ITC reversal on goods sent for exhibition abroad not sold: GST rules and Circular 108

In practice, Indian exporters across jewellery, handicrafts, apparel, machinery, and engineering sectors frequently take goods out of the country to participate in foreign trade fairs, exhibitions, or overseas buyer demonstrations. Because no overseas sale contract exists at the moment the cargo leaves the Indian port, accounts teams often struggle with the correct GST classification. In our client filing work, when items displayed in Dubai, Frankfurt, or Las Vegas fail to attract buyers and remain overseas in warehouses or liaison offices, accountants face an urgent compliance question: does the unsold stock force an ITC reversal in Table 4(B) of Form GSTR-3B?

In our practice, the clear statutory position established by CBIC is no. You do not reverse input tax credit on unsold exhibition goods. The legal framework treats this movement as goods sent on approval under Section 31(7) of the Central Goods and Services Tax (CGST) Act. Understanding the exact documentation, timeline thresholds, invoicing mechanics, and refund procedures ensures your business stays compliant while avoiding unwarranted tax leakages.

Why taking goods abroad for exhibition is not a supply at removal

Under Section 7 of the CGST Act, a transaction qualifies as a supply only when it satisfies two basic conditions: it must be made for a consideration, and it must be in the course or furtherance of business. While participation in an international trade fair clearly furthers business growth, taking goods out of India on consignment or exhibition basis involves zero consideration at the time of removal. There is no buyer, no contract of sale, and no transfer of title.

The statutory exceptions in Schedule I of the CGST Act, which treat certain activities without consideration as supplies, do not apply unless the movement is between distinct persons or related entities. Therefore, as clarified in paragraph 6 of Circular No. 108/27/2019-GST dated 18 July 2019, taking specified goods out of India for exhibition or export promotion does not constitute a supply under Section 7. Because it is not a supply, it cannot be classified as a zero-rated export under Section 16 of the Integrated Goods and Services Tax (IGST) Act at the time of initial dispatch.

Mandatory documentation: delivery challan and customs shipping bill

Because no supply occurs at the point of removal, you cannot issue a tax invoice under Section 31. Instead, the cargo moves under a delivery challan pursuant to Rule 55 of the CGST Rules. Rule 55(1)(c) explicitly authorizes the issuance of a delivery challan for transportation of goods for reasons other than by way of supply, including goods removed on approval for sale or return.

The delivery challan must be serially numbered up to 16 characters in one or multiple series, containing all particulars specified in Rule 55(1), including the date, description of goods, HSN code, quantity, taxable value, and tax rates applicable. When filing shipping documentation with Indian Customs at the port of export, the exporter files a shipping bill under a free shipping bill format or exhibition category, referencing the Rule 55 delivery challan number instead of a commercial tax invoice.

In addition, paragraph 7 of Circular 108 mandates that registered persons maintain a comprehensive register of all specified goods sent or taken out of India. This register tracks the cargo through 18 distinct columns:

The register records the folio number, description of goods, quantity, unit value, total value, removal date, delivery challan reference, shipping bill number and date, details of goods supplied abroad (invoice number, date, quantity, value), and details of goods brought back into India (bill of entry number, date, quantity, and value). Maintaining this register provides verifiable evidence to your jurisdictional GST officer and customs authorities.

The six-month deadline under Section 31(7)

Moving goods abroad on approval is governed by Section 31(7) of the CGST Act. This provision states that where goods sent or taken on approval for sale or return are removed before supply takes place, the tax invoice must be issued before or at the time of supply, or six months from the date of removal, whichever is earlier.

This creates a strict six-month statutory window starting from the exact date the goods were removed from your registered place of business in India. Depending on what happens to the goods overseas during this six-month period, the GST law establishes three distinct legal paths:

1. Goods brought back within six months: If the unsold exhibition goods are re-imported into India within six months from the removal date, no supply has taken place. No tax invoice is issued. The re-importation is documented against the original delivery challan, shipping bill, and import bill of entry. Customs authorities extend duty exemptions on such re-imports subject to Foreign Trade Policy conditions.
2. Goods sold abroad within six months: If an overseas buyer approves and purchases the goods (fully or partially) during the trade fair or within the six-month window, the supply crystallizes on the date of sale. You must issue a tax invoice under Section 31 read with Rule 46 for the specific quantity sold, dated on or before the sale date.
3. Goods neither sold nor brought back within six months: If six months expire from the date of removal and the goods are neither sold abroad nor returned to India, the law creates a statutory fiction: the supply is deemed to have taken place on the exact date of expiry of the six-month period. You must issue a tax invoice under Section 31(7) on that expiry date for the entire unsold and unreturned quantity.

Why ITC reversal is not required when goods remain unsold

When goods remain unsold abroad after six months, some corporate accounts departments mistakenly assume that the inputs used in manufacturing or purchasing those goods must be reversed under Section 17(5)(h) or Rule 42. This is an expensive legal misunderstanding.

Section 17(5)(h) restricts input tax credit on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples. Goods sent for exhibition abroad are not lost, destroyed, or given away as gifts. They remain physical inventory of the enterprise held overseas for business promotion. More importantly, when the six-month deadline expires, the unsold goods do not vanish into an exempt supply; Section 31(7) legally deems them to be an outward supply.

Because the physical location of the goods is outside India and the supplier is in India, this deemed transaction represents an outward export supply. Export of goods is classified as a zero-rated supply under Section 16(1)(a) of the IGST Act. Under Section 16(2) of the IGST Act, credit of input tax may be availed for making zero-rated supplies, even if that supply is an exempt supply. Therefore, input tax credit availed on inputs, raw materials, packaging, and input services is fully protected and does not require reversal in Form GSTR-3B.

Invoicing mechanics and GST return reporting

When the six-month period expires without the goods being returned or sold, the exporter must issue a formal export tax invoice in compliance with Rule 46 of the CGST Rules. The invoice date must be the exact date on which the six-month period ends.

In the export tax invoice, declare the recipient as the overseas consignment agent, foreign branch, exhibition buyer, or the overseas entity holding custody of the cargo. The invoice must state that the supply is an export of goods without payment of integrated tax. You then declare this invoice in your regular GST returns as follows:

• Form GSTR-1: Report the invoice in Table 6A (Exports). Select the supply type as zero-rated export without payment of tax. Provide the original shipping bill number and port code under which the goods left India. If the shipping bill details are not accepted by the portal validation, the invoice is uploaded with the actual export invoice date.
• Form GSTR-3B: Report the taxable value in Table 3.1(b) under 'Outward taxable supplies (zero rated)'. Do not report any tax liability in the integrated tax column because the transaction is executed without payment of tax.

For related guidance on zero-rated compliances, review our analysis of export of services without payment of tax LUT and our step-by-step walkthrough of GST refund of unutilized ITC on zero-rated supplies under LUT. If your business also sends components to third-party processors, compare these timelines with ITC reversal on job work goods not returned under Section 143.

Claiming refund of unutilized ITC under Rule 89(4)

An official clarification in paragraph 7(5)(c) of the circular resolves how exporters can monetize accumulated input tax credit on exhibition goods. Because the supply is deemed to take place after the physical shipping bill was already processed by customs, the automated IGST refund route through customs under Rule 96 (export with payment of tax) is unavailable.

Instead, the exporter must claim a refund of accumulated unutilized input tax credit under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules. Even though the goods initially moved abroad without an LUT or bond, the circular confirms that the exporter remains fully eligible to prefer an electronic refund claim in Form GST RFD-01 on the GST portal.

The refund amount is calculated using the statutory formula prescribed under Rule 89(4):

Here, Net ITC includes input tax credit availed on inputs and input services during the relevant tax period (excluding capital goods). The turnover of zero-rated supply of goods includes the value of the deemed export invoice, subject to the statutory ceiling of 1.5 times the domestic value of like goods.

Worked example: tax impact of exhibition stock abroad

For example, consider M/s Bharat Precision Tools, a manufacturer registered in Pune, Maharashtra. On 10 November 2025, Bharat Precision dispatches 500 precision measuring instruments to a commercial exhibition in Hannover, Germany. The domestic manufacturing cost is ₹1,000 per unit, and the fair market export value is ₹1,600 per unit. Bharat Precision incurred ₹90,000 of input tax credit (CGST ₹45,000 and SGST ₹45,000 at 18%) on raw materials, packaging, and testing services directly attributable to this consignment.

The cargo moves out of the Pune factory on 10 November 2025 under Rule 55 Delivery Challan No. DC/25-26/084 and Shipping Bill No. 8492011 dated 15 November 2025. During the trade fair, 300 units are sold to European buyers on 15 December 2025. The remaining 200 units are transferred to a bonded storage facility in Hamburg for prospective sales. As of 10 May 2026, exactly six months from removal, the 200 units remain unsold and are not returned to India.

The financial ledger shows zero credit loss for Bharat Precision Tools:

1. For the 300 units sold on 15 December 2025, Bharat Precision issues an export invoice of ₹4,80,000 and files Form GST RFD-01 under Rule 89(4) to claim the proportional Net ITC of ₹54,000 (300 ÷ 500 × ₹90,000).
2. For the 200 units remaining in Hamburg on 10 May 2026, Bharat Precision issues an export invoice for ₹3,20,000 on 10 May 2026. The transaction is reported in Table 6A of Form GSTR-1 and Table 3.1(b) of Form GSTR-3B for May 2026 as an export without payment of tax.
3. Bharat Precision files an electronic refund application in Form GST RFD-01 for May 2026, claiming refund of the remaining ₹36,000 unutilized ITC (200 ÷ 500 × ₹90,000).
4. If European buyers later purchase these 200 units or if they are re-imported into India after May 2026, customs entry occurs on the strength of the export tax invoice and re-import bill of entry without distorting the domestic GST returns.

Common compliance mistakes on exhibition goods

Audits and tax notices on cross-border exhibition movements typically stem from three administrative lapses:

Related guides

• Pharma expired medicine ITC reversal: circular rules and procedure
• ITC on free replacement warranty goods: Circular 195 explained
• ITC reversal Rule 43 capital goods formula: step-by-step math and GSTR-3B reporting
• ITC reversal on sale of capital goods: Section 18(6) and Rule 44 calculation formula

Frequently asked questions

Last checked: 19 October 2026. Official sources: CBIC Circular No. 108/27/2019-GST, Section 31 CGST Act (CBIC), Rule 55 CGST Rules (CBIC), and Section 54 CGST Act (CBIC).