Ram Avtar Singh
( Expert )
17 May 2009
Rule 16 - CENVAT Credit on Returned Goods
[Submitted by Chandrashekara R.,
January 8, 2009
The revenue has always been suspicious of the rejected goods. The reason is that if allowed to enter the factory may be misused and fresh production removed as repaired goods. To enable such a transaction, and to safeguard the revenue, Rule 173H was introduced in Central Excise Rules 1944. Central Excise Rules 2002 had replaced the old Central Excise Rules 1944, under which old rule 173 H was replaced by Rule 16 deals with the revised procedures to receive the duty paid goods for Re-conditioning, re-work and refining etc.
For the purpose of proper understanding of Rule 16 the same is provided hereunder:
16(1) where on any goods on which duty had been paid at the time of removal there of are brought to any factory for being Remade, Refined, Reconditioned or for any other reason, the assessee shall state the particulars of such receipts in his records and shall be entitled to take the cenvat credit of the duty paid as if such goods are received as inputs under the cenvat credit rules 2002 and utilize this credit according to the said rules.
16(2) if the process to which goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the credit taken under Sub-rule (1) and in any other cases the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal & on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the act as the case may be.
16(3) if there is any difficulty in following the provisions prescribed under sub-rule (1) and sub-rule (2), the assessee may receive the goods for being remade, refined reconditioned or for any other reason and remove the goods subsequently subject to such condition as may be specified by the commissioner.
Following are the conditions to be fulfilled under Rule 16 to receive back the duty paid goods & to avail the cenvat credit.
• The goods received under rule 16 must have suffered the duty at the time of initial removal. In view of relaxation given by the CBEC, the duty paid goods of any unit can also be received. This is a big relief to units having more than one factory located in different states.
• The goods received back for being remade, refined and reconditioned or for any other reason. The words “any other reason” gives the leverage to manufacturer
In Asahi India Glass Ltd vs. CCE 2006 (199) ELT 66 (Tribunal Mumbai).
Where it was held that, Duty paid glass received back in damaged condition for being “Remade” purpose, credit can be taken as per provisions contained in Rule 16 of Central Excise Rules 2002.
The cenvat credit availment is permitted as soon as goods enter into the premises of the manufacturer, since Rule 16 treats such goods as inputs. But goods brought back to the factory must be accompanied by the duty-paying document (own duty paying document also sufficient), and other necessary details should be recorded as specified in Rule 16(1).
So far there is no procedure prescribed by department. However the received goods should be accompanied by duty paying document as per Rule 16(1). It is clarified vide circular no. 354/66/2001 dated 21/06/01 that as long as there is evidence of payment of duty. A word of caution in this regard is ensuring that both original and duplicate copies of invoice are received back, when the goods are received back from the customer in the same condition.
Rule 16(2) makes it clear that duty paid goods received should be subject to process, if the process under taken on the goods does not amount to manufacture, the manufacturer has no choice other than to pay an amount equivalent to the cenvat credit availed. On the other hand if the process amounts to manufacture, the manufacturer shall pay duty at the rate applicable on the date of removal.
Goods received under Rule 16(1), when subjected to the process such as repairs, remade or reconditioning etc, some of the parts in those goods may have to be replaced. In such a situation the manufacturer may use the parts from his own stock on which credit has been availed, if the resultant product amounts to manufacture, which is to be removed on payment of duty, credit availed on such products remains unaffected.
If on the other hand process does not amount to manufacture, manufacturer should pay back the equal amount of credit availed, in addition he should reverse the credit on such utilized parts. Since the repaired or processed goods does not amount to manufacture. Provided, if the goods were used for self-consumption, it will be treated as deemed sale. It is implied that such goods received under Rule 16 can also be sent out for job work purpose. Thus the manufacturer availing CENVAT facility will follow Rule 4(5)(a) in respect of CENVAT availed inputs being sent out. On the other hand if the manufacturer not availing CENVAT facility for any reason can follow the facility under Rule 16A, if any inputs or partially processed inputs are required to be sent out. Thus who are availing CENVAT facilities will therefore not have to take recourse of provision Rule 16A.
Shaily Engg Plastic Ltd vs. CCE – 2001(132) ELT 376 (Tribunal)
In this case, plastic parts of cameras manufactured and cleared on payment of duty received back from customers for remaking because the parts were found to be not the required quality. It was held that, credit is admissible.
When the goods are received on which further processing cannot be carried on, i.e. the goods are merely received for destruction being not repairable, In such situation the receiver of the goods is not eligible to avail the cenvat credit because as per Rule 16, goods received cannot be treated as inputs as specified under rule 16(1).
Often the goods received which are exempted or partially exempted goods. In such a case, when the particular goods received for process under Rule 16 is fully exempt, then question of availment of credit does not arise, since no credit is available, and hence no credit needs to be reversed after carried on particular process under Rule 16.
Where as if the goods received are covered under third schedule of central excise (MRP Schedules), abatement notification if any issued or through any circulars issued in public interest as exempted, while receiving such goods under Rule 16, if the process on such goods does not amount to manufacture, credit can be availed by such assessee and needs to be paid back at the time of removal. On the other hand if the process amounts to manufacture then it is advisable not to avail the credit while receiving such goods and while removing the same pay the duty at applicable rate, taking in to view the current rate of duty applicable as per Central Excise Tariff, or notification if any issued.
The goods received under Rule 16, are removed long time back when good were taxable, and now it was non-taxable under central excise, in such a situation even though the duty had been paid at the initial removal credit is not admissible. Also the question of paying duty also does not arise.
Sales return should be consider at the time of sale duty was charged.ie.10%