Advance money given for supply of goods

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This discussion clarifies GST implications when an advance payment for goods supply is not fulfilled. If the supplier fails to deliver, GST is generally applicable on the advance received unless it's refunded or the supply is cancelled. Converting the remaining advance into a loan typically removes GST liability on that portion. As the recipient, you'll likely need to reverse any Input Tax Credit (ITC) claimed on the amount not linked to a completed supply.

ARUN GUPTA

ARUN GUPTA (Querist)

30 October 2025

"Subject: GST Liability on Unfulfilled Supply and Converted Loan

I had given ₹18 lakhs to a GST-registered supplier for goods supply, but they failed to deliver the goods. Instead, they returned ₹6 lakhs and converted the remaining amount into a short-term loan. Since the supplier didn't fulfill the original supply agreement, I'm concerned about the GST implications.

Please clarify:
1. Is the supplier liable to pay GST on the original supply amount?
2. Does the conversion of the remaining amount into a loan affect the GST liability?
3. As a recipient, do I need to reverse any Input Tax Credit (ITC) claimed earlier?

ARUN GUPTA

ARUN GUPTA (Querist)

31 October 2025 Please reply the status

Dhirajlal Rambhia online

Dhirajlal Rambhia online

(Expert)

31 October 2025 1. Yes, GST is applicable on advance received for supply unless the consideration is refunded or supply is cancelled.

2. Conversion to loan generally removes GST liability on that portion.

3. Yes. As recipient, you must reverse ITC for amounts not linked to supply.

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