Purchase Rejection procedure in GST

[Yatin Bhopi]

Sometimes we received defective goods which need to be return to seller. For rejecting goods, under Section 34 of CGST ACT 2017, supplier of goods should issue credit note and he should declare this credit note in GSTR-1. Once seller uploads credit note, GST amount will be reflected in our GSTR-2 it will be reduce our available ITC.

Is that mean for every purchase rejection we need to First avail the Input tax credit (whether full or part rejection) so that when seller issue credit note it will be nullify.

Please let me know

[Praveen Nair]

Dear Yatin

How will you send back the defective material to the Supplier?

1. With a Tax Invoice by charging GST? or

2. Against a Delivery Challan?

Let me know

[Yatin Bhopi]

goods will be return on delivery challan and ewaybill

[Ganeshan Kalyani]

In my view, there are two options to deal with transaction. One is accept the entire purchase and then for rejected potion ask the supplier to issue credit note. Based on the credit note raise a delivery challan and send the goods with eway bill.

[Ganeshan Kalyani]

Sorry, reply left incomplete. Now, continuing.

Second option is supplier will take back the material with eway bill.

[Yatin Bhopi]

Sir,

Since he has raised the invoice, supplier has to pass credit note to reduce his outword supply laibility.

[Ganeshan Kalyani]

Yes, correct sir.

[Nash Industries I Pvt Ltd]

In case of rejection, the recipient to send the goods rejected to the supplier on a Delivery Challan with e-way bill.

The supplier on receipt of the rejected goods to issue a Credit Note to the recipient.

The condition for availing ITC is that the payment should be made within 180 days, In the case of goods rejected, the invoice is either short booked to the extent of rejection and the Debit note issued to the Supplier. Therefore, there is no question of ITC at the recipient end. At the supplier end, the issuance of Credit Note reduces his liability and the receivables, the tax is also reduced based on the Credit Note.

Regards

S.Ramaswamy

[Ganeshan Kalyani]

I fully agree with you Sir.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Sri Ramaswamy.

[Guest]

sir, If there is a difference in value/tax rate, either CN/DN to be issued. If defective item received, account it and avail credit, then return under cover of Tax invoice and pay tax. Now tax effect is nil. further to state that purchase return has to be treated as deemed supply by recipient under GST. Sending material back under DC seems improper.

[Nash Industries I Pvt Ltd]

36

What is the procedure for return of goods under GST?

In terms of Section 34(1) of the CGST Act, 2017 in case of return if goods on which GST was paid at the time of supply, the supplier of such goods may issue a credit note for the full value, including the amount of GST in favour of the recipient, and will be entitled to reduce his output tax liability subject to the condition that the recipient of such supply has not availd credit of such GST and if availed, has reversed his ITC on the same.

Reference to the FAQ issued by CBIC above. If considered as deemed supply, then valuation rules comes into play and will defeat the purpose which says 10% VA over the value of receipt.

Also refer rule 55 (c) of CGST Rules - transportation of goods for reasons other than by way of supply.

Further this is an industry practice. Rejections are sent on DC and credit note issued by the supplier which is also based on one of the FAQ.

Regards

S.Ramaswamy

[Praveen Nair]

Dear Arunachalam Siva,

There is also a possibility that the Supplier may raise Credit Note and consider the same in GSTR-1, which will reflect in your GSTR2A and on acceptance of the said credit note the amount will be reduced from your Electronic Credit Ledger online, which you may have already debited by raising a Tax Invoice (reflected in your GSTR 1 & GSTR 3B) hence possibility of double effect.

It is advisable to send material by DC as suggested by other experts with E-Way bill.

Regards

Pravin

[Avneesh Sachdev]

hello all,

why cant the receiver just issue a tax invoice back to the vendor instead of all this.

[Praveen Nair]

In most of the company it has been seen that there are process for Inward of goods. If the goods are received in the system they may either;

a. Send back the material against a Tax Invoice or

b. Send back the material against DC.

If the goods are sold prior to the appointed date (excise law) and received after appointed date (GST) then Tax Invoice should be raised by the purchaser for any goods rejected and sent back to supplier.

[VaibhavKumar Jain]

I think the correct practice may be as below -

(i) the recipient of goods booked the entire quantity of goods including rejected quantity;

(ii) the recipient should immediately (preferably before GRN) inform the supplier of goods towards rejected quantity and value;

(iii) the supplier of goods shall issue credit note for the rejected quantity and value;

(iv) the recipient of goods shall post the credit note in their books of accounts;

(v) the rejected goods shall be returned back to supplier of goods based on the copy of credit note and e-way bill of supplier of goods.

[Arumugam Ravikumar]

Sir,

Is there any way we can recovery the value to the extend of rejection material value without Supplier Credit note by raising a document against the Supplier of Goods. Any provision?

[Guest]

Dear sir,

As per GST Act DC is used only for the following purposes:-

• Goods being supplied on approval
• Goods being transported for job work
• Goods being transported for reason other than supply. Example: Transportation of goods from one warehouse to another warehouse of the supplier.
• Goods supply: Where the quantity of goods supplied is not known. Example: Supply of liquid gas, where quantity of supply from the place of supplier is not known at the time of supply.
• Transportation of goods in a semi-assembled state

so how can we used DC for the purpose of returning goods to supplier.

AI Summary

Input tax credit reversal aligns with supplier credit notes for returned defective goods, affecting recipient ITC availability and accounting. Where defective goods are returned, the supplier should issue a credit note reported in his outward supplies return, which will reflect in the recipient's inward records and reduce available input tax credit; if the recipient has already availed ITC, the recipient must reverse that credit to permit the supplier's reduction in output tax. Returns are commonly effected on a Delivery Challan with an e way bill, with alternatives like recipient tax invoices or short booking discussed as procedural variations.