I have a scenario,
I am selling Vehicles to Dealers. And Dealers sell to end customers. We send Spare Parts in bulk for around INR 5 millions to Dealers which the dealers have to use for any Repairs and Damage parts reported during the Vehicle Warranty period.
Incase there is any repair for any parts in the vehicle, the customer will come to the dealers. Dealer will replace the Parts if the same is within warranty.
Now, the Dealer has to send to us (Vehicle Company) all the damage parts in bulk. That can be once in a year we will receive all the items which are replaced with new Spare parts that was sent to Dealers.
We have to track every damage parts against the new parts sent to dealers.
Hence, when we sent the spare parts in bulk, we need to track as to how many are sent to the dealers. When the dealers send the damage items we again need to track the returned items against those sent.
Now there will be possibilities of items which are replaced by Dealers but not sent to us yet. Hence we need to keep the dealers as liable for the items which are still lying with them and those new spare parts which are not yet used.
Currently, we are following the process of Warranty sales to Dealers. Process in SD remains same, like VA01, VL02N and VF01.
Dealers Dr. INR 5000000
Warranty Sales Cr. INR 5000000
We have to pay Sales Tax because we are showing this as Sales.
When we receive the Damaged Items from Dealers we get them verified in Service Department and once confirmed that the item was under warranty we post the JV as,
Warranty Cost Dr. INR 4500000
Dealer Cr. INR 4500000
Also we don't reverse the warranty sales INR 5000000, instead process another method by which we receive the Damaged Items from Dealers.
Reason for not reversing the warranty sales is that auditors will ask for the stock which is actually in the form of damaged items which we sell as scrap. We cannot justify this to Auditors.
The remaining which is still due with dealers like INR 5000000 - INR 4500000 = INR 500000 will be adjusted with the bills due from Dealers from normal sales.
Now, the Warranty sales is showing in my Balance Sheet as Revenue, but it is not revenue. Also, we have to pay Sales Tax for the Revenue. Kindly suggest us a process which can handle all these without getting charged with Sales Tax.