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

Verma Industries, Indore, a registered supplier, supplied goods to Alpha Ltd. (registered) in July for a taxable value of Rs 2,00,000 plus 18% GST, invoice dated 15 July. In September it found that the taxable value should have been Rs 2,20,000 and the same rate applies. It issued a document on 20 September for the difference. Which is the correct document and its effect?

A debit note is correct because the original invoice understated the taxable value. It will carry Rs 20,000 taxable value and GST of Rs 3,600 at 18 percent. The supplier increases its output tax liability in the return for September, the month of issuing the debit note.

  1. ADebit note for Rs 20,000 taxable value plus Rs 3,600 GST, increasing output tax liability, reported in the return for the month of issue (September)Correct
  2. BCredit note for Rs 20,000 plus Rs 3,600 GST, reducing output tax liability in July
  3. CDebit note for Rs 20,000 taxable value, with no GST, since it relates to an earlier invoice
  4. DFresh tax invoice for Rs 2,20,000 plus Rs 39,600 GST, cancelling the old invoice for July

Explanation

Where the taxable value or tax charged in an invoice is less than what is payable, the supplier issues a debit note. GST on the difference is 18% x 20,000 = Rs 3,600. The liability is declared in the return for the month in which the debit note is issued (September), not July. A credit note applies when value is lower.

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