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

Kapoor Industries, a registered manufacturer, sold goods to Rao Enterprises (registered) at a taxable value of Rs 2,00,000 plus 18% GST in March 2026. In August 2026, Kapoor allowed a post-sale discount of Rs 20,000 (before tax) under a pre-agreed scheme that was specified in the agreement before the supply and linked to specific invoices, and Rao reverses the proportionate ITC. What is the amount of GST that Kapoor can reduce from its output liability through a credit note, and what is the condition?

Kapoor can reduce Rs 3,600, which is 18% of the Rs 20,000 discount, provided the discount was agreed before supply, is linked to specific invoices, the recipient reverses the ITC, and the credit note is issued by 30 November following the financial year end.

  1. ARs 3,600, provided the credit note is issued by 30 November following the end of the financial year, and the recipient reduces ITCCorrect
  2. BRs 3,600, with no time limit on the credit note
  3. CRs 0, since post-sale discount is never allowed to reduce taxable value
  4. DRs 36,000, being 18% of the full invoice value of the discount adjusted for tax

Explanation

Tax on the discount is 18% of Rs 20,000 = Rs 3,600. A post-supply discount is excluded from value if established in the agreement before or at supply, linked to specific invoices, and the recipient reverses the ITC. The credit note must be declared by 30 November following the financial year end, here 30 November 2026, so August 2026 is within time. Rs 36,000 wrongly applies 18% to the wrong base.

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