No GST Credit note required when goods were returned even before being received by recipient: HC

The High Court of Madras in Matter of Luminous Power Technologies Private Limited vs. State Tax Office has held that No GST Credit note required when the goods were being returned even before being received by the recipient.

Facts of the Case:

The case of the petitioner is that the petitioner had transported the consignment of solar power generating systems/ solar panels of different descriptions to the buyer in Tiruppur under four different invoices.

For the above invoices, corresponding e-way bills were also generated. It is submitted that the when the goods were being transported from Chennai to Tiruppur, due to heavy down pour, the solar panels got wet and therefore, the buyer namely Attrib System, Tiruppur, refused to take delivery of the goods.

Therefore, the petitioner generated fresh e-way bills, all dated 28.12.2022, valid up to 31.12.2022 and re-transported to its factory, which was intercepted by the second respondent on its way back by the GST Department.

It was contention of Department that in terms of sec 34 of the Act any goods returned due to unfructified sales it should accompanied with delivery challan/credit/debit note. In this case the taxable person has failed to issue the credit/debit note. Therefore, the goods under movement is treated as movement without document prescribed under sec 34 read with rule 55 of the Act thereby invoking sect 129 is warranted. Accordingly, penalty under sec 129 of the Act is levied.

Question of issuance of Credit Note or Debit Note would arise, only after delivery is taken

Contention of Taxpayer

The question of issuance of Credit Note or Debit Note would arise, only after delivery is taken and the goods are thereafter returned, whereas, in this case there was no delivery as the consignee/buyer refused to take delivery of the goods and therefore, the question of issuance of Credit Note for re-delivery by the petitioner did not arise.

It is submitted that invocation of Section 129(3) of the respective GST enactments was unwarranted.

The learned counsel for the petitioner would further submit that since the goods were at the risk of further getting deteriorated, the petitioner paid the penalty to salvage the wet and damaged goods back to the factory.

Goods which are being returned need not necessarily accompany a Credit Note

Under Section 34(1) of the CGST Act, where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.

Under Section 34(2) of the CGST Act, any registered person who issues a Credit Note in relation to a supply of goods or services or both shall declare the details of such Credit Note in the return for the month during which such Credit Note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed.

Thus, the goods which are being returned need not necessarily accompany a Credit Note. The Credit Note or Debit Note as the case may be are intended only for adjustment of tax liabilities on account of return of the goods and where tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply.

Detention of the goods held illegal and unwarranted by HC

The detention of the goods was per se illegal and unwarranted particularly in the light of the fact that the goods accompanied the e-way bills, which were generated for return of the goods.

Under Section 129(3) of the CGST Act, the proper officer detaining or seizing goods or conveyances shall issue a notice specifying the tax and penalty payable and thereafter, pass an order for payment of tax and penalty under clause (a) or clause (b) or clause (c).

Under Section 129(5) of the CGST Act, on payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.

The system that is available in the GST portal for making payment in the GST DRC-03 is only by treating all the payments as voluntarily payment and if such payments are made, the proceedings are deemed to have concluded with issuance of GST DRC-05.

There is no other option available to an assessee/dealer to take the goods back by paying the amount under protest.

Therefore, the system and procedure cannot be used against the petitioner particularly in the light of the fact that the detention itself was illegal.

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