GST – Goods Sent on Approval Basis and Treatment of Returned goods

In a normal business cycle, many times goods are returned by the recipient of such goods based on various reasons. And sometimes dealer supplies his goods on approval basis and the customers are provided with an option either to retain such goods or return them within a specified time period. Taxpayers are curious about the transition of transactions of such nature from old laws to Goods and Service Tax laws. Transition provisions provided under Chapter XX of CGST Act, 2017 provides information and provisions relating to the treatment of various transactions under GST.

In this article, we will cover two of such topics, first treatment of tax on goods returned after the implementation of GST and second is a treatment of goods sent on approval basis before the implementation of GST.

Treatment of Tax on Goods Returned after GST

Provisions relating to the transition of tax on goods returned after GST are specified in Sub-section (1) of Section 142 of the Act. As per these provisions treatment of tax/duty paid on goods returned after the implementation of GST depends on the following conditions;

  • Goods were removed or sold not being earlier than 6 months directly preceding the appointed date i.e. 1st July 2017.
  • These goods are returned within 6 months from the appointed date.
  • These returned goods are in identifiable to the satisfaction of the proper officer.

If all the above-stated conditions are satisfied, then the treatment of such duty or taxes paid can be segregated into two categories, they are:

  • If goods are returned by a person registered under GST, then it will be considered as deemed supply. And the supplier can’t get a refund of the duty paid by him on such goods. Here the buyer can claim ITC as per the existing laws and can even carry it forward.
  • If goods are returned by any person not registered under GST, then the seller will be eligible to claim a refund of the tax paid on such returned goods.

Goods Sent on Approval Basis

Next, we will discuss the provisions relating to goods sent on approval basis before the implementation of GST. These provisions are stated under Sub-section (12) of Section 142. This section specifies following preconditions to be satisfied in order to be eligible to be considered under transition under GST laws:

  • Goods were sent on approval basis not being earlier than 6 months directly preceding the appointed date i.e. 1st July 2017.
  • These goods are returned on or within 6 months from the appointed date i.e. 1st July 2017. This period of 6 months can be extended for a period of 2 months by the commissioner.

If all the above-stated conditions are satisfied, then the treatment of such duty or taxes on such goods sent on approval basis can be segregated into two categories, they are:

  • If goods returned within specified period of 6 months

The no tax is required to be paid on such returned goods.

  • If goods not returned within specified period of 6 months

Then the seller and buyer returning such goods both will be liable to pay tax on such returned goods.