Goods rejected
This query is : Resolved
21 June 2017
After 1st july- if the goods removed for sale with proper tax invoice but goods rejected by the customer. Then how to deal with it because we can't change the invoice entered online & our output liability has raise by issuing invoice.
Guest
Guest
(Expert)
21 June 2017
See this video to understand what to issue in case of goods return.
https://youtu.be/kkjIsrORrHM
26 July 2024
When goods are sold with a tax invoice and subsequently rejected by the customer, handling the reversal or adjustment of GST (Goods and Services Tax) can be managed through a credit note or similar documentation. Below is a detailed guide on how to deal with such situations:
### **1. Handling Rejected Goods**
**a. Issuance of Credit Note**
1. **Credit Note**: When goods are rejected, you need to issue a credit note to the customer to reverse the original invoice. This allows you to adjust the output GST liability and reflect the rejection of the goods.
- **Content of Credit Note**: The credit note should include:
- Details of the original invoice.
- Reason for issuing the credit note (e.g., goods rejected).
- Amount of tax being reversed.
- Other relevant details such as GSTIN of both parties.
2. **GST Implications**:
- **Output Tax Adjustment**: The credit note will adjust the output GST liability for the transaction. The GST amount shown in the original invoice will be reduced by the amount stated in the credit note.
- **Input Tax Credit (ITC)**: If the customer had claimed ITC on the rejected goods, they will need to adjust their ITC accordingly.
**b. Updating GST Records**
1. **GSTR-1 (Sales Return)**: Report the credit note in your GSTR-1 return. Ensure that the credit note is reflected in the month or quarter when it is issued.
- **Action Required**: Update the GSTR-1 return to include details of the credit note, which will reduce the sales figure and GST liability reported earlier.
2. **GSTR-3B (Monthly Return)**: The GST adjustment should also be reflected in your GSTR-3B return.
- **Action Required**: Adjust the output tax liability in your GSTR-3B to account for the credit note.
**c. Accounting Entries**
1. **Accounting for Credit Note**:
- **Original Invoice Entry**: When the original sale was made, the entry would have been:
- Debit: Accounts Receivable
- Credit: Sales
- Credit: Output GST
- **Credit Note Entry**: To record the credit note, make the following accounting entries:
- Debit: Sales Return (or appropriate account for rejected goods)
- Debit: Output GST
- Credit: Accounts Receivable
### **2. Practical Steps for Credit Note and GST Adjustment**
**a. Issuance Process**
1. **Generate Credit Note**: Prepare a credit note with all required details, including the reference to the original invoice. This document should be issued to the customer.
2. **Communicate with Customer**: Send the credit note to the customer and ensure they acknowledge it. This helps in adjusting their ITC correctly.
**b. Filing GST Returns**
1. **GSTR-1**: Include the credit note details in your GSTR-1 return under the appropriate section for credit notes.
2. **GSTR-3B**: Adjust the output tax liability in GSTR-3B to reflect the reduction due to the credit note.
**c. Document Retention**
1. **Maintain Records**: Keep copies of the credit note, original invoice, and any correspondence related to the goods rejection for audit and compliance purposes.
### **3. Legal and Compliance References**
**a. GST Act Provisions**
1. **Section 34 of the CGST Act**: This section deals with the issuance of credit notes and the conditions under which they can be issued. It outlines the process for issuing credit notes for goods returned or rejected.
2. **Rule 53 of CGST Rules**: This rule specifies the manner of issuing credit notes and the requirements for adjusting the output tax liability.
**b. Practical Guidance**
1. **Ensure Compliance**: Always follow the latest GST regulations and guidelines to ensure that the credit note and adjustment are compliant with the law.
2. **Consultation**: If you have any specific concerns or complexities, consult a GST advisor or tax professional to ensure accurate handling and compliance.
### **Summary**
1. **Credit Note**: Issue a credit note to adjust the GST liability for rejected goods.
2. **GST Returns**: Reflect the credit note in GSTR-1 and adjust the liability in GSTR-3B.
3. **Accounting Entries**: Adjust the accounts for the credit note to correctly reflect the rejection of goods.
4. **Legal Compliance**: Follow the provisions of the CGST Act and GST Rules for accurate documentation and reporting.
For accurate and specific guidance, especially if there are additional complexities or jurisdictional nuances, consulting a GST expert or tax advisor is recommended.
### **1. Handling Rejected Goods**
**a. Issuance of Credit Note**
1. **Credit Note**: When goods are rejected, you need to issue a credit note to the customer to reverse the original invoice. This allows you to adjust the output GST liability and reflect the rejection of the goods.
- **Content of Credit Note**: The credit note should include:
- Details of the original invoice.
- Reason for issuing the credit note (e.g., goods rejected).
- Amount of tax being reversed.
- Other relevant details such as GSTIN of both parties.
2. **GST Implications**:
- **Output Tax Adjustment**: The credit note will adjust the output GST liability for the transaction. The GST amount shown in the original invoice will be reduced by the amount stated in the credit note.
- **Input Tax Credit (ITC)**: If the customer had claimed ITC on the rejected goods, they will need to adjust their ITC accordingly.
**b. Updating GST Records**
1. **GSTR-1 (Sales Return)**: Report the credit note in your GSTR-1 return. Ensure that the credit note is reflected in the month or quarter when it is issued.
- **Action Required**: Update the GSTR-1 return to include details of the credit note, which will reduce the sales figure and GST liability reported earlier.
2. **GSTR-3B (Monthly Return)**: The GST adjustment should also be reflected in your GSTR-3B return.
- **Action Required**: Adjust the output tax liability in your GSTR-3B to account for the credit note.
**c. Accounting Entries**
1. **Accounting for Credit Note**:
- **Original Invoice Entry**: When the original sale was made, the entry would have been:
- Debit: Accounts Receivable
- Credit: Sales
- Credit: Output GST
- **Credit Note Entry**: To record the credit note, make the following accounting entries:
- Debit: Sales Return (or appropriate account for rejected goods)
- Debit: Output GST
- Credit: Accounts Receivable
### **2. Practical Steps for Credit Note and GST Adjustment**
**a. Issuance Process**
1. **Generate Credit Note**: Prepare a credit note with all required details, including the reference to the original invoice. This document should be issued to the customer.
2. **Communicate with Customer**: Send the credit note to the customer and ensure they acknowledge it. This helps in adjusting their ITC correctly.
**b. Filing GST Returns**
1. **GSTR-1**: Include the credit note details in your GSTR-1 return under the appropriate section for credit notes.
2. **GSTR-3B**: Adjust the output tax liability in GSTR-3B to reflect the reduction due to the credit note.
**c. Document Retention**
1. **Maintain Records**: Keep copies of the credit note, original invoice, and any correspondence related to the goods rejection for audit and compliance purposes.
### **3. Legal and Compliance References**
**a. GST Act Provisions**
1. **Section 34 of the CGST Act**: This section deals with the issuance of credit notes and the conditions under which they can be issued. It outlines the process for issuing credit notes for goods returned or rejected.
2. **Rule 53 of CGST Rules**: This rule specifies the manner of issuing credit notes and the requirements for adjusting the output tax liability.
**b. Practical Guidance**
1. **Ensure Compliance**: Always follow the latest GST regulations and guidelines to ensure that the credit note and adjustment are compliant with the law.
2. **Consultation**: If you have any specific concerns or complexities, consult a GST advisor or tax professional to ensure accurate handling and compliance.
### **Summary**
1. **Credit Note**: Issue a credit note to adjust the GST liability for rejected goods.
2. **GST Returns**: Reflect the credit note in GSTR-1 and adjust the liability in GSTR-3B.
3. **Accounting Entries**: Adjust the accounts for the credit note to correctly reflect the rejection of goods.
4. **Legal Compliance**: Follow the provisions of the CGST Act and GST Rules for accurate documentation and reporting.
For accurate and specific guidance, especially if there are additional complexities or jurisdictional nuances, consulting a GST expert or tax advisor is recommended.
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