Sending goods on approval basis is a common business process. Businesses send goods on approval basis to the customers with the option that the owner to return or retain the goods within a specified time.
With the advent of GST on 1st July 2017, businesses are worried about the taxability of goods sent on approval basis before GST and returned after 1st July.
When any goods sent on an approval basis, maximum six months before the appointed day, are rejected and returned to the seller on or after 1st July then no tax will be payable. Goods should be returned within six months from the appointed day
The period of 6 months might be extended for a maximum of 2 months if there is sufficient cause. Mr. S sends goods to Mr. B on approval basis on 20th June 2017. Mr. B. returns the goods on 20th August 2017. GST will not be payable as the return is within 6 months from GST implementation.
GST will be payable by the person returning the goods (i.e. the buyer) after 6 months if those goods are liable to tax under GST Act The seller must also pay GST on the goods returned after 6 months. Mr. S sends goods to Mr. B on approval basis on 20th June 2017. Mr. B. returns the goods on 1st January 2018. GST will be payable as the return is after 6 months from GST implementation. Both Mr.S and Mr. B are liable to pay GST.
The invoice in respect of goods sent on approval has to be issued:
—-whichever is earlier.
Every person who has sent goods on approval basis under existing law will submit the details of such goods in FORM GST TRAN-1 within ninety days of the appointed day.
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