Credit Notes - Reversal of ITC by receipient - Effective date

[Shri Sasikumar]

Dear Experts,

We understand that the reversal of ITC by recipient for the allowability of credit note is mandated effective from 01/10/2025 due to the amenement to Sec. 34(2).

However, tax officials are still insisting on confirmation of reversal of ITC by the receipients for the previous notice periods upto FY 2024-2025.

Please advise.

Thanks in advance.

[Sanjeev Agarwal]

ITC reversal on GST credit notes

The amendment to Section 34(2) of the CGST Act, effective from 1 October 2025, expressly provides for reversal of ITC attributable to a credit note, if availed by a registered recipient, as a condition for the supplier to reduce output tax liability.

For notice periods up to FY 2024-25, the department cannot automatically apply this amended provision retrospectively. The legal position must be examined under the provisions applicable to the relevant transactions.

Key legal distinction

1. Credit notes for sales returns, deficiencies or invoice value corrections: The pre-amendment Section 34(2) did not expressly prescribe recipient ITC reversal as a universal condition for every credit note. The supplier's eligibility for tax reduction must be examined on the facts and applicable law.
2. Post-supply discounts: Section 15(3)(b)(ii) already required reversal of attributable ITC by the recipient for qualifying discounts. The amendment does not eliminate this pre-existing obligation.
3. Commercial credit notes without GST reduction: The recipient's ITC position must be examined independently.

Impact of Circular No. 212/6/2024-GST

Circular No. 212/6/2024-GST dated 26 June 2024 prescribed a mechanism for obtaining evidence of recipient ITC reversal.

It was withdrawn by Circular No. 253/10/2025-GST dated 1 October 2025. Consequently, the prescribed documentary procedure is no longer required. However, withdrawal of the circular does not extinguish any substantive ITC reversal obligation under Section 15(3)(b)(ii).

Recommended approach

For earlier notice periods:

• Seek the specific statutory provision supporting the department's demand.
• Submit a credit-note-wise reconciliation identifying the nature of credit notes, tax adjustments and recipient ITC treatment.
• Distinguish substantive reversal obligations from the demand for a particular confirmation or certificate.
• Obtain recipient confirmations wherever available, without making blanket admissions.

Conclusion: A blanket insistence on recipient ITC reversal confirmations for all credit notes up to FY 2024-25 is legally challengeable. However, the defence must distinguish qualifying post-supply discounts from other credit notes and establish the supplier's eligibility for output tax reduction under the applicable law.

[Sadanand Bulbule]

The department's demand for recipient ITC reversal for periods up to FY 2024-2025 is legally unsustainable because the amendment to Section 34(2) operates prospectively, except where the credit notes specifically relate to post-supply discounts governed by Section 15(3)(b)(ii).

[Shilpi Jain]

Pls see what is the reason for issue of the debit note. If it is related to discount given then s 15(3) did have the requirement of the recipient to reverse the credit earlier as well.

AI Summary

Recipient ITC reversal for GST credit notes applies prospectively, while qualifying post-supply discounts retain pre-existing reversal requirements.
Recipient ITC reversal attributable to a GST credit note is expressly required from 1 October 2025 where the supplier seeks output tax liability reduction. For earlier periods, this condition does not automatically operate retrospectively. Qualifying post-supply discounts remain subject to reversal of attributable ITC, while sales returns, deficiencies, invoice-value corrections, and commercial credit notes require transaction-specific examination. Withdrawal of the reversal-evidence procedure does not remove substantive reversal obligations. Earlier-period assessments should be supported by credit-note-wise reconciliation of tax adjustments and recipient ITC treatment.