In case of sale on approval basis, the supplier may need to carry the goods along to other places within the same state or to another state (where he has not taken registration) for approval of the buyer. When such goods are approved by the buyer, then the supplier issues a tax invoice at the time of actual supply. This article discusses about GST implications on supply of goods on approval basis.
Relevant Provisions
Section 24 of the CGST Act mandates compulsory registration for casual taxable person while making taxable supply.
Section 27 of the CGST Act provides special provisions relating to casual taxable person. As per sub-section 2 of section 27, a casual taxable person shall, at the time of submission of application for registration, make an advance deposit of tax in an amount equivalent to the estimated tax liability of such person for the period for which the registration is sought.
Rule 55 of the CGST Rules, 2017 which deals with the transportation of goods without issue of invoice stipulates that in the case of transportation of goods for reasons other than by way of supply, the supplier may issue a delivery challan, in lieu of invoice at the time of removal of goods for transportation.
Further, rule 3 of the CGST Rules provides that where goods are being transported on a delivery challan in lieu of invoice, the same shall be declared as specified in rule 138 of the CGST Rules. [E-way bill provisions]
As per rule 4 of the CGST Rules where the goods being transported are for the purpose of supply to the recipient but the tax invoice could not be issued at the time of removal of goods for the purpose of supply, the supplier shall issue a tax invoice after delivery of goods.
On reading of the aforesaid provisions, it emerges that ascertainment of tax liability in advance is a mandatory requirement for registration as a casual taxable person. However, a supplier removing goods for supply on approval basis can not determine his actual supplies beforehand and therefore the tax liability in advance can not be determined. As such, the supplier can not register himself as a casual taxable person.
Clarification by way of Circular
The CBIC has given clarification on issues wherein goods are moved within states or from the state of registration to another state for supply on approval basis vide Circular No.10/10/2017-GST dated 18-10-2017.
Para 3 of the said circular clarified that the goods which are taken for supply on approval basis can be moved from the place of business of the registered supplier to another place within the same State or to a place outside the State on a delivery challan along with the e-way bill wherever applicable and the invoice may be issued at the time of delivery of goods. For this purpose, the person carrying the goods for such supply can carry the invoice book with him so that he can issue the invoice once the supply is fructified.
Para 4 of the circular clarified that all such supplies, where the supplier carries goods from one State to another and supplies them in a different State, will be inter-state supplies and attract integrated tax in terms of Section 5 of the Integrated Goods and Services Tax Act, 2017.
Para 5 of the circular clarified that such provisions would be applicable to all goods supplied under similar situations.
Time limit for Issuing Invoice
As per sub-section (7) of section 31 of the CGST Act, where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued before or at the time of supply or six months from the date of removal, whichever is earlier. If unapproved goods are not received back by the supplier within six months from the date of removal, it would be deemed as supply.
Conclusion
Goods meant for supply on approval basis can be moved from the place of business of the registered person to another place within the same state or to a place outside the state on a delivery challan along with the e-way bill wherever applicable. The invoice can be raised at the time of delivery of such goods.