If the selling price is lesser that cost price due to Credit notes. Credit notes are issued without GST component by the seller

[chetan jhaver]

under below scenario . what is the right way of being tax compliant. PURCHASE PRICE AS PER INVOICE
basic	1260
input gst ( cgst + sgst )	352.8	(a)
TOTAL PRICE WITH GST	1613	(b)
CREDIT NOTES PERTAINING TO PURCHASE
cd @ 3%	48.39
quarterly discount @ rs. 20 per fan	20
quarterly growth discount ( variable )	18.9
annual growth discount ( variable )	18.9
free fan scheme . on 48 fans 1 fan free	33
total discounts on product	139.19	(c)
Actual purchase cost including GST	1473.81	cp = (b-c)
SELLING PRICE INCLUDING GST	1565	(d)
selling price basic	1222.65625
output gst ( cgst + sgst )	342.34375	(e)
NETT CONTRIBUTION TO GST PER PRODUCT SALE
output gst - input gst	-10.45625	(e-a)
ACTUAL GROSS MARGIN	6.18%	(d-cp)/cp*100
Points to be noted in the above scenario : - The nett contribution to output get payable per sale of the product is negative, yet the gross margin per product as per balance sheet is 6.18% as all cn is accounted for - Input gst carry forward continues to increase for every product sale which may be offset against other product sale. - Input gst is not reversed as credit notes are issued without gst and cost of availing input credit has been paid to the Seller and is in-turn received by the government.

[DR.MARIAPPAN GOVINDARAJAN]

What is your query?

AI Summary

Input tax credit treatment when credit notes lack GST can produce negative net GST per sale but permit carryforward. When credit notes issued without GST reduce selling price below cost, the sale may show a negative net GST contribution while accounting gross margin remains positive. Because credit notes lack a GST component, previously availed input tax credit is not automatically reversed, leading to an increasing input tax credit balance that can be carried forward and offset against other output tax liabilities, subject to standard set-off and reversal rules.