Material sent on non returnable basis

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Sending materials or finished goods to vendors for testing, validation, or as free samples on a non-returnable basis can have GST implications. Generally, Input Tax Credit (ITC) availed on such materials needs to be reversed. However, if the material is destroyed or becomes unusable during the testing process, which is considered part of manufacturing, then ITC reversal may not be required. The specific circumstances and the nature of the material and testing are crucial in determining the final ITC liability.

prachee

prachee (Querist)
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01 September 2020 Dear Sir/Madam,
We have manufacturing unit, we need to send some material/finished goods on non returnanble basis to other vendor/supplier for
1. testing and validation
2.sample

do we need to reverse the ITC on same the same.

please guide

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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01 September 2020 Yes. GST Input Tax credit availed needs to be reduced proportionate basis for the free sample issued to vendors.

prachee

prachee (Querist)
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01 September 2020 if the material are sent for testing and validation on non returnable basis?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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01 September 2020 Yes. Here I am assuming you are giving it for "FREE".

Lekhraj sood

Lekhraj sood (Expert)
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01 September 2020 You need not reverse ITC on the materials sent for testing and not returned IF the same get destroyed/unusable during testing process as testing is part of manufacture.However, if our reply can be clearer if you specify as to what is the material and what type of testing is done. But ITC need to be reversed for materials sent as free sample.

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prachee

prachee (Querist)
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08 September 2020 like we sent some shaft , gearbox, parts of engine for testing and validation which is non returnable .
also even if the material is returned .. its like a scrap i mean of no use. So management took the decision not to brig back the material as the cost of bringing back the parts will be additional expense.

Lekhraj sood

Lekhraj sood (Expert)
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08 September 2020 The question is whether these components get destroyed during testing process or not.If yes, then no ITC needs to be reversed.If no,then ITC may have to be reversed-depends on the circumstances of each case.

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