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 and SUN]

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.

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 and SUN]

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

GST treatment of importer recoveries from foreign suppliers: compensation not taxable; declare true value to Customs.
Recoveries by an importer from a foreign supplier via debit note for defective goods are treated as compensation, not consideration, and therefore GST is not applicable; only suppliers ordinarily issue credit/debit notes and foreign suppliers in non taxable territory do not attract GST. The debit note and supporting documents should be submitted to the authorised dealer to adjust foreign payments, and any replacement or free of cost items must be correctly valued and declared to Customs to avoid under valuation and short payment of customs duty.