Suryabir Singh
Overview
Accounting of Input tax credits in case of defective goods have been troublesome for
the companies for long. The reason being tracking the input tax credits available and
credits taken for a particular good is very complex and time-consuming. Moreover
the timing of acceptance or rejection of goods also play a very important role in
many states, and more so differently.
Alon with accounting of tax credits, it also involves dealing with various notes either
procured from or issued to the other dealer. Adjusting the tax credit account with
respect to the debit or credit notes, whichever applies into the case demands a lot of
paper work and tracking previous information.
This paper elucidates the above challenges, analyses the manner in which
BMR Managed Services organizations handle defective goods rejection related accounting in VAT and
suggests an efficient and cost-effective methodology of executing this operation.
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RESOLVING CENTRAL SALES TAX CHALLENGES THROUGH RIGHT-SOURCING
For the production schedule on 15th March, X has placed an order on 10th February to Y
through a purchase order. He has also paid the amount due for this order on 28th February
against the Tax invoice. The accounting for this invoice is completed subsequently and
Input Tax Credit was claimed in subsequent filing of VAT return on 5th March. The
supplier ships the order on 10th March by road so that it reaches the plant exactly at time.
Now since JIT also requires the highest level of quality control, the manufacturer has
established very detailed inspection process of incoming goods. The inspection of goods
coming from West Bengal on 15th March revealed that the material is defective and can
not be used in the manufacturing.
According to their contract, the goods are rejected and sent back to Y. Along with goods,
X also has to issue a Debit note specifying the details contained in the Tax Invoice to X,
so that Y can claim the taxes already paid on these goods. X also has to procure a credit
note from Y containing the same details as Tax Invoice for reversal of Tax credit already
claimed in returns filed earlier.
The rules for issuing debit and credit notes vary in different states. For e.g. according to
Tamilnadu VAT rules the goods must be returned to the seller with in six months of the
date on which the transaction took place. Similarly, West Bengal VAT rules also provide a
time gap of 6 months for reporting the rejection and subsequent return of the goods.
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RESOLVING CENTRAL SALES TAX CHALLENGES THROUGH RIGHT-SOURCING
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RESOLVING CENTRAL SALES TAX CHALLENGES THROUGH RIGHT-SOURCING
References
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