If a customer does partial payment of the invoice amount, How to adjust or recover GST

Query – If a customer does partial payment of the invoice amount but GST has been paid fully, how can excess GST be recovered?

Ans – When a customer makes a partial payment of an invoice amount, but the GST has been paid fully by the supplier, the excess GST paid can be recovered or adjusted in the following manner:

1. Credit Note Issuance: The supplier should issue a credit note to the customer for the unpaid amount of the invoice. The credit note will effectively reduce the value of the supply and the corresponding GST liability.
2. GST Return Adjustment: After issuing the credit note, the supplier can adjust the excess GST paid against their future GST liability. This adjustment is reflected in the supplier’s GSTR-1 (details of outward supplies) and GSTR-3B (summary of outward and inward supplies).
3. Record Keeping: The supplier must maintain accurate records of the credit note and the corresponding adjustment in the GST returns. This is crucial for audit and reconciliation purposes.
4. No Refund from Government: It’s important to note that the excess GST paid cannot be claimed as a refund from the government in such scenarios. The recovery or adjustment is only through the process of issuing a credit note and adjusting future GST liabilities.
5. Timeline: There is a time limit for issuing a credit note and adjusting the GST liability, which is usually by the end of September following the end of the financial year in which such supply was made, or the date of filing of the relevant annual return, whichever is earlier.

By following these steps, the supplier can effectively handle situations where excess GST has been paid due to partial payment of invoices by customers.

Query – Or can he opt for legal remedy available to recover unpaid gst amount from customer?

Ans – Yes, a supplier can opt for legal remedies to recover the unpaid GST amount from a customer. Here’s how this typically works:

1. Legal Demand Notice: Initially, the supplier may send a legal demand notice to the customer, requesting the payment of the outstanding amount, including the GST component. This notice serves as a formal request and often prompts payment without further legal action.
2. Legal Proceedings: If the customer fails to comply with the demand notice, the supplier can initiate legal proceedings to recover the unpaid amount. This could involve filing a suit for recovery in a competent court of law.
3. Contractual Terms: The approach to recovery may also depend on the terms and conditions of the contract or agreement between the supplier and the customer. If there are specific clauses related to late payment, non-payment, or dispute resolution, these will guide the legal proceedings.
4. Arbitration and Mediation: Before moving to court, the supplier may also consider alternative dispute resolution methods like arbitration or mediation, if such provisions were included in the contract.
5. Impact on GST Liability: It’s important to note that pursuing legal remedies to recover the unpaid amount does not immediately affect the GST liability. The GST liability arises at the time of supply and is independent of the actual receipt of payment. Hence, the GST amount must still be paid to the government, and any recovery from the customer is a separate process.
6. Professional Advice: Engaging a legal professional or a financial advisor is advisable to understand the best course of action and to ensure compliance with legal procedures and tax laws.

In summary, if a customer fails to pay the invoice amount including the GST, the supplier has the right to seek legal remedies to recover the outstanding amount. However, the supplier must still comply with the GST regulations and pay the tax to the government as per the standard rules.