GST on Goods Sent to Dealers on Sale-or-Return Basis

Introduction

Sale-or-return is a common arrangement where goods are sent to a dealer for display or sale, with the dealer having the option to return unsold goods. The question arises: When does GST apply to goods sent on sale-or-return basis?

The answer depends on whether the goods are approved or returned within the prescribed time limit. This guide explains the legal framework and the practical implications.

Legal Framework: Sale-or-Return Under GST

Goods Sent for Approval

Where goods are sent to a dealer on a sale-or-return basis, the transaction is not immediately treated as a supply because there is no consideration and no transfer of title.

The 6-Month Time Limit

The maximum time limit for the return of goods sent on sale-or-return basis 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 to the dealer.
E-Way Bill: For movement of goods above ₹50,000.

After Approval

Tax Invoice: Invoice for the goods approved by the dealer.
GSTR-1 Reporting: Report the supply in GSTR-1.

On Return

Return Delivery Challan: For return of unsold goods.
No Invoice: No invoice is required for the returned goods if returned within 6 months.

GST Rate on Sale-or-Return

Where the goods are approved and supplied, GST applies at the rate applicable to the goods.

ITC Implications

ITC on Goods Sent

The supplier does not claim ITC on goods sent on sale-or-return, as no supply has occurred.

ITC on Approved Goods

Once the goods are approved and invoiced, the dealer claims ITC on the GST charged.

Best Practices

Issue Delivery Challans: Issue delivery challans for goods sent on sale-or-return.
Track the 6-Month Period: Monitor the 6-month limit and issue invoices if goods are not returned.
Maintain Records: Document all sale-or-return transactions.
Seek Professional Assistance: For complex sale-or-return arrangements, seek guidance.

Conclusion

Goods sent on sale-or-return basis 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 on sale-or-return basis? Anuj Desai & Associates provides expert guidance on GST compliance. Contact us today.

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