The Good and Services Tax (GST) is expected to roll out on April 1, 2017. However, the government is reportedly looking into the biggest concern of online retailers regarding returned goods. When inspected, the draft GST law doesn’t provide any credit on tax paid on returned goods.

This will seriously impose double taxes on sellers like when the goods are originally sold and when replacements are provided. Meanwhile, industry sources have expressed concern over the return of the permit Raj, where few states have imposed restrictions like submission of additional documents from transporters carrying goods exceeding Rs. 50,000. According to a finance ministry official, the matter will be looked.

In India, the rate of returns arising out of online sales is as high as 50 percent. However, the global return rate is only around 30 percent. The worst affected will be Amazon since all products except smartphones, computers, and cameras are not eligible for return. The GST will not have any effect on the books since there is no tax involved. The main problem will be with the sale of apparels and footwear’s, where the rate of return is high.

Twice Taxable

If the GST bill is implemented in the current format, the seller will have to pay tax twice if a replacement is provided. In case the payment is refunded, sellers have to pay the tax since no credit is allowed. The industry has already raised the issue with the government.

Responding to media, a top official of a leading e-commerce company revealed that this will lead to double taxation when the returned goods are resold after repairs, refurbishment or repacking or as scrap.

It’s advantage for offline sellers

He added that sellers selling goods through e-commerce platform will be at a disadvantage when compared to offline counterparts. The GST on returns from actual sales may become an additional cost. This is because there will be a mismatch on account of tax collected at source and liability calculated by seller accounting for the goods returned.

Tax at source will have disputes

Actually speaking, tax collection at source will create more disputes and hence we should be prepared for more litigation. Meanwhile, excise and state value-added tax provide provision for tax adjustments on goods which are returned within a fixed time limit.

In the meantime, industry has suggested a mechanism to deal with this issue by providing a provision for refunds and adjustment of tax paid. This could be done through the mechanism of credit notes raised by sellers on themselves.

However, the government is unable to provide an assurance on the issue. This is because the GST law is to be framed in consultation with the relevant state governments.