Received order from xyz but then they rejected
This query is : Resolved
22 December 2015
We are a manufacturing company. we have received an order from xyz for the manufacture of a product. After we have completed the manufacturing against their order, they denied to purchase.
In this case, if we want to raise a debit note (we also purchase from them) for claiming the cost incurred for manufacturing, then whether we should also charge Excise & VAT.
In this case, if we want to raise a debit note (we also purchase from them) for claiming the cost incurred for manufacturing, then whether we should also charge Excise & VAT.
22 December 2015
Will you be able to sell the product to other customer at a lesser price.
22 December 2015
Dear Sir thankyou for your Reply.
we have to recover the entire cost incurred.
we have to recover the entire cost incurred.
20 July 2025
Key points to consider:
Nature of the debit note:
Since the original order was cancelled by the buyer (XYZ), but you completed manufacturing, the debit note you raise is essentially a claim for reimbursement of your costs.
This is not a sale transaction, but a recovery of expenses.
Excise duty applicability:
Excise duty is payable on manufacture of excisable goods, not on debit notes or cost recovery entries.
Since you already manufactured the goods, you would have paid excise duty (or accounted for it under duty paid or not).
If you are now reclaiming cost and not making a fresh sale, Excise duty should not be charged again on the debit note.
If the goods are lying with you and you decide to sell to some other party, then normal excise provisions apply for that sale.
VAT applicability:
VAT is on sale of goods.
The debit note is not a sale but a claim of cost incurred.
So VAT should not be charged on this debit note.
However, if you issue a debit note on a previous sale invoice for price revision or other sales-related adjustments, VAT applies.
In your case, since no sale was made to XYZ (order was cancelled), no VAT on debit note.
Recommended approach:
Issue a debit note only for cost recovery, clearly stating the reason: “Recovery of manufacturing costs incurred on cancelled order”.
Do not charge Excise duty or VAT on this debit note.
Maintain proper documentation of the order, cancellation notice, manufacturing cost details, and correspondence.
If you sell the product later to some other party, charge Excise and VAT accordingly on that sale invoice.
Nature of the debit note:
Since the original order was cancelled by the buyer (XYZ), but you completed manufacturing, the debit note you raise is essentially a claim for reimbursement of your costs.
This is not a sale transaction, but a recovery of expenses.
Excise duty applicability:
Excise duty is payable on manufacture of excisable goods, not on debit notes or cost recovery entries.
Since you already manufactured the goods, you would have paid excise duty (or accounted for it under duty paid or not).
If you are now reclaiming cost and not making a fresh sale, Excise duty should not be charged again on the debit note.
If the goods are lying with you and you decide to sell to some other party, then normal excise provisions apply for that sale.
VAT applicability:
VAT is on sale of goods.
The debit note is not a sale but a claim of cost incurred.
So VAT should not be charged on this debit note.
However, if you issue a debit note on a previous sale invoice for price revision or other sales-related adjustments, VAT applies.
In your case, since no sale was made to XYZ (order was cancelled), no VAT on debit note.
Recommended approach:
Issue a debit note only for cost recovery, clearly stating the reason: “Recovery of manufacturing costs incurred on cancelled order”.
Do not charge Excise duty or VAT on this debit note.
Maintain proper documentation of the order, cancellation notice, manufacturing cost details, and correspondence.
If you sell the product later to some other party, charge Excise and VAT accordingly on that sale invoice.
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