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CA Final · Indirect Tax Laws · Input Tax Credit

Narmada Pharma's ISD in Ahmedabad distributed credit in an earlier month to three recipients X, Y and Z in the ratio 5:3:2 on an invoice carrying Rs 50,000 of integrated tax. In a later month the supplier issues a credit note reducing the tax by Rs 10,000, and this is included in the ISD's GSTR-6 for that month. How is the reduction handled?

The Rs 10,000 reduction is apportioned to X, Y and Z as Rs 5,000, Rs 3,000 and Rs 2,000, matching the ratio in which the original invoice credit was distributed. It is adjusted in the month the credit note is included in GSTR-6, or added to output liability if the amount is negative.

  1. AEntire Rs 10,000 is reduced from X only
  2. BRs 5,000, Rs 3,000 and Rs 2,000 are apportioned to X, Y and Z, respectively, in the original ratioCorrect
  3. CRs 10,000 is redistributed on the basis of current turnover
  4. DThe ISD reverses the Rs 10,000 from its own credit ledger and no recipient is affected

Explanation

Credit reduced because of a supplier's credit note is apportioned to each recipient in the same ratio in which the credit in the original invoice was distributed. The ratio 5:3:2 on Rs 10,000 gives 5,000, 3,000 and 2,000. The amount is reduced from what is to be distributed in the month the credit note appears in GSTR-6, or added to the recipient's output tax liability if the result is negative.

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