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CA Final · Indirect Tax Laws · Miscellaneous Provisions (GST)

Bharat Auto Components Ltd supplied parts under a contract made before the appointed day. After the appointed day the price was revised downwards and the company issued a credit note within thirty days of the revision. Its tax liability may be reduced on account of this credit note only if which condition is met?

The supplier can reduce its tax liability only if the recipient has reduced his input tax credit by the corresponding amount. This condition protects revenue, because the reduction in output tax must be matched by a reduction in the recipient's credit.

  1. AThe recipient has reduced his input tax credit corresponding to the reduction in tax liabilityCorrect
  2. BThe recipient is an unregistered person
  3. CThe credit note is issued before the end of the financial year in which the contract was entered
  4. DThe Commissioner has approved the credit note in writing

Explanation

For a downward price revision under a pre-appointed-day contract, the supplier may issue a credit note within thirty days of the revision. The proviso allows the supplier to reduce tax liability only if the recipient has reduced his input tax credit correspondingly. No Commissioner approval or unregistered status condition appears in the text.

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