GOODS RETURN with Credit note

Hi Deebond,

Good question! Handling goods return under GST when the credit note window is closed can be tricky. Let me guide you through the accounting and GST implications.

Scenario Recap:

• You have a pending payment of ₹2,45,000 from dealer.

• Last invoice in May 2020, and credit note issuance window (typically 30 days after invoice or due date) is closed by Sep 2020.

• Dealer wants to return goods worth ₹1,38,000 (aluminium sheets) to settle account.

• You want to treat this as a buy-back (dealer selling goods back to you) to adjust pending dues.

How to proceed?

1. GST Perspective

• Since credit note cannot be issued, you cannot adjust output tax or reduce your sales ledger via credit note.

• Instead, treat this as a fresh purchase by you from the dealer for ₹1,38,000.

• The dealer will issue a tax invoice to you for sale of goods back.

• Both parties must account for this transaction separately as a sale and purchase.

2. Accounting Entries

For Dealer (Seller to you):

• Sale Invoice: Dealer issues invoice ₹1,38,000 + GST to you.

• This increases dealer's sales and output GST liability.

• Dealer records receipt of payment (or adjustment against dues).

For You (Buyer):

• Purchase Entry:
  Dr. Inventory (Aluminium sheets) ₹1,38,000
  Dr. Input GST (on ₹1,38,000)
  Cr. Dealer Payable ₹1,38,000 + GST

• Payment or Adjustment:
  Cr. Cash/Bank or Adjust payable by ₹1,38,000 + GST.

• Adjust Outstanding Receivable:
  Dr. Outstanding Receivable ₹2,45,000
  Cr. Outstanding Receivable ₹1,38,000 (goods returned value)

3. Impact on Pending Payment

• After dealer sells back goods worth ₹1,38,000, your net payable reduces by that amount.

• Both parties' GST returns will show this fresh supply, and tax is paid accordingly.

4. Loss for Client (Dealer)?

• Dealer will pay GST on the sale back to you (output tax).

• If dealer sold goods initially, GST was paid on original sale.

• Dealer now re-selling goods back means GST is again payable on the ₹1,38,000 value.

• From GST view, dealer doesn’t get credit for goods returned unless it’s a proper return documented via credit note within the allowed period.

5. Alternative:

• If credit note issuance period is over, and buy-back is inconvenient, parties can settle by other means (e.g., adjusting future sales).

• Consult with tax advisor for specific cases.

Summary Table: