Analysis of Sale on Approval basis under GST


Introduction: In simple words sale on approval basis means when transport of goods takes place from seller to a buyer with the option to retain or return the goods within a specific period time if not satisfied after use. Such situations have implications on GST return filing as well.

Let’s discuss the following example to understand the above definition

Suppose Mr. A is a manufacturer (or wholesaler) who has a regular customer, Mr. B. Mr. A transports the items to Mr. B and gave him an offer. He said that Mr. B can keep the items for 3 months (specified period time) without paying for them. Mr. B. can sell these items and pay for the same to Mr. A or he can return the items within a specific period. Suppose Mr. A transports the goods on 1st July 2020 and Mr. B can return the items till 1st October 2020. Mr. B liked the offer and kept the goods for 3 months.

Note: The above items are only transported to Mr. B. There is no sale involved hence Mr. A cannot raise a tax invoice and has to issue a delivery challan.

Now Mr. B has three options

  • He can sell the items
  • He can return the items to Mr. A within 3 months i.e. till 1st
  • He can also transfer or gift the items to a third party.


If Mr. B sold the items or transfers them to some third party it means he has accepted the goods and the sale is made. Now at this time, Mr. A can raise a tax invoice and there is a change in ownership.

Note: When the goods were transported from Mr. A to Mr. B there was a change in possession not in ownership.

When Mr. B will sell the items then only there is a change in ownership.


If Mr. B returns the items to Mr. A within the specified period of time then there is no sale and Mr. B will not be liable to pay any GST.

Note: There is no liability of goods on Mr. B till the time he doesn’t sell the goods.


If Mr. B doesn’t return the items or returns them after the specified period then it will be assumed that a sale is made and both the parties are liable to pay GST.

Note: The above example is hypothetical. There can be different specified periods for different items.

Why there is a need for Sale on Approval Basis?

  • When a business wants to increase its sale or wants to introduce a new product in the market, he faces hardships due to the competition

So to counter this, he sometimes sends the goods on an approval basis.

Features of Sale on Approval Basis

When the goods are sent from a manufacturer (or wholesaler) to the customer/buyer then there is a change of possession.

  • There is no immediate transfer of ownership. Ownership passes when the customer/ buyer approves the sale.
  • There is no liability of goods on the customer/buyer till the time he sells the goods. Even if the buyer/customer has paid advance to the seller/manufacturer and he returns the items within the specified period time then the customer/buyer will receive a refund.

Points to remember

  • If the buyer/customer/agent is registered under GST Registration then he will liable to pay GST on return of goods to the seller/principal. It will be counted as a supply from the customer/agent/buyer to the seller/principal.
  • If the buyer/customer/agent is not registered under GST Registration Online then the seller or the person who has made a supply on approval basis is liable to pay GST.
  • The specified period time can be extended to two months by the commissioner if there is a valid reason.