Receipt of replacement Material under Warrenty

[Manjunath S]

Dear Experts,

We are a registered Manufacturers in Karnataka,

In July 2018, We Purchase a Machinery spares by paying IGST, after installation of that spares, it is get damaged within10 days, but actual warranty for that material is 1 year.

We intimated the supplier and he agreed to give replacement, and he told us to scrap that material since it is UnRepairable/Exposed.

Now he is supplying New Material with Another Tax invoice with IGST and giving Credit Note only for the Basic Amount for the rejected material.

My Query is:

a) Is this Procedure is correct ?

b) Is it require to reverse IGST Credit availed from us for the rejected material ? but supplier issuing Credit note only for Basic Amt.

Kindly explain in detail about the procedure to be followed in these type of issues.,

Thanks in advance.

Regards,

Manjunath S

[Nash Industries I Pvt Ltd]

The supplier to give credit note including the GST amount. The tax payable by the supplier is reduced to the extent of the credit note. The recipient not to avail the ITC on the first invoice.

The supplier to supply the replacement on a new invoice with GST. The Input Tax Credit shall be based on the second invoice i.e. replacement invoice.

Regards

S.Ramaswamy

[Rajagopalan Ranganathan]

Sir,

According to Section 34 (2) of CGST Act, 2017 "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 September 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:

Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

Therefore in your case since Machinery spares were supplied by paying IGST the incidence of IGST had already been passed on to you and you could have availed ITC of the same. Therefore your supplier has correctly issued crredit note for the base price of the spares. However when you sell the damaged spares you have to discharge gst on the transaction value. For discharging the gst on the scrap you can utilise the ITC already availed.

[DR.MARIAPPAN GOVINDARAJAN]

In my view the procedure adopted by the supplier is correct.

[Ganeshan Kalyani]

There is revenue neutral. The supplier is to charge GST on the credit note to take benefit from his side. But the recipient has to reverse the credit. Now by passing credit not for the basic amount the recipient need not have to reverse the credit. And the supplier also tend to have paid full tax. Thanks.

[subramanian vijayakumar]

I agree with the views of the expert Rajagobalan renganathan Sir

AI Summary

Input Tax Credit adjustments on replacement supplies require credit notes reflecting tax and correct ITC reallocation. When a supplier replaces defective goods supplied under IGST but issues a credit note only for the basic value and invoices the replacement with IGST, the supplier should ideally issue a credit note including the tax component so the supplier's output tax liability is reduced; the recipient should not retain ITC on the original invoice and may claim ITC based on the replacement invoice. Section 34(2) requires credit notes to be declared in returns and provides adjustment mechanics, subject to the constraint that reduction is not permitted if the tax incidence was passed to another person.