Reversal of Input Tax Credit under Section 10 of the DVAT Act, 2004 in respect of Credit Note/Debit Note related to discounts.

Reversal of Input Tax Credit required where credit or debit notes adjust trade discounts, returns, or invoice variations.

Purchasing dealers must reverse Input Tax Credit in the tax period when credit/debit notes are issued for trade discounts, returns/rejections, or rate/quantity variations arising from sales within the territory. Credit notes relating to cash discounts, reimbursements, rent/lease or other non supply considerations are not eligible for seller output tax adjustment and need not be reported in the return annexures; buyers therefore need not reverse ITC for those items. Sellers may adjust output tax for eligible post sale trade discounts under the output adjustment mechanism, but buyer reversal is independent and may be examined on scrutiny.