GST & Sale on Approval Basis:

A.  Goods Sent on Approval Basis before Transition to GST

Case I. Goods sent on or after 1^st January, 2017 and returned before 31^st December, 2017.

Where any goods sent on approval basis, not earlier than six months before the 1^st July, 2017 (i.e. on or after 1 January, 2017) are rejected or not approved by the buyer and returned to the seller on or after the appointed day i.e. 1^st July, no tax shall be payable thereon if such goods are returned within six months from 1^st July, 2017.

PROVIDED that the aforesaid period of six months may, on sufficient cause being shown, be extended by the competent authority for a further period not exceeding two months.

Illustration 1:  Mr. Ram sends goods to Mr. Shyam on approval basis on 20th June 2017. Mr. Shyam returns the goods on 20^th August 2017. GST will not be payable as the return is within 6 months from GST implementation.

Case II. Goods sent on or after 1^st January, 2017 and returned after 31^st December, 2017.

If goods returned after 6 months from 1^st July, 2017 then 2 different supply will be treated.

First, Goods originally sent by a person to receiver.

Second, Goods returned by the person who receives the goods to the person who sent earlier.

And both the supplies will attract Tax liability.

Tax shall be payable by the person who returning the goods:

The tax shall be payable (under GST) by the person returning the goods if such goods are liable to tax under this Act, and are returned after a period of six months or the extended period, as the case may be, from the appointed day*.

Tax shall be payable by the person who originally sent the goods:

PROVIDED ALSO that tax shall be payable by the person who has sent the goods on approval basis if such goods are liable to tax under this Act, and are not returned within a period of six months or the extended period , as the case may be, from the appointed day*. 

*Appointed day means the day of implementation of GST i.e. 1^St July, 2017.

Illustration 2: Mr. Shiv sends goods to Mr. Das on approval basis on 20th June 2017. Mr. Das returns the goods on 1^st January 2018. GST will be payable as the return is after 6 months from GST implementation. Both Mr. Shiv and Mr. Das are liable to pay GST.

B.  Goods Sent on Approval Basis After Transition to GST

Where the goods are being sent or taken on approval for sale or return, the supply shall be deemed;

Either at the time of supply or

6 months from the date of removal,

Whichever is Earlier.

Delivery Challan Required: Such goods can be sent under delivery Challan.

If not returned within 6 months:

If sale not effected or goods not returned back within 6 months from date of removal, it shall be deemed as supply made after expiry of said 6 months and supplier will have to issue Tax Invoice accordingly.

Illustration 3: Mr. Hari sends goods to Mr. Dev on approval basis on 20th July 2017 on the issue of Challan. Mr. Dev did not return the goods till 20^th January, 2017. GST will be payable as the return is after 6 months from GST implementation. Mr. Hari will have to issue Tax Invoice on 20^th January and tax & interest liability will arise accordingly.

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