GST Implications for Goods Dispatched on Approval Before GST Implementation
This article clarifies the GST regulations for goods sent out on approval before the GST regime commenced on July 1, 2017. It details the tax liabilities when such goods are returned, distinguishing between returns made within six months and those occurring afterward. Additionally, the article outlines the requirements for invoice issuance and the specific GST form, TRAN-1, that must be submitted for these transactions.
Businesses commonly send goods to customers on an approval basis, allowing them the option to either keep or return the items within a set timeframe. With the introduction of the Goods and Services Tax (GST) on July 1, 2017, concerns arose regarding the tax treatment of goods sent out on approval prior to GST implementation but returned afterward. Goods sent on approval are typically supplied with the understanding that the sale is confirmed only upon the customer's acceptance.
Goods Sent on Approval Returned Within Six Months of GST Implementation
If goods were dispatched on an approval basis up to six months before July 1, 2017 (the appointed day for GST), and are subsequently rejected and returned to the seller on or after this date, no GST will be applicable. This exemption holds true if the goods are returned within six months from the date of GST implementation. In exceptional cases, this six-month period may be extended by a maximum of two additional months if a valid reason is provided. For instance, if Mr. S sent goods to Mr. B for approval on June 20, 2017, and Mr. B returned them on August 20, 2017, GST would not be charged because the return occurred within six months of GST's launch.
Returns Occurring After Six Months
Should goods be returned more than six months after the GST implementation date, the person returning the goods (the buyer) will be responsible for paying GST if the items are subject to tax under the GST Act. Concurrently, the seller must also remit GST on these goods. For example, if Mr. S sent goods to Mr. B on approval on June 20, 2017, and Mr. B returned them on January 1, 2018, both Mr. S and Mr. B would be liable for GST, as the return took place beyond the six-month grace period.
Invoice Issuance for Goods Sent on Approval for Sale
An invoice for goods supplied on an approval basis must be issued at the earliest of the following two events:
- Before or at the point when the supply is made, OR
- Within six months from the date the goods were removed from the factory or warehouse (before the actual supply).
Required GST Form for Goods on Approval
Any individual who dispatched goods on an approval basis under the previous tax regime must submit the specifics of these goods using FORM GST TRAN-1. This form needs to be filed within ninety days of the GST appointed day.