Supply of Demo Equipment – Date of GST Applicability
Sale of Demo Equipment is also referred to as “Sale on approval” under GST Laws.
Sale on Approval is a business arrangement wherein an individual or company who is interested in purchasing a specific item is allowed to use the item for a given length of time. At the end of that time, if the individual is satisfied with the item, they agree to purchase it. However, if the individual is unsatisfied for any reason, they are allowed to return the item and are not committed to purchasing it.
Supply on approval basis
The GST does provide for supply of goods or services or both. No sale is involved. Title as well as possession both has to be transferred for a transaction to be considered as a supply of goods. In case title is not transferred, the transaction would be treated as supply of service in terms of Schedule II (1) (b). In some cases, possession may be transferred immediately but title may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.
Major Issues in goods sent approval basis
There are various issued involved in goods sent for approval basis. For example the suppliers of jewellery or Demo Equipments like Aquaguard or technical testing machines who registered in one State are to visit to other States and required to carry the goods along with him for the approval of the recipient. In such cases if the jewellery is approved by the buyer, then the supplier will issue a tax invoice only at the time of supply. Since the suppliers are not able to ascertain their actual supplies before hand and while ascertainment of tax liability in advance is a mandatory requirement for registration as a casual taxable person, the supplier is not able to register as a casual taxable person. Besides, such jewelleries may also be carried within the same State for the purpose of supply.
Clarification by CBEC
Vide Circular No. 10/10/2017-GST,dated 18.10.2017 the CBEC considered the various communications received from the stakeholders in respect of the said subject, the clarified the above issue for the purpose of uniformity in the implementation of the Act.
The circular analyzed the provisions of Rule 55. Rule 55(1)(c) of Central Goods and Services Tax Rules, 2017 provides that the supplier shall issue a delivery challan for the initial transportation of goods where such transportation is for reasons other than by way of supply. Rule 55(3) provides that the said delivery challan shall be declared as specified in Rule 138. Rule 55(4) provides that where the goods being transported are for the purpose of supply to the recipient but the tax invoice could not be issued at the time of removal of goods for the purpose of supply, the supplier shall issue a tax invoice after delivery of goods.
The Circular indicates that a combined reading of the above said provisions made it clear that the goods that are taken for supply on approval basis can be moved from the place of business of the registered supplier to another place-
- within the same State; or
- to a place outside the State
on a delivery challan with the e-way bill wherever applicable. The invoice may be issued at the time of delivery of the goods. For this purpose, the person carrying the goods for supply of such goods can carry the invoice book with him so that he can issue the invoice once the supply is fructified.
The Circular further clarified that all such supplies, where the supplier carries goods from State to another and supplies them in a different State, will be inter-State supplies and attract integrated tax in terms of Section 5 of the Integrated Goods and Services Tax Act, 2017.
It is also clarified that this clarification would be applicable to all goods supplied under similar situations
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