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

Kaveri Engineering Pvt Ltd (Pune) issued a tax invoice on 10 June 2025 for taxable goods of ₹2,00,000 plus GST ₹36,000 to Mehta Traders. In September 2025 it discovered that the price was wrongly charged and gave a price reduction of ₹20,000 on the taxable value, with GST at 18%. Which document should Kaveri issue, and what is the tax amount shown in it?

Kaveri should issue a credit note showing GST of ₹3,600. A credit note is issued when the taxable value of an earlier invoice is reduced, and the tax in it is 18% of the ₹20,000 reduction.

  1. ACredit note; tax ₹3,600Correct
  2. BDebit note; tax ₹3,600
  3. CCredit note; tax ₹36,000
  4. DCredit note; tax ₹23,600

Explanation

A reduction in taxable value of an earlier invoice calls for a credit note issued by the supplier. Tax is 18% of ₹20,000 = ₹3,600. The debit note option is wrong because debit notes cover an increase in value or tax. ₹36,000 is the tax on the original invoice, not on the reduction.

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