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GST on Material sent on Approval Out basis

Nov 26, 2019

It is a business arrangement in which a seller allow to use the goods to the purchaser before sale of goods, It is also valid in GST Regime. The time limit of raising the invoice is as under: 

The invoice with respect of goods sent on approval basis has to be issued at the earliest of:

  • Before or at the time of supply
  • 6 months from the date of removal of goods from factory / godown etc. (before supply)

If the goods are not approved within 6 months i.e. if the agent has not ratified any sales within 6 months, it will be deemed that sales of the said goods has taken place and a tax invoice will need to be raised by the principal. Another alternative could be the agent returning the goods to the principal within 6 months.

Q. Material sent on Approval out what is modus operandi to adopted in our set of Business?

Ans: Unlike consignment sales, sales on approval basis are not deemed as supplies under GST. Hence, in such a scenario, the principal can send the goods to the agent by issuing a delivery challan instead of a tax invoice, and without charging GST on the same.

However, once the goods are sold by the agent to the end customer, it implies that the agent has accepted the goods received on approval. Once this sale has been ratified by the agent, the principal can then issue the tax invoice, and charge GST. The agent, at his end, can collect the purchase invoice, and avail the input tax credit on the GST paid, while filing his returns and paying the output GST liability to the government. Balance amount of tax if any, can then be paid via cash.

Q Material sent before the pre GST and now sales return , Applicability of GST?

Ans: With the advent of GST on 1st July 2017, businesses had good reason to worry about the taxability of goods sent on approval basis before GST and returned after 1st July. To make the process seamless, certain rules have been specified by the GST Council. The first thing to note here is, that the following rules will be applicable, only on those goods which were sent on approval basis not earlier than 6 months before the date of implementation of GST i.e. not earlier than 31st of January, 2017.

There can be two cases possible:

Goods returned within 6 months from GST implementation

For those goods, which have been sent on an approval basis, but are returned or rejected within a maximum of six months from the appointed day i.e. 1st July, no tax will be payable. However, the specified period of 6 months can be extended by a maximum of 2 months by the commissioner if there is sufficient cause.

Goods returned after 6 months from GST implementation

For those goods, which have been sent on an approval basis, but are returned after 6 months, GST will be applicable. However, who bears the GST will depend on whether the agent is a registered or unregistered dealer:

Case 1: Agent is a registered dealer

In case the person or agent returning the goods is a registered dealer, GST will be payable by the agent and the return of the goods will be deemed to be a supply by the agent to the principal.

Case 2: Agent is an unregistered dealer

In case the person of agent returning the goods is an unregistered dealer, GST will be payable by the principal or the person who has sent the goods on approval basis on "Reverse Charge Basis."

GST forms to be submitted

As per the initial GST rules, every principal / consignor who had sent goods on approval basis under the previous law, was required to submit the details of such goods in FORM GST TRAN -1 within ninety days of the appointed day of GST implementation i.e. 1stJuly – in other words by 30th Sept. However, the date has been extended to 31st March 2019.


04.Can we use the Registered Office address on the bills generated.


Ans: Yes it can be used but it depends upon the goods movement and billing place. I will give more specific reply after discussion only.