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

Arjun & Co., a registered supplier of Jaipur, supplied services on 12 June 2026 and issued the tax invoice on 20 June 2026. It later issued a credit note dated 15 July 2026 for a discount of Rs 11,800 (inclusive of 18% GST) which was not agreed in the agreement before or at the time of supply; the recipient is registered. Which statement is correct?

Arjun & Co. can reduce its output tax through the credit note only if the recipient has reversed the corresponding input tax credit. A discount given after supply and not agreed earlier is not excluded from value, so section 34 conditions apply, and the supplier issues the credit note.

  1. AArjun & Co. can reduce its output tax liability only if the recipient reverses the corresponding input tax credit; the credit note must be issued by Arjun & Co. and contain the details prescribedCorrect
  2. BArjun & Co. can reduce output tax even if the recipient does not reverse the credit, since the credit note is valid
  3. CArjun & Co. cannot issue a credit note for a discount, only for goods returned
  4. DThe credit note must be issued by the recipient

Explanation

A post-supply discount not agreed before or at the time of supply is not excluded from the value of supply under section 15(3)(b), but the supplier can reduce tax liability by a credit note only if the recipient has reversed the ITC. The supplier issues the credit note. Hence the first option is right; the second ignores the reversal condition and the third is wrong because credit notes are also issued for discounts.

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