field debit

[Ramakrishnan Seshadri]

Dear Sir,

We are manufacturer of automobile parts.We import components from our supplier. for manufacturing the parts.Sometimes the components may get fault and our customer will debit us for the same. In turn we have decided to raise invoice as field claim warranty for this defect to our overseas supplier. Now our question whether we have reverse the cenvat credit for the value of the invoice raised or what is the procedure.

Kindly guide us in this issue.

Thanks & Regards,

S.Ramakrishnan

[KASTURI SETHI]

Dear Sir,

In this situation, duty-paid inputs/components have not been used in the manufacture of dutiable final product. It is a fact.Component becomes scrap/unusable, it being un-repairable. It is also a fact that duty already stands deposited into Govt. account which would not be refunded to the payer in any form whether drawback or refund (It is supposed.). Thus first condition of usage of the component in the manufacture of final product has not been fulfilled.Second condition stands fulfilled as no chance of refund of duty. If you are able to re-export the defective component, then you can claim drawback. In that situation, you will have to reverse the credit taken. However, even if you do not re-export the goods but gets the amount (including the element of Customs duty/CVD etc) back from the overseas supplier, you are required to reverse the cenvat credit on the ground that none has right to keep the amount of Govt. duty in one's pocket.

AI Summary

Manufacturer Must Reverse CENVAT Credit on Defective Imported Parts; Drawback Possible on Re-Export Under Rule 16. A manufacturer of automobile parts queried about handling defective imported components that are debited by customers. They plan to invoice their overseas supplier for warranty claims and seek guidance on whether to reverse the CENVAT credit. The response clarifies that since the duty-paid components were not used in manufacturing a dutiable product, the credit must be reversed. If the defective components are re-exported, a drawback can be claimed. However, even without re-exporting, if the supplier refunds the amount, including customs duty, the manufacturer must reverse the CENVAT credit as the duty cannot be retained.