It is a common business process to send goods on approval basis. Hence, many times these goods are returned by the receiver of such goods due to various reasons. But sometimes the dealer supplies his goods on the approval basis where the customers are given the option either to keep such goods or return them in a specified time period.
Hence, the taxpayers are interested in knowing about the transition of such transactions from old laws to the Goods and Service Tax laws. The provision of transition as given under Chapter XX of CGST Act, 2017 gives information with reference to the handling of various transactions under Goods and services tax. In this article, we will cover treatment of goods sent on approval basis before the transition to GST.
Transition Provision under GST
With the introduction of GST on 1st July 2017, the businesses are concerned about the taxability of goods that are sent on an approval basis before the advent of GST and returned after 1st July. GST is a noteworthy reform of our country in the domain of indirect taxes. All the multiple taxes charged and levied by the Centre and States have been placed under one tax that is called Goods and Services Tax (GST).
GST acts as multi-purpose value added tax and has consolidated various taxes into one. Hence, it was very important to have a transitional provision to make sure that the process of transition to GST regime is very smooth and seamless with no loss to the benefit of input tax credit earned in the existing regime.
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Categories of Transition to GST Provisions
The categories of transition to GST provisions can be divided into three heads:-
- Input tax credit[1]
- Continuing the existing procedures for a reasonable period without any undesirable outcome under GST law.
- All claims including both the pending as well as future relating to the existing law that is filed before on or subsequent to the appointed day.
Certain Situations during the Transition to GST Phase
There are various situations such as receiving of goods after appointed day, return of sold goods, amends in the price of goods or services can happen during the transition to GST phase. Few of them are as given below:-
Goods Purchased During Existing Tax Regime but Received After Appointed Day
Under section 140(1) of the GST Act only credit of the CENVAT/VAT can be approved for carrying forward to the GST regime which is claimed by a registered dealer in his last return. This signifies that the ITC will only be allowed to be carried forward in case of the goods recorded and purchased in the books of accounts before the filing of last return.
Hence, the goods purchased for the period of the existing tax regime but were received after the appointed date shall not be recorded in the books of accounts and will not form the part of the last return and therefore the ITC on it will not be carried forward in the last return.
Section 140(5) of the Act comes into picture to solve this which provides that a registered person shall be permitted to take the benefit of taxes and eligible duties in reference of the input received even subsequent to the appointed day but where the taxes and duties on it have been already paid under the existing law depending on the condition that the said goods shall be recorded in the account books within a period of 30days from the appointed day.
Although, the period of 30 days can be extended by the commissioner to further 30 days on a sufficient cause under transition to GST.
Goods Returned After Appointed Day
Under the present tax system if the goods are returned to the seller then the taxes paid on the said goods are reversed and the value of returned goods is deducted from the turnover amount.
Moreover, throughout the transition to GST phase, the return of goods shall be dependent on the type of goods that are returned either by a registered or unregistered person and also the goods are tax exempt or paid.
Return of Goods Sent of Approval Basis
This section 142(12) of the GST Act specify the preconditions to be fulfilled in order to be eligible to be considered under transition to GST laws: Under this section the provision is for goods that were sent on approval basis but not earlier than 6 months previous to the appointed day and are returned on the ground of being rejected and not accepted by the buyer, therein no tax shall be paid if those goods are returned during the period of 6 months counting from the appointed day. Moreover, the period of 6 months can be further extended to two months on giving sufficient cause to the commissioner.
- If the goods are returned within specific period of 6 months, then it is not required to pay tax on such returned goods.
- If the goods are not returned within the specific period of 6 months, then both the seller and buyer who are returning such goods shall be liable to pay the required tax on such returned goods.
Invoice on Goods being sent on Approval for Sale
The invoice under transition to GST must be issued with respect to goods that are sent on approval either:-
- Earlier than or during the time of supply or
- Within 6 months from the date when the goods where removed from factory (before supply), whichever is earlier.
Conclusion
It is very important to understand the transition provisions as they are highly significant and shall help in the easy and seamless transition to the new GST Regime. After the new GST implementation, the businesses are concerned on the subject of taxability of goods that are sent on approval basis before the transition to GST and the returned goods after its implementation. Therefore, it is clear that goods sent on the basis of approval shall be returned within 6 months from GST Implementation. Corpbiz has a team of expert to solve your query regarding GST or related laws.
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