Question ID : 40658

Taxability of claim of damages in sales returned goods

A manufacturer of machinery supplied goods to a buyer,who has returned them.later the vendor noticed some damages to the goods returned by the buyer.now the value of damages to the supplied goods is estimated at 3 lakhs.the supplier wants to raise a debit note on the buyer.whether gst is to charged on this?as per which provision of gst ?.because there is no supply of goods nor supply of services.

Answer ID : 80544

As the manufacture is tolerating the damaged of the returned goods as supplied to buyer, this act of tolerance would be construed as supply of service in terms of the provision of section 7 (1) (a) of the CGST Act read with the entry 5 (e) of the Schedule II to the CGST Act, 2017.

Answer ID : 80549

Since schedule II is now only a classification sch, it can be said that there is no supply and hence no gst liability. Bai Mamubai Trust case can also be looked into in this regard.

Answer ID : 80573

Both the above answers are prevalent as a thought in the industry. Less risky position is to charge tax and counterparty can avail ITC. If ITC is not available then, it can be contested that there was no intention to provide such supply and resultantly, the amount receivable is not a supply. There are case laws on this for services tax regime like notice pay recovery and yes the one mentioned above too. Further, a food for thought can it be treated as actionable claim which can be sustained in any court of law ?? Which is specifically covered under Schedule III of CGST Act

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