Tax Impact on Goods sold prior to GST, but returned after GST

By Registrationwala

22nd April 2017


Goods and Services tax (GST) has been known together of most vital tax reforms post-independence. It’s a tax trigger, which is able to result in business transformation for all major industries.

GST has been envisaged as a lot of economical tax system, neutral in its application and enticing in distribution.

The benefits of GST are:

1)    Wider assets, necessary for lowering the tax rates and eliminating classification disputes

2)    Elimination of multiplicity of taxes and their cascading effects

3)    Rationalization of tax structure and simplification of compliance procedures

4)    Harmonization of center and State tax administrations, which might scale back duplication and compliance prices

5)    Automation of compliance procedures to cut back errors and increase potency

It is a standard follow in business to return goods once sold-out, back to the vendor. Underneath the present tax regime, the worth of returned goods is reduced from the quantity of turnover and taxes already paid at the time of removal on the subject merchandise are reversed.

Tax on merchandise return after GST has been handled well at the side of provisions for refunds and tax collectable counting on the kind of products returned by a registered taxpayer or unregistered taxpayer. The subject merchandise could also be merchandise on which duty has been paid, or exempted merchandise being returned by a registered or an unregistered taxable person.


When Duty Paid Goods Are Returned


  • By Registered Taxable Person

Duty paid product returned by a registered taxpayer are going to be treated as ‘Deemed Supply’ and tax needs to be paid on this by the person returning the products. this can be as a result of the products were sold-out before GST, permitting the client to assert input tax credit on the tax paid whereas discharging output liabilities, or to hold forward the input reduction below GST. The seller, however, won't have been allowed input tax credits within the previous regime.

When such product are returned, GST are discharged by the person returning the products. The tax paid are allowed as input tax credit to the first vender of such product therefore eliminating loss.

  •  By an Unregistered nonexempt Person

The vendor of such merchandise are planning to be allowed refund of tax paid at the time of original sale providing the following conditions are carried on as below the following:

1) The merchandise were sold-out on each six months before the appointed day.

2) Aforesaid merchandise were returned on each six months from the appointed day.


When Exempted Goods Are Returned


When product that are exempt below the present tax regime are returned post implementation of GST by a registered taxpayer, no tax is owed by the person returning the products if the below mentioned conditions are met:

1)The goods were removed/sold at intervals six months before the appointed day

2) Said product were returned at intervals half-dozen months from the appointed day

However, no such conditions are prescribed for return of exempted product by unregistered taxable person.

Hence, tax on product return after GST depends majorly on the kind of products returned i.e. duty paid or exempted product, timing of such return i.e. removed at intervals six months and/ or returned with six months and therefore the tax title of person returning the products i.e. registered taxable person or unregistered taxable person.


Tax Impact on Goods sold prior to GST, but returned after GST