Issue : Goods sold in existing laws and return by the purchaser before GST Laws but goods received on or after implementation of GST Laws i.e. 01 July 2017 (goods return were in transit)

Θ Under Section 140(5) –  Credit of eligible duties and taxes in respect of inputs or input services during transit

“A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:”

  • Explanatory Note on the above provision:

In any given business scenario, it is possible that invoices are raised in the current tax regime and applicable taxes are also remitted under the existing laws. However, inputs or input services in respect of such transactions are received in a GST regime. This provision allows the difficulty in clearing credits in such instances. In order to avail such credits in the Electronic Credit Ledger the following conditions need to be satisfied:

⊗ Invoices / duty paid documents must be recorded in the books within 30 days for the appointed date which may be extended by the Commissioner for another 30 days on showing sufficient cause.

⊗ The recipient of inputs or input services must furnish a statement as follows:

In terms of Rule 2(c) of Transition provisions the said taxable person shall furnish the following details:

– A statement indicating the name & address of the supplier together with invoice details.

– Description, quantity and value of goods or services.

– The amount of taxes, duties, VAT, Entry tax charged by the supplier.

– The date at which receipt of goods or services are entered in the books of the recipient.

As I understand, the above provision is applicable in case of original sales i.e sale of goods not in case where goods are returned by the purchaser to supplier.

Θ Under Section 142(1) – Duty paid Goods returned to the place of business on or after the appointed day:

“Where any goods on which duty, if any, had been paid under the existing law at the time of removal thereof, not being earlier than six months prior to the appointed day, are returned to any place of business on or after the appointed day, the registered person shall be eligible for refund of the duty paid under the existing law where such goods are returned by a person, other than a registered person, to the said place of business within a period of six months from the appointed day and such goods are identifiable to the satisfaction of the proper officer:

Provided that if the said goods are returned by a registered person, the return of such goods shall be deemed to be a supply.”

⊕ Explanatory Note on the above provision:

Refund in respect of sales returns, viz., where the sale was under the existing law and the return is under the GST law. The Section provides that the person receiving the said goods back under the GST regime would be eligible to refund of the duty paid under the existing law at the time of removal of goods, if the person returning the goods is not a registered person, return of goods by a person registered would tantamount to be a deemed supply.

The above provision would be applicable in the following circumstances:

  • Duty was paid at the time of removal: Central Excise duty should have been paid when the goods were removed / sold under the existing law.
  • Sales return should be to any place of business: While the law provides that the return can be to any place of business (in the same state by a person other than a registered person) and not necessarily to the same place of business from where it was removed, it is essential that the return should be to the same taxable person.
  • Return of goods by a registered person will be held to be a deemed supply of good.
  • Time period: The Section provides for time lines for both, the removal and the return.

Removal: It should have taken place not earlier than 6 months from the date of introduction of GST.

Return: It should be returned within 6 months from the date of introduction of GST.

If the goods are not returned within the time line, the supplier shall not be eligible for the said refund.

As I understand, the above provision is applicable in case where sales of goods under existing laws prior to 6 months from the appointed date but received on or after appointed date but within 6 month from the appointed date in case of goods return from un-registered and no time limit for goods return from registered person as return of goods consider as deemed supply. This is not applicable if return of goods is in transit on the appointed date.

Observation: The provision under Section 140(5) is related to sale of goods in transit on the appointed date of GST and 142(1) is related to return of goods by the purchaser on or after appointed date which were purchased by the purchaser before the GST Laws i.e up to 30 June 2017. However, there is no provision related to return of goods before appointed date and received on or after appointed date.

Suggestion: In the light of the above discussion, GST Laws are silent in relation to this particular transaction. It is cause of hardship to the manufacturers that they are unable to take the credit and treatment of the transactions due to absence of the particular provision under the GST Laws. The relaxation should be provided by the GST Council on this issue.

The GST Council should understand this practical problem and provide any clarification or make the suitable amendment in the GST Acts like they have provided the relaxation in case of goods purchased in existing laws but received on or after appointed date under section 140(5) and goods returned on or after appointed date which were purchased under existing laws under section 142(1).

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