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CMA Final · Indirect Tax Laws and Practice · Input Tax Credit

An ISD distributed credit in an earlier month to units A, B and C in the ratio 5:3:2. The supplier now issues a credit note to the ISD reducing credit by Rs 50,000 in total. In the month the credit note is included in GSTR-6, the credit under distribution is only Rs 10,000 in total, and unit A's apportioned share cannot be fully absorbed. What is the treatment under Rule 39?

The credit-note reduction is apportioned to each recipient in the same ratio in which the original invoice credit was distributed. Where a recipient's apportioned amount is negative because credit under distribution is insufficient, that amount is added to the recipient's output tax liability.

  1. AEach unit's share is Rs 25,000, 15,000 and 10,000 in the ratio of current-month turnover
  2. BThe reduction is apportioned in the same ratio as the original distribution, and any negative amount is added to the recipient's output tax liabilityCorrect
  3. CThe ISD alone pays the shortfall from its electronic cash ledger
  4. DThe credit note is ignored until the end of the financial year

Explanation

Clause (n) says the reduction is apportioned to each recipient in the same ratio in which credit in the original invoice was distributed. The amount is reduced from the credit distributed in the month, or, where it turns negative because credit under distribution is lower, it is added to the recipient's output tax liability. Using current turnover instead of the original ratio is the key error.

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