1) Is "good sent on approval basis" a supply
2) if yes is it supply of Good or supply of services ( before acceptance is received, i.e when title has not been passed to proposed buyer). [ while answering please consider schedule-II ]
3) as per section 31(7)" invoice is to be issued at the time of supply or six months whichever is earlier" My question is when acceptance is not received within 6 months then also invoice will be issued?
Unlike consignment sales, sales on approval basis are not deemed as supplies under GST. Hence, in such a scenario, the principal can send the goods to the agent by issuing a delivery challan instead of a tax invoice, and without charging GST on the same.
However, once the goods are sold by the agent to the end customer, it implies that the agent has accepted the goods received on approval. Once this sale has been ratified by the agent, the principal can then issue the tax invoice, and charge GST. The agent, at his end, can collect the purchase invoice, and avail the input tax credit on the GST paid, while filing his returns and paying the output GST liability to the government. Balance amount of tax if any, can then be paid via cash.
When must tax invoice be issued for Sale on Approval?
The invoice with respect of goods sent on approval basis has to be issued at the earliest of:
Before or at the time of supply
6 months from the date of removal of goods from factory / godown etc. (before supply)
If the goods are not approved within 6 months i.e. if the agent has not ratified any sales within 6 months, it will be deemed that sales of the said goods has taken place and a tax invoice will need to be raised by the principal. Another alternative could be the agent returning the goods to the principal within 6 months.
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