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

Anand Steels, Raipur, a registered person, supplied goods to a registered buyer on 12 August 2025 under an invoice of Rs 5,00,000 taxable value plus 18% GST. In the same financial year, on 20 November 2025 the buyer returned goods worth Rs 1,00,000 taxable value. Anand issued a credit note on 25 November 2025. Separately, on 10 December 2025 Anand found that taxable value of a different invoice had been understated by Rs 30,000 (GST 18%) and issued a debit note. What is the net change in Anand's output tax liability on these two notes, assuming both are properly reported in time and no other facts apply?

The net effect is a decrease of Rs 12,600 in output tax. The credit note for returned goods reduces tax by Rs 18,000, while the debit note for understated value adds Rs 5,400, so the net reduction is Rs 12,600.

  1. ADecrease of Rs 12,600Correct
  2. BDecrease of Rs 18,000
  3. CIncrease of Rs 5,400 only
  4. DDecrease of Rs 23,400

Explanation

Credit note reduces tax by 18% of 1,00,000 = Rs 18,000. Debit note increases tax by 18% of 30,000 = Rs 5,400. Net = 18,000 - 5,400 = decrease of Rs 12,600. Ignoring the debit note gives Rs 18,000; adding it gives Rs 23,400, a sign error.

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