TREATMENT OF REJECTED GOODS

[ARPIT OJHA]

Hello everyone,

My query is how to account for the rejected material by the purchaser in Books of Account. The purchaser is denying to issue Debit Note / Rejection Memo. Sale Invoice has already been raised.

[YAGAY and SUN]

You can simply issue a credit note. As per the provisions of GST Laws, Credit Notes/Debit Notes can only be issued by the seller of goods.

[Spudarjunan S]

Issue a tax credit note with the GST component as per section 34 of CGST Act, 2017 if you had made domestic taxable supplies or made zero rated supplies with payment of Integrated Tax. By issuing the Tax credit note you reduce your output tax tax liability provided the recipient also reduces his ITC in relation to the same.

If you had exported such goods and re-importing the same you need to avail the benefit of notification no.45/2017-Cus (Tariff) dated 22nd July 2017 where you don't need to pay BCD but only the reversal of any benefits availed while making the original export. Anyhow you can issue a credit note for the transaction.

[ARPIT OJHA]

The problem is that the purchaser is not considering the materials in his books of accounts. He is returning back the same from outside his factory premises.

If i issue a Credit Note then how the transaction will be nullified at both the ends..

[YAGAY and SUN]

since your customer had not accounted for these purchases in their books of accounts therefore it would be sufficient to issue a credit note on such transactions to effect nullification.

[KASTURI SETHI]

I support the views of both experts. Comprehensive and clear replies.

[DR.MARIAPPAN GOVINDARAJAN]

You may issue credit notes as advised by our experts.

[ARPIT OJHA]

Thanks all for your valuable feedback.

AI Summary

Credit note used to nullify rejected goods and adjust GST liability when purchaser refuses to issue a debit note.
When a purchaser rejects goods after a sale invoice and will not issue a debit note, the seller should issue a credit note to nullify the supply and reduce output tax liability; the recipient must reduce its input tax credit accordingly. For exported goods re imported, a credit note can be issued while customs notifications govern duty reversal and reversal of any export benefits; where the purchaser has not recorded the purchase, issuance of the credit note remains the operative method to effect accounting and tax nullification at the seller's end.