The buyer rejected the goods at the gate — how do they come back?
Buyer refused the consignment? How rule 138 e-way bill cancellation, the return movement and a section 34 credit note fit together.
CA Harun Raaj
pvtltd.co
The truck reached the buyer's gate, the consignment was refused, and it is now either standing there or on its way back to you. The question everyone asks first is about the e-way bill they already generated for the outward trip. The better question is about the return leg and the tax correction, because those are the ones that get missed.
What to do now
- Next step: if the goods have not actually moved (or turned back at your own gate), cancel the e-way bill on the portal (rule 138(9)). If they have moved and are coming back, furnish the information for that movement before it starts (rule 138(1)), then raise a credit note under section 34(1).
- Deadlines: cancellation, "within twenty four hours of generation" (rule 138(9)). Credit note, declared in the return for the month of issue, "but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier" (section 34(2)).
- Consequence: under the proviso to section 34(2), no reduction in your output tax liability is permitted if the input tax credit attributable to the credit note, if availed, has not been reversed by a registered recipient.
Have a CA review your facts before you reply or file.
Two separate things are happening
It helps to separate the portal act from the physical one.
On the portal, rule 138(11) provides that the details of the bill are made available to the supplier or the recipient (whichever did not furnish Part A), "and the supplier or the recipient, as the case may be, shall communicate his acceptance or rejection of the consignment covered by the e-way bill". Rule 138(12) puts a clock on saying nothing: "Where the person to whom the information specified in sub-rule (11) has been made available does not communicate his acceptance or rejection within seventy two hours of the details being made available to him on the common portal, or the time of delivery of goods whichever is earlier, it shall be deemed that he has accepted the said details."
Physically, the goods are moving back to you. Rule 138(1) keys the requirement to the movement: "Every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees ... shall, before commencement of such movement, furnish information relating to the said goods as specified in Part A of FORM GST EWB-01, electronically, on the common portal". Whether a particular return load needs a bill depends on that value threshold and on the exemptions listed in rule 138(14), which this note does not walk through.
Rule 138(11) and (12) speak of acceptance or rejection of "the consignment covered by the e-way bill". They do not say that a rejection recorded on the portal operates as the e-way bill for a return trip, and this note does not assert that it does. Arrange the return documentation before the goods start moving.
If the goods never left your premises properly
Sometimes the rejection is visible before the load is dispatched: the buyer calls to say the specification is wrong, the consignment is stopped at your own gate, the truck turns around in your yard. Nothing has been transported, which is the ground rule 138(9) contemplates: "Where an e-way bill has been generated under this rule, but goods are either not transported or are not transported as per the details furnished in the e-waybill, the e-way bill may be cancelled electronically on the common portal within twenty four hours of generation of the e-way bill."
That path is available for twenty four hours from generation. One exception sits on top: "Provided that an e-way bill cannot be cancelled if it has been verified in transit in accordance with the provisions of rule 138B." If the consignment was checked on the road before it turned back, cancellation is barred regardless of the clock.
If the 24 hours are gone, rule 138(9) offers no later cancellation window. The bill carries its own validity under rule 138(10): one day up to 200 km, with one additional day for every 200 km or part thereof, counted as "the period expiring at midnight of the day immediately following the date of generation of e-way bill" (Explanation 1 to rule 138(10)). Do not dispatch goods under a bill past its validity, and note that a fresh movement needs its own Part A information under rule 138(1).
The tax correction: a credit note
The returned supply has to be unwound on the tax side, and section 34(1) of the CGST Act names returned goods as one of its grounds:
"Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed."
Note what the section provides: the supplier "may issue to the recipient" a credit note. Section 34(1) speaks of issuing credit notes against invoices already issued; it does not say the original invoice is to be cancelled, and this note does not suggest cancelling it.
The credit note has its own deadline, and it is not the date of the rejection. Section 34(2):
"Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed".
The condition that decides whether you reduce your output tax
Even a properly raised and declared credit note does not reduce output tax automatically. The proviso to section 34(2), as substituted by the Finance Act 2025 with effect from 1 October 2025 (Notification No. 16/2025-CT dated 17.09.2025), reads:
"Provided that no reduction in output tax liability of the supplier shall be permitted, if the (i) input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or (ii) incidence of tax on such supply has been passed on to any other person, in other cases."
For a gate rejection this is the clause to watch. If your buyer is registered and had already taken credit on the original invoice, your reduction depends on the buyer having reversed the attributable credit. The commercial conversation and the tax outcome are therefore not the same conversation: agree the return, and also confirm that the buyer has reversed the credit. Where the credit is not reversed, the proviso bars the reduction in your output tax liability.
The text of the proviso before 1 October 2025 was different ("incidence of tax and interest on such supply has been passed on to any other person"). Material written before that date may describe the old wording.
What not to do
Do not send the goods back without a document for the return movement. Rule 138(1) attaches to the movement of goods, subject to the value threshold and the exemptions in rule 138(14).
Do not treat the buyer's portal rejection as the return paperwork. Rules 138(11) and (12) concern acceptance or rejection of the consignment covered by the bill; they do not create a bill for the return trip.
Do not raise a credit note and assume the tax reverses. Check the proviso to section 34(2) before you book the reversal.
Do not leave the credit note for the year-end clean-up if the supply was in the previous financial year. The declaration deadline is the earlier of 30 November after that year or the annual return.
The short version
FAQ
The buyer rejected the goods but the e-way bill was generated yesterday. Can I cancel it? Yes, if you are within twenty four hours of generation, the goods were not transported (or not as the bill describes) and the vehicle was not verified in transit (rule 138(9) and its first proviso).
Do I need a fresh e-way bill for the return trip? Rule 138(1) requires the Part A information for a movement above the threshold before it begins. Exemptions in rule 138(14) are not covered in this note.
Does the original invoice have to be cancelled? Section 34(1) provides for a credit note where goods supplied are returned. It does not provide for cancelling the invoice.
The buyer says he will "reject it on the portal". Is that enough for my tax? Rules 138(11) and (12) deal with acceptance or rejection of the consignment. A reduction in output tax comes through a credit note and is subject to the proviso to section 34(2).
What is my deadline? Two different ones. Bill cancellation is within twenty four hours of generation (rule 138(9)). The credit note must be declared in the return for the month of issue, and no later than 30 November after the financial year of the supply or the annual return, whichever is earlier (section 34(2)).
Rule 138 and section 34 are quoted from the current text in the CGST Act and Rules bare-law compilation (as amended up to November 2025). General information, not advice on a particular consignment.
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See Also
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