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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Procedural Compliance under GST

Kapoor Industries issued a credit note for Rs 50,000 of tax on a supply, but the incidence of that tax and interest had already been passed on by the recipient to its own customers. What is the effect under the proviso to Section 34(2)?

No reduction in the supplier's output tax liability is permitted. The proviso to Section 34(2) bars the reduction where the incidence of tax and interest on the supply has been passed on to any other person, regardless of timely declaration.

  1. AThe supplier's output tax liability is reduced by Rs 50,000 since the credit note is validly issued
  2. BThe supplier's output tax liability is reduced only by half the tax
  3. CNo reduction in the supplier's output tax liability is permittedCorrect
  4. DThe reduction is allowed only if the credit note is declared before 30 November

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 has been passed on to any other person. Timely declaration does not cure this, and there is no half-reduction rule.

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