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

Kiran Pharma, a registered supplier, issued a credit note reducing the taxable value of a supply by Rs 1,00,000 plus GST of Rs 18,000 charged earlier. The buyer, a distributor, had already recovered the full tax and interest on this supply from its own customers in the price and had not reversed anything. Under the proviso to section 34(2), what is the position regarding Kiran's output tax liability?

No reduction in Kiran's output tax liability is permitted. The proviso to section 34(2) denies the adjustment where the incidence of tax and interest on the supply has been passed on to any other person, even though a credit note was issued.

  1. ANo reduction in output tax liability is permitted if the incidence of tax and interest on the supply has been passed on to any other personCorrect
  2. BLiability is reduced by Rs 18,000 since a credit note has been issued
  3. CLiability is reduced by half of the tax
  4. DLiability is reduced only if the buyer issues a debit note back

Explanation

The proviso to section 34(2) bars reduction of output tax liability where the incidence of tax and interest has been passed on to any other person. Mere issuance of a credit note does not suffice, which makes option B wrong.

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