Decided 30 September 2026. The Bengaluru Bench of GSTAT has held that a buyer need not reverse input tax credit where the supplier waived part of the price through a financial or commercial credit note, applying CBIC Circulars 92/11/2019 and 251/08/2025. The ITC demand of Rs 2,33,718 was set aside, but the buyer must pay interest for the period the price stayed unpaid beyond 180 days, and the section 74 penalty was deleted.
Case at a glance
| Case | Maltown Electricals Pvt. Ltd. v. Commissioner of Central Tax, Mysuru |
| Forum | GSTAT, Bengaluru Bench, Division Bench Court III |
| Appeal No. | APL/84/BUR/2026 |
| Date of order | 30 September 2026 |
| ITC demanded | IGST Rs 2,33,718 |
| Result | ITC demand and penalty set aside; interest on Rs 2,33,106 payable |
Facts of the case
The appellant bought three spot welding machines in March 2018 for Rs 1,19,18,000 plus IGST of Rs 21,45,240 and took full ITC. Due to quality problems, it paid only Rs 1,25,35,100 and the balance of Rs 15,28,140 remained unpaid.
It wrote back the balance as 'liability no longer payable' in FY 2019-20 and later received a commercial credit note without GST dated 09.11.2021. After audit, a section 74 notice demanded proportionate ITC under the second proviso to section 16(2).
Issue before the Tribunal
Must a buyer reverse ITC when the supplier waives part of the price through a financial credit note, and was section 74 rightly invoked?
What the Tribunal held
- The ledger showed the balance unpaid beyond 180 days, and no discount agreement within 180 days was produced, so the second proviso to section 16(2) was contravened for that period.
- Circular 92/11/2019 and Circular 251/08/2025 (12.09.2025) clarify that a financial credit note does not reduce the original value or tax, so the recipient need not reverse ITC. A beneficial clarificatory circular applies retrospectively (Suchitra Components).
- On the waiver, the buyer became entitled to hold the credit under the third proviso to section 16(2); Rule 37(4) removes the section 16(4) time limit for re-availment. The ITC demand was set aside.
- The waiver does not wipe out interest for the interim period. Interest under section 50 is payable on Rs 2,33,106 from availment till receipt and accounting of the credit note.
- Detection in audit is not suppression; the facts were in the audited accounts. Section 74 failed, the notice was treated as under section 73, and the penalty was set aside.
Practical takeaways for taxpayers
- Buyers receiving post-sale discounts through financial credit notes can rely on Circular 251/08/2025 to resist ITC reversal demands.
- Document discount agreements promptly; until then, the 180-day rule can attract interest.
- Challenge section 74 where the facts were recorded in the books and the issue is interpretational.
Frequently asked questions
Do I need to reverse ITC if my supplier gives a discount through a financial credit note?
Per Circular 251/08/2025 and this GSTAT ruling, no reversal is required, though interest may apply for the period of non-payment beyond 180 days.
Was penalty under section 74 sustained?
No. The Tribunal held there was no suppression since the facts were in the audited accounts.
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This summary is based on the order of the GST Appellate Tribunal, Bengaluru Bench (Court III) in Appeal No. APL/84/BUR/2026. It is general information, not legal advice; the outcome of any case depends on its own facts and the full text of the order.