Goods on consignment are a type of selling arrangement in which the seller (the consignor) provides goods to another party (the consignee) to sell, but retains the ownership and risk of the goods until they are sold. The consignee pays the consignor a predetermined amount or commission for each sale, and returns any unsold goods to the consignor. Goods on consignment are also called consignment sales or consignment inventory.
Consignment sales are a common practice in many industries, such as clothing, books, art, jewelry, and vehicles. They offer benefits and drawbacks for both the consignor and the consignee, depending on the terms of the agreement and the nature of the goods.
In this article, we will explain what goods on consignment are, how they work, and what are some common misconceptions about them. We will also provide some examples of goods on consignment and how they are accounted for under GST regime in India.
Contents
How do goods on consignment work?
The basic steps involved in a goods on consignment arrangement are as follows:
- The consignor and the consignee enter into a written agreement that specifies the terms and conditions of the consignment sale, such as the price, commission, duration, return policy, and responsibility for transportation, storage, insurance, and taxes.
- The consignor delivers the goods to the consignee’s premises or location, but does not issue an invoice or transfer the title or ownership of the goods. The goods remain as part of the consignor’s inventory until they are sold.
- The consignee displays or markets the goods to potential customers, but does not pay for them upfront or record them as part of their inventory. The consignee acts as an agent or intermediary for the consignor.
- When a customer buys a good from the consignee, the consignee collects the payment from the customer and issues a sales receipt. The consignee then notifies the consignor of the sale and remits the agreed amount or commission to the consignor. The consignor then issues an invoice to the consignee and records a sale and a cost of goods sold. The title or ownership of the good passes from the consignor to the customer at this point.
- If some goods remain unsold by the end of the agreed period, the consignee returns them to the consignor at no cost. The consignor then removes them from their inventory and may try to sell them through other channels.
What are some common myths about goods on consignment?
There are some statements related to goods on consignment that are often misunderstood or false. Here are some examples:
- Goods on consignment are always cheaper than regular goods. This is not necessarily true. The price of goods on consignment depends on various factors, such as the demand, supply, quality, condition, and rarity of the goods, as well as the commission charged by the consignee. Sometimes, goods on consignment may be more expensive than regular goods if they are unique, antique, or in high demand.
- Goods on consignment are always second-hand or used goods. This is also not true. Goods on consignment can be new or used, depending on the type and source of the goods. For example, some authors may sell their books on consignment to bookstores to reach a wider audience. Some artists may sell their paintings on consignment to galleries to showcase their work. Some manufacturers may sell their products on consignment to retailers to test their market potential.
- Goods on consignment are always taxable under GST regime in India. This is false. Goods on consignment are not taxable under GST regime in India until they are sold by the consignee to a customer. According to Smart Capital Mind, “a goods on consignment deal can include just about any type of goods”. However, when the sale occurs, GST is applicable on both the supply of goods from the consignor to the customer and the commission paid by the customer to the consignee. Therefore, the consignor and the consignee must register under GST and issue tax invoices accordingly.
What are some examples of goods on consignment?
Here are some examples of goods that can be sold on consignment:
- Clothing: Some clothing stores may accept clothes from individuals or designers who want to sell their items without investing in a storefront or inventory. The store may charge a percentage of each sale as commission and return any unsold clothes after a certain period.
- Books: Some bookstores may accept books from authors or publishers who want to promote their books without paying for shelf space or distribution. The bookstore may charge a flat fee or a percentage of each sale as commission and return any unsold books after a certain period.
- Art: Some galleries may accept paintings, sculptures, or other artworks from artists who want to exhibit their creations without paying for rent or security. The gallery may charge a percentage of each sale as commission and return any unsold artworks after a certain period.
- Jewelry: Some jewelry stores may accept jewelry from individuals or makers who want to sell their pieces without paying for storage or insurance. The store may charge a percentage of each sale as commission and return any unsold jewelry after a certain period.
- Vehicles: Some car dealerships may accept vehicles from individuals or dealers who want to sell their cars without paying for registration or maintenance. The dealership may charge a percentage of each sale as commission and return any unsold cars after a certain period.
Conclusion
Goods on consignment are a type of selling arrangement in which the seller (the consignor) provides goods to another party (the consignee) to sell, but retains the ownership and risk of the goods until they are sold. The consignee pays the consignor a predetermined amount or commission for each sale, and returns any unsold goods to the consignor.
Goods on consignment offer benefits and drawbacks for both the consignor and the consignee, depending on the terms of the agreement and the nature of the goods. Goods on consignment can be new or used, cheap or expensive, and taxable or not taxable under GST regime in India, depending on various factors.
Some common types of goods that can be sold on consignment are clothing, books, art, jewelry, and vehicles. However, goods on consignment are not limited to these categories and can include any type of goods that the consignor and the consignee agree upon.
