NEW DELHI: The government is looking into the biggest concern of online retailers with the goods and services tax (GST) — rules relating to returned goods that have at times even reached as high as half their sales.
The draft GST law does not provide for credit on tax paid on returned goods, potentially imposing double taxes on sellers — tax paid on returned goods and again when replacements are provided. GST may be put in place as early as April 1.
The industry also fears return of the permit raj, with the law allowing states to seek additional documents from transporters carrying goods exceeding Rs 50,000.
“Industry probably prefers more clarity as the term ‘sales return’ has not been used,” said an official, adding that it could be examined. Online sale returns average around 30%, but in India this can be as high as 50%.
The GST law, however, does not provide for any refund or adjustment of tax already paid on goods returned by customers.
This means the seller has to pay tax twice if a replacement is provided.
In case money is refunded to the buyer, sellers have to pay the tax as no credit is allowed.
The industry has raised the issue with the government.
“This will also lead to double taxation when the said returned goods are resold after repairs, refurbishment or repacking or as scrap,” said an official with a leading e-commerce company.
Online retailers may be worse off. “In case of sellers selling goods through ecommerce platforms, the sellers will be at a disadvantage as compared to offline counterparts as GST on sales return may become an additional cost given the mismatch on account of tax collected at source and liability calculated by seller accounting for the goods returned,” said Bipin Sapra, partner, EY.
“Accordingly, tax collection at source will create more disputes and hence more litigation.”
Excise and state value-added tax laws provide for tax adjustments on goods which are returned within a prescribed time limit.
Industry has suggested a provision for refunds and adjustment of tax paid earlier to be incorporated in sales returns through the mechanism of credit notes raised by sellers on themselves.
The government is however unable to provide a firm assurance on the matter as of now because the GST law is to be framed in consultation with the states.
UNDERMINING ONE INDIA
The online retailers are equally worried about a provision in the draft law that can fragment the national market the GST seeks to create.
It allows states to seek any additional paperwork for a consignment of value in excess of Rs 50,000. Industry says there are two adverse consequences of this open-ended provision.
One, because it is a non-standard provision, states can demand different paperwork, fragmenting the national market.
“The idea of GST is to have a one common market and system of road permits and check posts are not in line with this,” said Pratik Jain, partner and leader, indirect tax, PwC.
“In any case, on interstate movement of goods, IGST will be collected upon dispatch from originating state and transaction will be tracked on GSTN system. Therefore, the destination state doesn’t need this document. Transporters can be asked to carry a copy of the tax invoice rather than having a requirement of a road permit.”
Besides, it would give officials powers to seek documents.
Border checks will also increase in the case of inter-state trade because of this rule, undermining the benefit of faster logistics under GST.
Given a technology enabled GST compliance system, tax invoices should suffice for documentation.