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

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.