Whether GST is applicable on crates recovery amount

This query is : Resolved

Manoj Chauhan (Querist)
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08 February 2021 Dear all,

Suppose "A" company is selling milk pouches to another "B" company. The milk pouches are sold in "returnable milk crates" which are returned by "B" to "A" on regular basis.

On one occasion, "B" fails to return 50 milk crates to "A".

"A", therefore, raises a debit note (@ Rs.200 per crate) on "B" for recovery of amount of lost crates.

Now, please answer whether GST is applicable to this debit notes in lights of the following points:
1) GST is not applicable on pouch milk sale
2) GST is applicable on "sale" of crates
3) The rate of Rs.200/- per crate is the cost to "A" (In other words, "A" is not making any profit on this transaction, it is just recovering the cost amount)
Thanks.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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11 July 2024 Based on the scenario provided, let's analyze whether GST would be applicable on the debit note raised by Company A to recover the cost of lost milk crates from Company B:

1. **GST Applicability on Pouch Milk Sale**:
- If the sale of milk pouches by Company A to Company B is exempt from GST (considering it falls under exempted or nil-rated supplies), GST would not be applicable on these sales.

2. **GST Applicability on Sale of Crates**:
- Crates are considered as goods distinct from the milk pouches. The sale of crates would typically attract GST if they are sold separately and not as part of a composite supply with exempted goods.
- If Company A is raising a debit note specifically for the lost crates, it implies a transaction related to goods (crates) and not the exempted supply of milk pouches.

3. **Nature of the Debit Note**:
- Company A is not making a profit on the transaction; they are recovering the cost of the lost crates at Rs. 200 per crate.
- Even though Company A is not making a profit, the recovery of the cost of the lost crates can still be considered a supply under GST if it involves the transfer of goods (crates) for consideration.

### GST Implication:

Given the above points:

- **Debit Note Issued**: Company A issues a debit note to Company B to recover the cost of lost crates at Rs. 200 per crate.
- **Consideration**: The debit note represents consideration for the crates that were not returned by Company B.
- **GST Applicability**: GST would likely be applicable on the amount mentioned in the debit note (Rs. 200 per crate), considering it represents the cost of crates which are goods, and not exempted like milk pouches.

### Conclusion:

Since the debit note is specifically for the recovery of the cost of lost milk crates and considering crates are taxable goods under GST when sold separately, GST would generally be applicable on the amount mentioned in the debit note (@ Rs. 200 per crate). This is because it represents consideration for the supply of goods (crates) by Company A to Company B.

It's advisable to consult with a GST consultant or tax advisor who can provide specific guidance based on the detailed terms of the transaction and ensure compliance with GST regulations.

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