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

Gupta Engineering (registered) sold goods worth Rs 4,00,000 plus 18% IGST to Nair Ltd (registered) on 20 February 2026 (FY 2025-26). On 10 July 2026 Nair returned goods of taxable value Rs 1,00,000, and Gupta issued a credit note on 25 July 2026. Gupta had paid IGST on the full invoice in the February return. Which statement is correct about the treatment of this credit note?

Gupta can reduce its output IGST by Rs 18,000, which is 18% of the returned goods worth Rs 1,00,000, because the credit note falls within the 30 November 2026 deadline for FY 2025-26 supplies. Nair, the recipient, must reverse ITC of the same Rs 18,000.

  1. AGupta may reduce output IGST of Rs 18,000 by declaring the credit note in the return, subject to the deadline of 30 November 2026, and Nair must reverse ITC of Rs 18,000Correct
  2. BGupta may reduce output IGST of Rs 18,000 only if the credit note is issued in the same financial year
  3. CGupta may reduce output IGST of Rs 72,000 as the credit note relates to the original invoice
  4. DGupta cannot reduce tax, but Nair must reverse ITC of Rs 18,000

Explanation

IGST on returned goods = 18% of Rs 1,00,000 = Rs 18,000. A credit note for supplies in FY 2025-26 can be issued and declared in a return up to 30 November 2026 (or annual return date if earlier), so 25 July 2026 is within time. The supplier's liability reduces by Rs 18,000 and the recipient reverses the same ITC. Rs 72,000 uses the wrong base, being 18% of Rs 4,00,000.

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