled for any reason. In such circumstances, the supplier issues a credit note to the customer to give effect to the return or cancellation of supplies.
Secondly, the customer issues a debit note in the name of suppliers. On the basis of debit note, a supplier subsequently issues the credit note to complete the process.
According to new rule, added through SRO. 371(I)/2008, where a registered person has issued an invoice in respect of a supply made by him and as a result of cancellation of supply or return of goods or a change in the nature of supply or some such event, the amount shown in the invoice or the return needs to be modified, the registered person may issue a debit or credit note and make corresponding adjustment in the return in the manner, as far as applicable, as prescribed in Chapter III of the Sales Tax Rules, 2006.