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

Gupta Traders, Delhi, supplied goods in August 2025 with an invoice value of Rs 1,00,000 plus GST of Rs 18,000. In December 2025 it issued a credit note for Rs 20,000 taxable value with GST of Rs 3,600, being a post-sale discount. The discount was not known at the time of supply and was not specified in the agreement. The recipient is registered. Under section 34 of the CGST Act, what is the position about the supplier reducing its output tax liability by the credit note?

The supplier may reduce output tax only if the recipient has reversed the input tax credit relating to the credit note. Section 34 conditions the adjustment on the tax incidence not having been passed on, and a discount not agreed in advance still goes through this credit note route.

  1. AAllowed only if the recipient has reversed the ITC attributable to the credit noteCorrect
  2. BAllowed in all cases since a credit note was issued
  3. CNot allowed, as GST on a discount can never be adjusted
  4. DAllowed only if the discount was agreed in the contract before supply

Explanation

Under section 34, the supplier may reduce output tax for a credit note only if the incidence of tax has not been passed on to another person; for registered recipients, this is met when the recipient reverses the ITC. A discount not agreed before the supply is still covered by the credit note route, with that condition. So the option requiring a pre-agreed discount is wrong.

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