Also called GST credit note, sales return note
A credit note reduces what a customer owes on an invoice that has already been issued. Under GST, the seller issues it when goods come back, when the price charged was too high, or when a discount is agreed after the sale. It refers to the original invoice and reduces both the value and the tax.
It matters because you should not edit or delete an invoice once it has gone out and been reported. The credit note keeps the record honest: the original sale stays, and the reduction sits next to it with a reason. Under GST, a credit note for a year's sales must be issued by 30 November after that financial year ends, or by the annual return date if that is earlier.
A wholesaler bills a retailer ₹20,000 plus 18% GST, a total of ₹23,600. The retailer returns goods worth ₹2,000. The wholesaler issues a credit note for ₹2,000 plus ₹360 GST, so the retailer now owes ₹21,240. Both sides report it, and the wholesaler's output tax falls by ₹360.