Impact on Goods Sold Prior to GST and Returned Post its Implementation

In a business setup, return of goods that were sold is a common phenomenon. As per the current tax regime, business entities are allowed to offset the amount of goods returned from the total sales turnover, given that the goods are returned within a specific time-frame. However, availing reduction from tax diverges from one state to another, but in a normal scenario, it is considered to be six months from the actual date of sale.

GST in Indiais being cited as a major reform in the structure of indirect taxes and is likely to be fully implemented by July 1, 2017. With supply being considered as a taxable event, it is critical for business entities to appreciate the tax implications on goods that will be sold prior to the GST rates, but returned post its implementation.

Some of the prominent questions that might emerge in the near future have been listed below:

  • What will be the course of action if taxable goods will be returned by a registered taxable person?
  • What will be the future course of action if taxable goods are returned by an unregistered individual?
  • What action needs to be taken if certain goods that are returned are exempt under the current regime for indirect taxes but will be taxable post the implementation of GST?

To enhance our understanding in a better manner, let us classify this scenario into the following:

  • Return of exempted items
  • Return of taxable items

  • Return of exempted items

Let us lay some light on a scenario where exempted goods that were sold prior to GST, but those goods have become taxable and are returned post the implementation of GST.

  • Returned by a registered taxable individual

On goods that were exempted under the current regime and are returned post the implementation of GST, no tax will be levied in such a scenario. This is applicable subject to the fulfillment of certain conditions mentioned below:

  1. The date of return of goods sold should not cross the specified time-frame of six months before the date of transition into the GST regime.
  2. The goods should be returned within a period of six months prior to the date of implementation of GST in India.
  • Goods that are taxable are being returned by an unregistered individual

No tax will be levied in such a scenario in which goods are sold as exempt under the current tax regime and are returned by an unregistered individual at the time GST is implemented.

  • Return of taxable items

Let us enhance our understanding about a scenario where taxable items that were sold prior to GST but were returned on or post the implementation ofGST rates. The goods can returned by a registered taxable individual or by an unregistered individual.

  • Returned by a registered taxable individual

The taxable goods that are returned by a taxable individual is considered as a supply, and GST will be levied on the same. This tax is generally applicable on the date of purchase of goods and the tax levied by the recipient was allowed as a source of input tax credit and it was subsequently utilised by the individual, or was carried in the forward direction as input tax credit to GST. Once the goods are returned under the GST regime, the individual that is returning the goods should levy GST, and GST paid on sales return will be called as input tax credit to the actual seller.

  • Taxable good that are returned by an unregistered individual

The seller would become eligible for refund of tax already paid under the current tax regime, on the return of goods by an unregistered individual. The refund that would be claimed by the seller would be subject to the conditions mentioned below:

  1. The date on which the goods are returned should not exceed a period of six months before the date of transition to the GST regime.
  2. The goods need to be returned within a period of six months before the final date of execution of GST.

Conclusion

We can comprehend from the above discussion how certain items need to be treated once GST takes effect. We also learnt about how certain goods that are supplied under the current regime and returned under the GST regime would be treated. There are various scenarios for which guidelines have been laid down by GST Council. The treatment of such goods would also be dependent on the fact that the person returning the items is registered or an unregistered individual.

 

 

Post Author: Jennifer Slegg