Introduction
Businesses often send goods to customers for approval before a sale is confirmed. The customer may approve and purchase the goods or return them. The question arises: How are goods sent for approval treated under GST?
The answer depends on whether the goods are approved or returned within the prescribed time limit. This guide explains the legal framework and the documentation requirements.
Legal Framework: Goods Sent for Approval
Not a Supply Until Approval
Where goods are sent to a customer for approval, the movement is not a supply until the customer approves and purchases the goods.
The 6-Month Time Limit
The maximum time limit for the return of goods sent for approval is 6 months. If the goods are not approved within 6 months, an invoice must be issued, and the goods shall be deemed to have been supplied.
Documentation Requirements
Before Approval
- Delivery Challan: For movement of goods for approval.
- E-Way Bill: For movement of goods above ₹50,000.
After Approval
- Tax Invoice: Invoice for the approved goods.
- GSTR-1 Reporting: Report the supply in GSTR-1.
On Return
- Return Delivery Challan: For return of unapproved goods.
Best Practices
- Issue Delivery Challans: Issue delivery challans for goods sent for approval.
- Track the 6-Month Period: Monitor the 6-month limit and issue invoices if goods are not returned.
- Maintain Records: Document all approval transactions.
- Seek Professional Assistance: For complex approval arrangements, seek guidance.
Conclusion
Goods sent for approval are not treated as supply until approved or the 6-month time limit expires. Delivery challans are required for movement, and tax invoices are required for approved goods. Proper tracking and documentation are essential.
Sending goods to customers for approval? Anuj Desai & Associates provides expert guidance on GST compliance. Contact us today.
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- Email: office@anujdesaiassociates.com
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