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CA Final · Indirect Tax Laws · Input Tax Credit

Ganga Steel's ISD in Kolkata distributed Rs 1,00,000 of eligible IGST credit from an invoice among Units X, Y and Z in the ratio 5:3:2. In a later month the supplier issues a credit note reducing the credit by Rs 40,000. In that month Unit Z has only Rs 5,000 of credit under distribution. What is the correct treatment for Unit Z under Rule 39?

Z's share of the reduction is Rs 8,000, being 2/10 of Rs 40,000, the original ratio. Rs 5,000 is absorbed from the credit under distribution that month, and the remaining Rs 3,000 is added to Z's output tax liability.

  1. AZ's apportioned reduction of Rs 8,000 is reduced from the amount to be distributed in that month, and the shortfall of Rs 3,000 is added to Z's output tax liabilityCorrect
  2. BZ's reduction is Rs 13,333 based on equal sharing, adjusted against the next month's credit
  3. CZ's reduction of Rs 8,000 is ignored because the amount under distribution is insufficient
  4. DZ's reduction of Rs 8,000 is reduced entirely from X's share

Explanation

Reduction is apportioned in the same ratio as the original distribution: Z's share is 2/10 x 40,000 = 8,000. It is reduced from the amount to be distributed in the month the credit note is included in GSTR-6. Where the apportioned amount is negative because credit under distribution is less than the adjustment, it is added to the recipient's output tax liability. The shortfall is 8,000 - 5,000 = 3,000.

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