1. The Purchase & sales returns are common in day-to-day business transactions. This concept is treated in a slightly different manner under GST Act 2017.
2. Purchase Return: The purchase return is the return of the goods by the customer to the seller. From the GST perspective, it is a return by the recipient to the supplier of the goods.
2.1 The reasons for purchase return by the recipients may be receipt of defective goods, short receipt, received in damaged condition, absence of proper documentation, etc. To deal with the said situation the supplier is allowed to issue a document called ‘Credit Note’ to the recipient
3. Credit Note: Credit Note” means a document issued by a registered person under sub-section (1) of section 34.
4. Statutory Provision: Section 34(1) of CGST Act provides that – Where one or more tax invoices have been issued for supply of any goods or/and services and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.
4.1 Thus, it is clear that even if, the goods are returned by the recipient, the Credit Note will be issued by the supplier only. GST will only recognize the credit notes issued by Supplier of Goods or/and Services. The supplier will disclose the Credit Notes issued by him/her in the returns filed periodically. The accounting of goods returned by the recipient of supply has no relevance in GST parlance or GST compliance requirements.
5. Illustration: Mr. Kundra has received goods comprising 100 nos. amounting to Rs 59000/- (50000+GST @18% Rs. 9000). He has entered the transactions in his book of account and availed ITC of Rs 9000/-. Later on, he identified a defect in 10 nos. of goods and wishes to return the same to the supplier.
5.1 According to sec 34(1) of the CGST Act, where the goods supplied are returned by the recipient, the registered person who has supplied such goods may issue a credit note for supplies made in a financial year. Thus, the supplier is required to issue a credit note for Rs 5900/-(Rs 5000+GST@Rs.900).
5.2 The supplier is reluctant to issue a Credit Note before receipt of returned goods and it’s not possible for Mr. Kundra, the recipient of the goods, to collect the credit notes from the respective supplier.
5.3 There are two options available with Mr. Kundra. One option is to issue a tax invoice of Rs 5900 /- to the supplier and he will take an ITC of Rs 900/- The net impact of taxes through the returns filed is the same as issuing a credit note and reducing the sales.
5.4 In this option, though the net impact of taxes through the returns filed is the same as issuing a credit note and reducing the sales, this cannot be considered as a correct commercial practice due to the following reasons:-
(a) The returning of material purchased is not a supply by itself.
(b) Issuing a tax invoice without actual supply may not be tenable by the tax authorities.
(c) It may also be treated as an offense under the provisions of Section 122, issuing tax invoices without actually supplying goods or services or both.
5.5 The second option available with Mr. Kundra is to return the defective goods under-delivery challan & E-Way Bill. Tax Invoice is not required along with E- Waybill in case of goods returned. In fact , while preparing an online E-Way Bill, the option to select tax invoice as a document is not available for the Sales/Purchase Return of the goods.
5.6 The recipient may record an accounting debit note to record the transactions in books of account (to give debit to the supplier for the returned quantity the recipient might record the debit note and reduce the amount payable to the supplier due to rejected lots), but the same need not be disclosed in any returns except the impact of this in Form 3B.
5.7 If Credit Note is issued till the time specified u/s 34(2) i.e. by the end of September following the end of the financial period, then the recipient needs to reverse the ITC taken on such returned goods and the supplier shall reduce its output liability.
6. Sales Return: The goods returned by the recipient will be the sales return for the suppliers. In the case where the goods supplied by a supplier are returned by the recipient, the supplier is required to issue a “credit note “in terms of section 34 of the CGST Act.
6.1 He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act.
6.2 However, CBIC vide Circular no. 137/07/2020-GST dated 13.04.2020 clarified that if there is no output tax liability against which a credit note can be adjusted, the registered person may proceed to file a claim under “Excess Payment of tax, if any “through FORM GST-RFD 01.
7. The issuance of an e-way bill is compulsory in the case of goods received back by the supplier through the issuance of the credit note. The e-way bill can be raised either by the customer returning the goods or the supplier.
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