Rate change transition: time of supply, credit notes and stock in hand
Every rate change creates three weeks of disputes that last three years. The rules are in Section 14, and almost nobody reads them.
Section 14 determines the rate applicable where the rate changes in relation to a supply, by reference to three events: the date of supply, the date of invoice and the date of payment. Where two of the three occur before the change, the old rate applies; where two occur after, the new rate applies. Credit notes and debit notes carry the rate of the original supply. Stock in hand does not attract any adjustment of the rate already paid, but a rate reduction raises credit and pricing consequences, including anti profiteering where applicable.
Section 14, stated plainly
Take three events: completion of the supply, issue of the invoice, and receipt of payment.
Where the supply is completed before the rate change, the applicable rate is the old rate unless both the invoice and the payment occur after the change, in which case the new rate applies.
Where the supply is completed after the change, the new rate applies unless both the invoice and the payment occurred before the change, in which case the old rate applies.
The rule is a majority test on the timing of the three events. Applying it requires the date of each event to be recorded, which is why the invoicing and receipting discipline in the fortnight around a change matters.
The recurring disputes
Continuous supplies and services spanning the change date. The date of completion must be determined by the contract and the milestone, not by the billing cycle.
Advances received before the change against supplies made after it. Two of the three events must be tested, and the answer differs between goods and services because of the treatment of advances.
Credit notes issued after the change for supplies made before it. The credit note carries the rate of the original supply; issuing it at the new rate creates a mismatch and a demand.
Contracts with a fixed price inclusive of tax. A rate increase is a commercial loss unless the contract has a tax variation clause, and a rate reduction raises the question whether the benefit must be passed on.
Government contracts, where escalation and rate variation clauses are prescribed and the department is also the customer.
What to do in the fortnight around a change
Freeze the invoicing calendar. Record the completion date for every supply straddling the change, with evidence.
Reconcile advances against supplies and decide the rate for each on the Section 14 test, in writing.
Instruct the billing system on the credit note rate rule before the change, not after the first mismatch.
Review contracts for tax variation clauses and issue the notices those clauses require within the time they specify.
Where the rate has been reduced, document the pricing decision and the pass through, because the anti profiteering enquiry, where applicable, is decided on contemporaneous evidence.
Exhibit — Applying the Section 14 majority test
| Supply completed | Invoice | Payment | Rate |
|---|---|---|---|
| Before the change | After | After | New rate |
| Before the change | Before | After | Old rate |
| Before the change | After | Before | Old rate |
| After the change | Before | Before | Old rate |
| After the change | After | Before | New rate |
| After the change | Before | After | New rate |
Record the date of each event contemporaneously. The dispute three years later is about evidence of dates, not about the rule.
What to do on Monday
Record the completion date for every supply straddling a rate change, with evidence, in the same fortnight.
Configure the billing system for the credit note rate rule before the change takes effect.
Review every material contract for a tax variation clause and diarise the notice periods.
Document the pricing decision on any rate reduction at the time it is taken.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Which rate applies to a credit note issued after a rate change?
The rate of the original supply. A credit note is an adjustment of that supply, not a fresh one.
Can we revise prices after a rate increase?
Only if the contract permits it. Review the tax variation clause and serve any notice the clause requires within its time limit.
Do we adjust tax already paid on stock in hand?
No. Tax paid on inward supplies is not adjusted for a later rate change on the output, though credit and pricing consequences follow.
How are advances treated?
Apply the Section 14 test on the three events, keeping in mind the different treatment of advances for goods and for services.
Does a rate reduction trigger anti profiteering?
Where the anti profiteering machinery applies to the period, a reduction must be passed on. Document the pricing decision contemporaneously.
In this cluster
- GST 2.0: two slabs did not end classification litigation, they moved the battle line
- Classification disputes under GST: the principles the courts apply
- Westinghouse Saxby: the sole or principal use test and the end of easy classification
- HSN, common parlance and the General Rules of Interpretation
- Composite supply versus mixed supply: the test, and the tax
- Principal supply in bundled contracts: getting the rate right
- Food, beverages and the restaurant service rate maze
- Textiles and apparel: the rate structure and the disputes it produces
- Pharmaceuticals and medical devices: the concession and its boundaries
- Automobiles and auto components: the rate bands and the component question
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.