Regarding ITC on Sales Return of Goods of which Buyer has not taken ITC due to restriction u/s 17(5), Goods and Services Tax - GST

[Shyam Agarwal]

Sir, Mr.A is a Cement dealer. He sold 5000 bags of Cements to Mr.B,Cloth Merchant for Office construction. Mr.B has not taken the ITC of Cement bags due to restriction u/s 17(5). Now, out of 5000 bags, Mr.B has returned 1000 bags to Mr.A and issued Debit Note without charging GST separately but GST component clubbed in the cost of 1000 Bags. On asking to him, Mr.B said that as he has not taken the ITC hence he has not charged in Debit Note. Can Mr.A can take ITC back on these 1000 bags? Is there need to take any precautions in this kind of transactions?

Posts / Replies

[KASTURI SETHI]

Actually credit note was to be issued by the supplier of goods in terms of Section 34(1) of CGST Act, 2017 whereas the buyer has issued a debit note. It is a procedural lapse. No doubt, debit note is one the prescribed documents under Rule 36 of CGST Rules, 2017. However, it can be covered under Section 34(4) of CGST Act, 2017.

In my view, ITC can be availed on this debit note provided that your books of account or agreement (if any) must prove that price of returned goods were inclusive of GST.