Subcontractor vendor is charging VAT

Question

Hi,
Subcontracting vendor is charging VAT on his material used for the production of the final material.
Example: Company gives PO to vendor for component "A" (Semifinished) and sends material "B" (Raw Material) to subcontractor,
Now to manufacture component "A" subcontractor uses component "B" plus his material say "C" and completes the product "A".
When he send bill to company he charges VAT on the material "C", which is his material used to manufacture component "A".
Can we use VAT tax code in subcontracting purchase order, is it legally correct ?

Answer 1

Hi,
It is not possible to add any Tax on the component /child material because these materials are your own material irrespective of the source of supply for these materials. As you can not impose any duty for own material in the subcon PO for child /component material
Better you can negotiate in this way.
Create normal PO for component material in first line item, let Say C in your case with Vat tax code & enter delivery address as sub con vendor & then in the second line  item of the same PO use item category as L ( Sub con) for Material A ( end product) & enter system proposes shall delivery address be the same say no.
Carry out GR for first line item, material will at the sub vendor location, just create GR for material A (end material)
Rgs