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CA Intermediate · Taxation · Tax Invoice; Credit and Debit Notes

Anand Electricals sold goods in June with taxable value Rs 2,00,000 plus GST at 18%. In July it gave a discount of Rs 20,000 to the buyer under a pre-agreed volume discount, which was established in terms of the agreement before the supply and linked to specific invoices. It issued a credit note for the discount. What is the GST amount that Anand can reduce from its output tax liability, assuming the buyer reverses the corresponding ITC and other conditions are met?

Anand can reduce output tax by Rs 3,600, which is 18% of the Rs 20,000 discount. The discount was agreed beforehand and linked to specific invoices, and the buyer reverses the ITC, so the credit note qualifies for adjustment.

  1. ARs 3,600Correct
  2. BRs 36,000
  3. CRs 3,960
  4. DRs 0, since discounts given after supply are not allowed

Explanation

A post-supply discount is excluded from value if agreed before or at supply and linked to specific invoices, and the recipient reverses ITC. The tax reduction is 18% of Rs 20,000 = Rs 3,600. Rs 0 is wrong since the discount conditions are satisfied. Rs 36,000 wrongly applies 18% to the whole Rs 2,00,000.

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