GST - Misuse of Section 31(7) CGST Act 2017 to Defer GST on Goods Sent on Approval Basis

[KSA Associates]

Dear Forum Experts,

Suppliers are reportedly dispatching goods on an “approval basis” and delaying GST invoice issuance until customer approval, relying on Section 31(7)CGST Act 2017. While this provision allows invoicing at supply or within six months of removal, it appears open to abuse for cash-flow management and revenue deferment. Delivery challans under Rule 55 substitute tax invoices during transit, yet inadequate safeguards may enable artificial approval schemes.

Why cant a registered person can take benefit of this provision to defer the liability? Is there any case law, high court ruling on this?

[Sadanand Bulbule]

It is worth to refer the CBIC Circular No.108/27/2019-GST dated 18/07/2019.

[Shilpi Jain]

When there is a possibility to structure the business transaction to take benefit of this provision, there cannot be any issue.

However, if it is shown as sale on approval but in fact the goods are sold by the recipient well before the issue of invoice by the supplier, it clearly indicates that the recipient has received the ownership of the goods well before the invoice is issued by supplier under sale on approval (SOA). So in fact it is not a SOA. 

So certain other aspects are also to be taken care of before the transaction is executed.

AI Summary

Suppliers Misusing Section 31(7) CGST to Delay GST Invoices on Approval Basis Goods Delivery Suppliers are using Section 31(7) of the CGST Act 2017 to delay GST invoicing on goods sent on an approval basis, potentially abusing the provision intended to allow invoicing within six months of removal. Delivery challans serve as temporary substitutes for tax invoices during transit, but lack of safeguards may enable artificial approval arrangements to defer tax liability. While registered persons can benefit from this provision if legitimately structured, transactions where goods are effectively sold before invoice issuance do not qualify as sale on approval. Relevant guidance includes CBIC Circular No.108/27/2019-GST, and careful consideration of transaction facts is necessary to ensure compliance and prevent misuse.