Debit note to Foreign supplier by Importer

[GST CMS]

What would be GST Implication if Importer raise Debit note to Foreign supplier on account of defective material supplied by him?

[KASTURI SETHI]

The amount recovered through debit note from foreign supplier on account of defective material supplied by him (foreign supplier) is compensation against duty-paid goods. Such compensation is not income (consideration) . In my view, GST is not applicable.

[Alkesh Jani]

Sh.

In agreement with the views expressed by Shri Kasturiji Sir, It may be noted that In terms of Section 34 of CGST Act, 2017, only supplier of goods or services can issue Credit Note/Debit Note. In the instant case, GST Act is not applicable to foreign supplier being a non-taxable territory.

[YAGAY andSUN]

The copy of Debit Note along with relevant documents need to be submitted to AD (i.e. your banker) for making reduced foreign payments against such imports.

[KASTURI SETHI]

Yes. Very important point advised by M/s.Yagay and Sun, Sirs.

[Guest]

Instead of using Credit Note, foreign supplier is replacing the defect item with Free of Cost item with a minimum value ( no rational basis) for customs purpose. Is it correct , as there is a suppression of real transaction value -therefore, less customs duty is payable. Additionally, we did not declare about our rejction to Customs-also not returning the defect item abroad- as it is almost scrap

Please guide

Rgds

Jayanta Bandyopadhyay

19/10/2020

[Ganeshan Kalyani]

I agree with the views of the experts.

[YAGAY andSUN]

In our view, the value of the replaced item needs to be declared correctly to the Customs Department for calculation of Customs Duty and paying it to exchequer.

AI Summary

Importer Questions GST on Debit Note for Defective Goods; Experts Clarify Under Section 34 CGST Act An importer queried about the GST implications of issuing a debit note to a foreign supplier for defective materials. Experts in the forum agreed that GST is not applicable since the debit note serves as compensation for duty-paid goods, not income. Under Section 34 of the CGST Act, only suppliers can issue credit or debit notes, and the foreign supplier is in a non-taxable territory. It was advised to submit the debit note to the bank for reduced foreign payments. Concerns were raised about under-declaring the value of replacement items to customs, suggesting proper declaration is necessary.