Goods (Sales) return claim vis-à-vis Movement of Goods

Query

The facts are that the dealer is retailer in plumbing items. The buyers are householders. The goods are sold to them by invoice. However, in case of change in goods or design or non-fitting into the requirement, the customer returns the goods back to the dealer. The dealers prepare credit notes and enter the same in the books. However, being small items and dealing with householders, there are no debit notes from the customers nor proof of any movement of returned goods. The authorities are objecting to allow the return claim on the ground that goods return documents and debit notes are not available. Whether the said objection is justified?

Reply

Normally, under Sales Tax laws, claim of goods return is allowed subject to time limit etc.. This is a special concession, since there is ultimately no sale of such goods.

Under Sales Tax laws, generally no particular requirements about satisfying the goods return claim are notified. The claim is to be supported by satisfactory proof which will depend upon facts of each case. The requirement of supporting will depend upon the nature of business. In case of retailers who are normally dealing with household consumers, there cannot be all sequential documents like debit note, goods movement proof etc.. Further these goods are sold to consumers in nearby area wherein there will not be any movement by way of transport etc.. The return deliveries may be by way of hand delivery or bringing the goods by way of local conveyance like taxi or own vehicles etc..

Further, such customers will not be maintaining accounts so as to provide debit notes etc..

Therefore, the documents maintained by the selling dealer should be considered for successful claim. The entries in the books of accounts of the seller as well as stock records, if any, of the selling dealer will be strong supporting material.

The goods return claims are based on facts of each case and cannot be put into any straight jacket requirements. Recently, Hon. Calcutta High Court had an occasion to deal with such issue. Reference can be made to the judgment in case of MIRC Electronics Ltd. v. Deputy Comm. Commercial Tax, Corporate Div. and others (56 GSTR 429)(Cal). In this case the short facts narrated by Hon. High Court are as under:

“According to the petitioner, the petitioner would sell the goods and raise invoices on retailers who would, from time to time, cancel some of the concluded purchases by issuing written requests for cancellation. The petitioner claims that since most of the retailers did not have adequate space to store the goods, the goods would remain with the petitioner in the petitioner’s godown and lots thereof would be removed by the retailers as per their convenience. The petitioner claims that nothing in the West Bengal Value Added Tax Act, 2003 obliges a dealer claiming sales return or cancellation of invoice to demonstrate that the goods had physically left the godowns of the dealer and were subsequently physically carried back by the purchaser to the dealer.”

After observing about nature of dispute, Hon. High Court has held as under:

“If the Act of 2003 does not discard a sales return merely on the ground that transport documents in respect thereof are not available, the Board could not have discredited that part of the petitioner’s claim merely on the ground that the petitioner could not produce any transportation documents evidencing either the initial transportation of the goods to the buyers or the subsequent receipt of the goods from the buyers.

The petitioner has appended the particulars detailing the invoices of the goods covered by the sales returns and cancelled documents claim. Once the invoice number is disclosed, the relevant invoice can be tallied to ascertain the identity of the goods covered thereby. If there are matching records to show the cancellation of the sale of the same goods and subsequent records to show the sale of the very same goods to a third party, that may suffice for the purpose of establishing any sales return within the meaning of Section 2(55)(b) of the Act of 2003.”

Thus, the goods return claim cannot be put into any straight jacket formula. It depends upon facts of each case. However, the overall situation is that if the goods return is accounted in the books of seller and further that the goods are available in stock or subsequently sold, then it will be sufficient evidence for allowing the claims.

In case of retailer querist, the above criteria will apply. It appears that retailer has accounted the goods return. Along with other evidences like subsequent sale of such goods, there is sufficient supporting for goods return claim. The non-availability of debit notes or transport proof etc. cannot affect the claim. The objection of the authorities is not justified.