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

Meenakshi Industries, Coimbatore, supplied goods worth Rs 2,00,000 (GST 18%, Rs 36,000) to Lakshmi Retail (registered) under invoice dated 15 November 2025. In May 2026, Meenakshi issued a credit note of Rs 20,000 (taxable value) plus Rs 3,600 GST for sales return. Which statement is correct about the supplier's right to reduce output tax liability based on this credit note?

The supplier can reduce output tax only if the credit note is declared in a return not later than 30 November following the financial year of the original supply, or the annual return date if earlier, and only if the recipient's input tax credit is correspondingly reversed.

  1. AThe supplier may reduce output tax only if the recipient has reversed the corresponding ITC, and the credit note is declared by the earlier of 30 November following the financial year end or the date of furnishing the annual returnCorrect
  2. BThe supplier may reduce output tax without any conditions, in the month the credit note is issued
  3. CThe supplier may reduce output tax only if the credit note is issued within 6 months of the original invoice
  4. DThe supplier cannot reduce output tax, and the recipient alone adjusts

Explanation

Under the CGST Act, a registered person who issues a credit note may reduce his output tax liability only if the incidence of tax has not been passed on to another person, which is evidenced through the recipient's reversal of ITC, and only if the credit note is declared in the return for a month not later than 30 November following the end of the financial year in which the supply was made, or the date of furnishing the relevant annual return, whichever is earlier. Hence the other options misstate the conditions.

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