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CA Final · Indirect Tax Laws · Tax Invoice, Credit and Debit Notes

Gupta Traders Pvt. Ltd. (registered) issued a tax invoice for goods worth Rs 5,00,000 plus GST of Rs 90,000 to Iyer Retail, a registered buyer. The invoice was issued for a supply made in FY 2024-25. Gupta Traders now wants to issue a credit note for a Rs 40,000 price reduction. Iyer Retail has already claimed full input tax credit and, through its own pricing, the incidence of GST and interest has been passed on by Gupta Traders to its customer, so that its customer bears the tax. Which statement correctly describes the position under section 34(2)?

Gupta Traders cannot reduce its output tax liability. The proviso to section 34(2) bars any reduction in the supplier's output tax liability where the incidence of tax and interest on the supply has been passed on to any other person, even if the credit note is declared on time and is complete.

  1. AGupta Traders can reduce its output tax liability if it declares the credit note by 30 November following the financial year
  2. BGupta Traders cannot reduce its output tax liability, because the proviso denies reduction when the incidence of tax and interest has been passed on to any other personCorrect
  3. CGupta Traders can reduce its output tax liability only if Iyer Retail reverses the credit
  4. DGupta Traders can reduce its output tax liability in all cases, provided the credit note contains all prescribed particulars

Explanation

The proviso to section 34(2) states that no reduction in output tax liability of the supplier is permitted if the incidence of tax and interest on such supply has been passed on to any other person. Timely declaration or full particulars do not override this bar. A recipient's reversal is not the stated condition in the proviso.

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