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

Mehta Traders, a registered supplier in Surat, sold goods to Kiran Stores on 10 June 2026 with taxable value Rs 2,00,000 and GST at 18% (Rs 36,000). On 20 August 2026, Mehta agreed to a price reduction of Rs 20,000 (excluding tax) under a post-sale arrangement not stipulated in any agreement before the supply, and issued a credit note on that date, but Kiran Stores did not agree to reverse the ITC. Which statement is correct as to Mehta's right to reduce output tax liability on this credit note?

Mehta can reduce output tax of Rs 3,600 only if Kiran Stores reverses the matching input tax credit. The supplier's adjustment for a credit note is allowed only when the recipient has reduced the corresponding ITC, so issue of the credit note alone does not reduce liability.

  1. AMehta can reduce its output tax by Rs 3,600 because a credit note was issued
  2. BMehta can reduce output tax only if Kiran Stores reverses the proportionate ITC of Rs 3,600Correct
  3. CMehta can reduce output tax by Rs 3,600 only if the credit note is issued within 30 days of the sale
  4. DMehta cannot reduce output tax at all, since a post-sale discount is never allowed

Explanation

Tax on Rs 20,000 at 18% is Rs 3,600. A supplier may adjust tax liability for a credit note only if the recipient has reduced the corresponding ITC. Since Kiran did not reverse ITC, Mehta's liability stays unreduced. A 30 day limit does not exist, and discounts are not disallowed generally.

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