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CA Final · Indirect Tax Laws · Input Tax Credit

An ISD distributed IGST credit of Rs 30,000 from a supplier's invoice to recipients P (Rs 20,000) and Q (Rs 10,000). Later the supplier issues a credit note of IGST Rs 12,000, included in the ISD's GSTR-6 for a month in which the credit available for distribution is only Rs 3,000, which would otherwise be distributed to P and Q in the same 2:1 ratio. What is the effect on P?

Rs 8,000 of the credit note is apportioned to P in the original 2:1 ratio. It is first reduced from P's Rs 2,000 share, and the negative balance of Rs 6,000 is added to P's output tax liability.

  1. ARs 8,000 is apportioned to P; after reducing P's Rs 2,000 share, Rs 6,000 is added to P's output tax liabilityCorrect
  2. BRs 6,000 is reduced from P's share and the remaining Rs 6,000 is reduced from Q's
  3. CRs 12,000 is added to the ISD's output tax liability
  4. DRs 8,000 is added to P's output tax liability

Explanation

The reduction is apportioned in the ratio of the original distribution (2:1): P Rs 8,000, Q Rs 4,000. P's share of the month's distribution is Rs 2,000, so Rs 2,000 - Rs 8,000 = negative Rs 6,000. Where the apportioned amount is negative because credit under distribution is less than the adjustment, the shortfall is added to the recipient's output tax liability. Adding the full Rs 8,000 ignores the Rs 2,000 set off.

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