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Subcontractor vendor is charging VAT


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 ?

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