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

Mehta Agro Traders, a registered supplier, sold goods to Rahul Stores and charged GST of Rs 18,000 on an invoice. Rahul Stores recovered the full amount of tax from its own customers. Later Mehta found the invoice had excess tax and issued a credit note for Rs 6,000 of tax. Under section 34, what is the position on reduction of Mehta's output tax liability?

No reduction in Mehta'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, and here Rahul Stores recovered the tax from its customers.

  1. AMehta can reduce output tax by Rs 6,000 only if the credit note is declared in the return for the month of issue
  2. BMehta can reduce output tax by Rs 6,000 irrespective of who bore the tax
  3. CMehta can reduce output tax by Rs 18,000 because the invoice was wrongly issued
  4. DNo reduction is permitted if the incidence of tax and interest on the supply has been passed on to any other personCorrect

Explanation

The proviso to section 34(2) says no reduction in the supplier's output tax liability is permitted if the incidence of tax and interest on the supply has been passed on to any other person. The facts say Rahul Stores recovered the tax from its customers, so the incidence was passed on. Option A states the general condition but ignores the proviso, which overrides it here.

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