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

Vihaan Pharma, Hyderabad (registered), sold goods to Rohit Enterprises (registered) in Telangana on 12 May 2025 with taxable value Rs 1,00,000 and CGST plus SGST of 9% each. On 18 December 2026, after the financial year-end, goods worth Rs 20,000 (taxable value) were returned by the buyer. The goods were invoiced in FY 2025-26. Which of the following is the correct position on the credit note and its time limit?

A credit note can be issued with tax of Rs 3,600, split equally into CGST and SGST. However, the supplier can reduce its tax liability only if the credit note is declared by 30 November following the financial year-end or the annual return date, whichever is earlier.

  1. ACredit note can be issued with tax Rs 3,600 (CGST Rs 1,800 plus SGST Rs 1,800) and the tax reduction is available only if the credit note is declared by 30 November following the end of FY 2025-26, or the date of annual return filing, whichever is earlierCorrect
  2. BCredit note can be issued with tax Rs 3,600 and the reduction can be claimed at any time with no time limit
  3. CCredit note can be issued with tax Rs 1,800 only, being CGST, since the SGST part is not reduced
  4. DCredit note cannot be issued as goods returned after year-end require a fresh invoice

Explanation

Tax on Rs 20,000 at 18% is Rs 3,600, split Rs 1,800 CGST and Rs 1,800 SGST. A credit note can be issued, but the supplier's reduction of tax liability is allowed only if declared by 30 November following the financial year-end, or annual return date if earlier. Here FY 2025-26 ended 31 March 2026, so 30 November 2026 had passed by 18 December 2026, so the reduction in output tax would not be available in practice, although the option states the rule used.

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