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Tax on Goods Sold prior GST, Returned post GST

Indian business tax environment is witnessing its biggest transformation from existing complex and multiple Indirect taxes system to a new integrated tax on goods and services i.e. Goods and Services Tax. The new GST regime is likely to be implemented from 1 July 2017 and will have an impact on all business transactions like procurement, impact on supply chain, marketing, logistics, etc. Since ‘supply’ is an integral part of the tax system it is important for businesses to understand what will happen with the goods sold prior to GST, but returned after GST implementation.

Conditions applicable for Goods to be returned:-

  • Goods sold within 6 months prior to the appointed day
  • Goods returned within 6 months from the appointed day

Goods can be identified by the Officer

The return of goods could be from a registered taxable person or from an unregistered person.

Return of Taxable Goods by Registered Taxable Person

The return of taxable goods by a registered taxable person will be considered as Deemed Supply, and GST will be levied on this by the person returning the goods. As, the goods were sold before GST, allowing the buyer to claim input tax credit while discharging output tax liability, or the tax paid was allowed to be carried forward as input tax credit to GST.

Going by the old tax regime the seller would not have been allowed Input Tax Credit on return of taxable goods. Whereas, under the GST India Law, on return of taxable goods, GST will be discharged by the person returning the goods and the tax paid will be allowed as Input Tax Credit to the original seller of such goods. This way, the seller does not have to bear the loss.

Return of Taxable Goods by an Unregistered Person 

The return of taxable goods by an unregistered person/seller will be considered for refund if goods were removed/sold within 6 months prior to the appointed day, and if such goods were returned within 6 months from the appointed day.

Return of Exempted Goods

Consider a scenario where exempted goods are sold prior to GST, but these goods are taxable and are returned on or after the implementation of GST.

On exempted goods, which are sold under the current tax regime and are returned post implementation of GST, by a registered tax payer – no tax will be levied. The conditions for making such goods ‘no-tax-payable’ is that they were either removed/sold within 6 months prior to the appointed day, and such goods were returned within 6 months from the appointed day.

In conclusion, tax on goods returned post GST is dependent on three factors:-

  • The type/category of goods returned, i.e. taxable or exempted goods,
  • The time when the goods are being returned/sold (within 6 months from the appointed day) and,
  • The person returning the tax is a registered taxable person or an unregistered taxable person.
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