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

Sharma Electricals, Jaipur, issued an invoice in April for goods sold at a taxable value of Rs 2,00,000 plus 18% GST (Rs 36,000). In August, the buyer returned goods whose taxable value was Rs 50,000 (original GST at 18%). Sharma Electricals issues a credit note. Which statement is correct regarding the credit note?

The credit note is issued for taxable value Rs 50,000 and GST Rs 9,000, which reduces the supplier's output tax liability. A registered recipient must correspondingly reduce its input tax credit. Tax is part of the credit note because the original supply was taxed at 18%.

  1. AIt is issued for taxable value Rs 50,000 and tax Rs 9,000, reducing output tax liability of the supplierCorrect
  2. BIt is issued for Rs 50,000 only, with no tax, as returns attract no GST
  3. CIt is issued for taxable value Rs 50,000 and tax Rs 9,000, and the recipient has no reversal of credit
  4. DIt is issued for Rs 59,000 and the supplier must pay Rs 9,000 more as output tax

Explanation

Tax on returned goods = 18% of 50,000 = Rs 9,000. A credit note covers value and tax, reducing the supplier's output liability and requiring the registered recipient to reverse the corresponding ITC. The options saying there is no tax or no reversal are wrong, and the supplier's liability falls rather than rises.

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