Regarding non payment by recepient

[YASH JAIN]

I had sold goods to other party and paid GST on portal but the buyer has not paid the amount to seller within 180 days and seller is thinking that amount will not come.

So is there any chance to get my GST back?

[Ramanathan Seshan]

Dear Yash-sir,

Kindly note that it is not possible to do anything to the tax paid to the government. However, you can communicate to the tax payer using the tab available on the GST portal. Kindly note that this is just a feature available and non enforceable in nature.

Regards,

S Ram

[YAGAY andSUN]

That's an important and nuanced situation—many sellers face this dilemma when buyers default on payments after GST has already been deposited with the government.

Let’s break it down clearly and in simple terms based on current GST rules in India (as of FY 2024-25):

🔍 The Issue: Buyer Didn't Pay Within 180 Days

You, the supplier, sold goods/services and paid GST to the government based on your invoice. But the buyer has not paid you within 180 days, and you now believe they may never pay.

Under Section 16(2) of the CGST Act, there’s a rule that affects Input Tax Credit (ITC)—primarily for the buyer, but not directly for the seller.

✅ What Happens in Such a Case?

1. GST Paid by Seller is Final:
   • Once you pay GST on an outward supply (sale), you can’t claim a refund of it just because the buyer didn’t pay you.
   • GST is a transaction-based tax, not a receipt-based one.
2. Implication for Buyer (Not Seller):
   • The buyer is required to reverse the ITC they claimed if they don’t pay the invoice value + GST to you within 180 days.
   • But this is the buyer’s responsibility, not yours.
3. Seller Has No Automatic Refund Option:
   • There is no provision in the GST law allowing the seller to reverse or reclaim GST already paid to the government due to buyer's default.
   • Your GST liability remains even if you never receive the payment.

⚠️ But Is There Any Relief or Option?

✉️ Communicate via GST Portal (Non-Enforceable)

• The “Communication Between Taxpayers” tab on the GST portal allows you to inform or remind the buyer about the unpaid amount.
• However, this feature is informal and non-binding. It does not compel the buyer to act.

💼 Consider Legal/Recovery Action

• From a commercial standpoint, you may explore:
  • Sending a legal notice
  • Initiating recovery proceedings
  • Filing a civil suit, if the amount is significant

🧾 Write-Off for Income Tax (Not GST)

• If you conclude the payment will never come, you may consider writing it off as a bad debt under Income Tax (subject to certain conditions)—but GST won’t be refunded.

🧾 What You Can Do

Action	Applicability	Remarks
Reclaim GST	❌	Not allowed under GST law
Inform buyer via GST portal	✅	Non-binding, but worth trying
Reverse the sale invoice	❌	Not allowed unless supply is canceled or returned
Legal action against buyer	✅	Depends on feasibility
Write-off in accounts	✅	For income tax treatment, not for GST refund

🔚 Conclusion

You cannot claim a refund of GST already paid to the government even if the buyer defaults on payment. Unfortunately, GST law does not link tax liability with actual receipt of money. You're advised to consider legal or commercial recovery options, and possibly account for the bad debt under your books.

Below is a professional notice format you can send to the defaulting buyer regarding non-payment of dues after 180 days, despite the supply of goods and GST payment. This can be sent via email or registered post, and optionally uploaded under the “Communication Between Taxpayers” tab on the GST portal.

[Your Company Letterhead or Name]

[Your Address]

GSTIN: [Your GST Number]

Email: [Your Email] | Phone: [Your Contact Number]

Date: [DD/MM/YYYY]

To,

[Buyer’s Name / Company Name]

[Buyer’s Address]

GSTIN: [Buyer’s GST Number]

Subject: Final Notice for Outstanding Payment of Invoice No. [Invoice Number]

Dear [Mr./Ms./M/s. Buyer Name],

We write to formally bring to your attention that payment for goods supplied under the following invoice(s) remains unpaid despite several reminders:

• Invoice Number: [Invoice Number]
• Invoice Date: [Date]
• Invoice Value (including GST): ₹[Amount]
• Due Date: [Original Due Date]
• GST Paid: ₹[GST Amount], paid to the Government under GST Return for [Month & Year]

As per the provisions of the GST Act, although you have not remitted the payment within the statutory limit of 180 days, we, the supplier, have fulfilled our obligations in full by supplying the goods/services and paying the applicable GST to the government.

Please note that non-payment not only violates our commercial agreement but also potentially exposes you to reversal of Input Tax Credit (ITC) under Section 16(2) of the CGST Act, 2017, which mandates that payment for supplies must be made within 180 days of the invoice date.

We urge you to clear the outstanding amount of ₹[Amount] immediately, failing which we will be constrained to initiate:

1. Legal proceedings to recover the said amount with applicable interest and costs; and
2. Report the default in appropriate forums including under the GST portal’s communication facility.

This is a final reminder. If the full amount is not received within [7/15] days from the date of this notice, we will proceed without any further intimation.

We hope to receive your cooperation and expect the matter to be resolved amicably at the earliest.

Thanking you.

Yours faithfully,

[Your Full Name]

[Designation]

[Your Business Name / Company]

Signature

[KASTURI SETHI]

 Thanks a lot to M/s Yagay and Sun, Sirs for such a fool-proof and all-rounder reply. Really appreciable.

It is not jurisdiction of the department to intervene in the dispute between the seller (supplier) and the buyer. Civil Court is the option. Such tax paid is not refundable. 

[Shilpi Jain]

Since supply is made for an agreed consideration, GST would be liable and cannot be taken back.

[Alkesh Jani]

Dear Experts,

In the given circumstances,

(1) Do we have any possibilities of issuing Credit Note?

(2) Without consideration does the said activity falls under the scope of "Supply"?

(3) if credit note can be issued, why refund for excess tax paid cannot be filed or be adjusted?

Your views please.  The query is for my knowledge purpose only.

Thanks in advance.

[Ramanathan Seshan]

Dear Alkesh-sir,

1.Technically yes, you can issue CN and reduce your outward liability, however spirit of law would not be upheld in this case.

2. Only schedule 1 transactions 

3. Cannot claim refund, but can be adjusted only.

Regards,

S Ram

[Alkesh Jani]

Dear - Ramanathan Seshan Ji,

Thanks for the prompt reply.

Just for reply No.2 Schedule-1 Please help me that which Para No. of Schedule-1 is applicable for the given circumstances.

Thanks 

[YAGAY andSUN]

Let's go through your specific knowledge-oriented queries one by one in detail:

(1) Do we have any possibilities of issuing a Credit Note?

✅ Yes, but only under limited circumstances as per Section 34 of the CGST Act:

You can issue a credit note if:

• There is a deficiency in goods/services,
• The goods are returned (in whole or part),
• There's an agreement to reduce the value (e.g., discount post-supply), provided this is known at the time of contract, and
• The tax liability is adjusted in the return not later than September following the end of the financial year or date of annual return, whichever is earlier.

❌ However:

You cannot issue a credit note just because the buyer has not paid. Non-payment is not a valid reason for issuing a credit note under GST law. So, in your described scenario, credit note issuance is not permissiblejust to reverse tax liability.

(2) Without consideration, does the said activity fall under the scope of "Supply"?

✅ In principle, no consideration = no supply, except in certain cases.

Under Section 7 of the CGST Act:

• Normally, a transaction must involve consideration to be considered a "supply".
• However, Schedule I of the CGST Act specifies some exceptions where consideration is not required, such as:
  • Supply between related persons,
  • Supply between branches (distinct persons under GST),
  • Gifts above ₹50,000 by employer to employee.

So, if you're not related and it's a standard buyer-supplier transaction, and you didn’t receive any consideration, it may not be considered “supply”—but only if the supply itself is canceled and not used.

But here's the catch: if the goods/services have been consumed or used, and there's no formal cancellation or return, GST remains payable because the supply is considered complete.

(3) If a credit note can be issued, why refund for excess tax paid cannot be filed or adjusted?

This is an excellent conceptual question.

📌 Credit Note ≠ Refund Automatically

A credit note allows a reduction of output tax liability in your GSTR-1, and then in GSTR-3B, if accepted by the recipient (via their GSTR-2A/2B). It’s not the same as a cash refund.

🚫 Refund for “Excess Tax Paid” Is Restricted:

Under Section 54 of CGST Act, refund of tax paid is allowed in cases like:

• Export of goods/services (zero-rated),
• Inverted duty structure,
• Excess payment due to mistake,
• Refund due to order or judgment.

➡️ But buyer default is not a valid ground under current law for refund.

Also, the law is strict about unjust enrichment—you’ve collected tax (or were supposed to) and paid it to the government; allowing refund when no tax is borne by you (but is passed on to buyer) violates the principle.

💡 Summary Table

Issue	Permitted?	Remarks
Credit Note due to buyer default	❌	Not a valid reason under Sec. 34
Supply without consideration	❌	Unless covered by Schedule I
Refund for tax paid on bad debt	❌	Not covered under Sec. 54
Write-off under Income Tax	✅	Possible, but not for GST relief
Communicate via GST Portal	✅	Non-binding but helpful
Legal Recovery	✅	Civil suit or arbitration route

✅ Conclusion (as of FY 2024-25):

• GST paid is final unless the supply itself is reversed (e.g., return, cancellation).
• There's no GST relief if the buyer defaults—commercial recovery and accounting write-offs are your main options.
• Credit notes and refunds under GST law have strict use-cases and must follow statutory procedures.

If GST Council or Courts evolve the jurisprudence on this in future (e.g., allowing tax reversal for "unrealized consideration"), we may see relief someday. But not under current law.

Here's a concise summary of your query and the legal position under GST law (as of FY 2024–25):

✅ Key Legal Points:

1. GST Once Paid = Final
   • You can't reclaim or reverse GST just because the buyer didn’t pay.
   • GST is liability-based, not payment-based.
2. Credit Note?
   • ❌ Not allowed just for buyer non-payment.
   • ✅ Allowed only for return of goods, post-sale discount, or defective supply (Section 34CGST Act).
3. Is It Still “Supply” Without Consideration?
   • ✅ Yes, if goods/services were delivered.
   • ❌ No, only if supply is canceled or falls under exceptions (e.g., related party under Schedule I).
4. Refund of GST Paid?
   • ❌ Not allowed for buyer default.
   • Refund is allowed only in specific cases (e.g., exports, inverted duty structure, excess payment by mistake).
5. Communication via GST Portal?
   • ✅ Available under “Communication Between Taxpayers”.
   • ⚠️ Non-binding and informal.
6. Recovery or Write-Off?
   • ✅ Legal action via civil court is an option.
   • ✅ You can write off the bad debt in income tax, but not for GST reversal.

📌 Conclusion:

There’s no relief under GST law for tax already paid if the buyer defaults on payment. Legal recovery and income tax write-off are your only viable remedies—not GST credit notes or refunds.

***

[KASTURI SETHI]

Sh. Alkesh Jani Ji,

After another detailed reply by M/s. Yagay and Sun, Sirs.

As per Section 9 (1) of CGST Act, the supplier is statutorily bound to collect tax from the buyer and deposit with the Govt. and the buyer is legally required to pay tax to the supplier for deposit of the same with Govt., it being indirect tax unlike Income Tax.

As per Indian Contract Act, 1872, sale invoice, purchase invoice etc. are contracts and here in this scenario, the buyer has breached the contract. So in this scenario my views are as under :-

(1) Do we have any possibilities of issuing Credit Note ?

Reply : Not required. Line of action by the supplier is different.

(2) Without consideration does the said activity falls under the scope of "Supply"?

Reply : The issue of without consideration is not in picture. Supply has taken place. Goods stand delivered. Dispute is a separate issue.

(3) If credit note can be issued, why refund for excess tax paid cannot be filed or be adjusted ? Reply : Not even remote possibility of refund.

[Alkesh Jani]

Dear All Experts,

I am very thankful to you all for extending your valuable views. 

Thanks Again.

With Regards.

[Sadanand Bulbule]

Dear experts

I wholeheartedly welcome well calibrated explanations. Congrats to all.

AI Summary

Seller Cannot Recover GST Paid When Buyer Defaults on Payment After 180 Days Under Existing Tax Regulations A seller sold goods and paid GST, but the buyer did not pay within 180 days. The seller seeks to recover GST paid. Legal experts confirm that GST paid is final and non-refundable. The seller cannot reclaim tax through credit notes or refunds. Recommended actions include communicating via GST portal, considering legal recovery, and potentially writing off the bad debt for income tax purposes. GST law does not provide relief for unpaid invoices.