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

Verma Pharma, a registered supplier, issued an invoice dated 12 April 2025 for Rs 5,00,000 plus 12% GST to a registered buyer. In November 2025 a credit note of Rs 50,000 taxable value plus GST was issued for goods returned. The buyer had availed full ITC on the invoice but has already used it. Which statement is correct?

GST on the credit note is Rs 6,000 (12% of Rs 50,000). The supplier can reduce its output tax only if the registered recipient reverses the corresponding ITC of Rs 6,000, regardless of whether the credit has already been used.

  1. AThe supplier may reduce output tax liability by Rs 6,000 only if the buyer's corresponding ITC is reduced, and the buyer must reverse Rs 6,000 ITCCorrect
  2. BThe supplier may reduce liability by Rs 6,000 only if the buyer has not used the ITC
  3. CThe supplier reduces liability by Rs 60,000 since GST is on the whole invoice
  4. DThe buyer need not reverse ITC since credit note reversal applies only for unregistered buyers

Explanation

GST on credit note = 12% of Rs 50,000 = Rs 6,000. The supplier can reduce output liability only if the recipient has reversed the corresponding ITC, so the buyer must reverse Rs 6,000 irrespective of whether it has been used. Reducing by Rs 60,000 wrongly applies the rate to the full invoice.

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