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

An ISD distributed credit of an invoice in the ratio 50:30:20 to recipients P, Q and R. The supplier later issues a credit note reducing credit by Rs 40,000. In the month the credit note is included in GSTR-6, the credit under distribution to Q is only Rs 8,000. What is the outcome for Q?

Q's apportioned reduction is 30 percent of Rs 40,000, i.e. Rs 12,000. Since only Rs 8,000 is under distribution, the negative Rs 4,000 is added to Q's output tax liability. It is not shifted to other recipients or carried forward.

  1. AQ's share Rs 12,000 is reduced from distribution, leaving Rs 4,000 negative, which is added to Q's output tax liabilityCorrect
  2. BQ's share Rs 12,000 is reduced entirely from P's credit
  3. CQ's share of Rs 12,000 is ignored because credit under distribution is insufficient
  4. DOnly Rs 8,000 is reduced and the balance Rs 4,000 is carried forward to the next ISD return

Explanation

The reduction is apportioned in the original ratio: Q's share is 30% of 40,000 = Rs 12,000. Where the amount to be adjusted exceeds the credit under distribution, the negative amount is added to the recipient's output tax liability. Here 8,000 - 12,000 = -4,000, so Rs 4,000 is added to Q's output tax liability.

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