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

An ISD distributed Rs 1,00,000 of credit from one invoice to recipients P and Q in the ratio 3:2. In a later month the supplier issues a credit note reducing the credit by Rs 30,000. In that month the credit under distribution for P is only Rs 10,000, while Q has ample credit. What is the treatment under Rule 39(1)(n)?

The Rs 30,000 reduction is split 3:2, giving P Rs 18,000 and Q Rs 12,000. Since P has only Rs 10,000 under distribution, the Rs 8,000 shortfall is added to P's output tax liability. Q's share is reduced from the amount distributed in that month.

  1. ARs 18,000 is apportioned to P and Rs 12,000 to Q. P's Rs 8,000 excess is added to P's output tax liabilityCorrect
  2. BThe whole Rs 30,000 is reduced from the credit distributable to Q
  3. CRs 18,000 is apportioned to P and Rs 12,000 to Q. P's excess is carried forward indefinitely without any liability
  4. DRs 15,000 is apportioned to each recipient, with any excess added to P's output tax liability

Explanation

The reduction is apportioned in the same ratio as the original distribution, 3:2, giving P Rs 18,000 and Q Rs 12,000. P's distributable credit is only Rs 10,000, so the amount becomes negative by Rs 8,000. Clause (n)(ii) adds that amount to P's output tax liability.

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