Sir,
We are debiting our vendors relating to the poor quality of their product.The vendor will be debited by us under the advice given by the quality department. The materials will not be returned but to make them aware and in future the quality should be improved the vendor will be debited.
Now,we are audited by the caap audit team of central excise. They questioned the quality debit and asked us to debit excise duty for this debit. They are saying that under Clause E under section 66E of the service tax act the excise duty has to be debited.
Could anybody guide us whether excise duty has to be debited for this vendot quality debit.
Awaiting your reply.
Regards,
S.Ramakrishnan.
Debiting Vendors for Poor Quality Products Sparks Debate on Service Tax Under Clause E, Section 66E of Finance Act 1994. A company is debiting its vendors for supplying poor quality products without returning the materials, intending to prompt future quality improvements. During a CAAP audit by the Central Excise, the auditors questioned this practice, suggesting that excise duty should be debited under Clause E of Section 66E of the Finance Act, 1994, which classifies tolerating an act as a 'Declared Service' subject to service tax. Responses varied, with some agreeing that service tax is applicable, while others argued against it, likening it to a forced discount. The discussion highlights differing interpretations of the clause and its implications. (AI Summary)
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