Rejected goods sale procedure

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ESHWAR (Querist)
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26 July 2014 Dear Experts,

This is regarding rejected goods, as we have sold goods by discharging Excise Duty and after some time we have received some rejected qty which are non re-made nor re-conditioning absolutely unusable condition. On receipt of rejected material we are not claiming CENVAT but maintaining a separate register for this lot. Now my queries are:

1). After due examination of these rejected goods can it be re-used this scrap material as inputs to make other final product. If yes? shall we have to reverse the credit of such qty of inputs which we are using to make other product?

2). After due examination of these rejected goods can we sell these as rejected unusable goods at nominal rate without excise duty. Bcoz we are not claiming any cenvat credit while entering in our premises.

3). After selling these goods will mention the invoice nos in our separate stock register.

Need advice on the above isses asap

Arun Kumar Singh

Arun Kumar Singh (Expert)
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27 July 2014 Rejected goods reused then no need to reverse the cenvat credit. If sale of scrap then duty will be payable on scrap.

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ESHWAR

ESHWAR (Querist)
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28 July 2014 Dear Sir,

Thanks for the prompt reply.

Point 1 is resolved.

Point 2 could you please elaborate it sir.
like sale procedure with/without duty and its accounting.

I still have a doubt that while accepting the rejected goods in to the premises we are not taking cenvat credit on that, but while disposing it after due examination can we supposed to pay the duty on nominal sale price.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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21 July 2025 Your query relates to the treatment of rejected goods received back from customers that are unusable, and how to deal with their reuse or sale as scrap under Excise Laws (pre-GST regime, based on your 2014 date).

Let’s address your questions point-wise:

✅ Background Summary
You sold goods on payment of Excise Duty
Customer returned some goods as rejected
Goods are not repairable, not reprocessable, and unusable
You’re not availing CENVAT credit on these rejected goods
You’re maintaining a separate register for these goods
📌 Q1: Can you reuse these rejected goods as input material for making new products?

Answer: Yes, you can.

If the rejected goods (e.g., scrap, broken parts, remnants) can be used as raw material or input, you can do so.

✳️ CENVAT Impact:
Since you did not take credit when receiving the rejected goods:

There is no need to reverse credit
You can treat the inputs as fresh inputs from your own scrap
However, if the original input for these goods had credit claimed, and now you use the same goods again, then Rule 16 of Central Excise Rules, 2002 applies.

But in your case, since no CENVAT is claimed on return — no reversal required.

📌 Q2: Can you sell these rejected goods (scrap/unusable) at nominal price without charging Excise Duty?

🟡 Answer: No, duty may still apply.
Here’s why:

Even though no CENVAT is claimed, the removal of goods from factory premises is treated as a "clearance of goods", and Excise Duty is payable unless exempted.
These goods, even if unusable, may fall under the definition of "waste and scrap" which are excisable goods if they arise out of manufacturing process or are generated from duty-paid goods.
🔍 Legal Reference:
Rule 3(5A) of CENVAT Credit Rules, 2004 – waste or scrap of inputs on which CENVAT was taken must be cleared on payment of duty.
CBEC Circular No. ________-CX dated 1-7-2002 clarifies treatment of returned goods.
Since you didn’t claim CENVAT, there’s a grey area, but best practice is:

Sell the unusable goods (scrap) on payment of duty, even at nominal value, to avoid departmental disputes.
📌 Q3: Can you maintain these in a separate register and use separate invoice for sale?

✅ Yes.
You can:

Maintain a separate stock register for returned/rejected goods
Issue a separate commercial invoice (not tax invoice) if no duty is charged (if you’re treating goods as non-excisable waste)
OR, better:
Issue Excise Invoice
Pay Excise Duty at scrap value
💡 Best Practice:
Even if you don't claim credit, paying nominal duty shows compliance and avoids future audit objections or demand notices.

✅ Conclusion Summary:

Query Answer
Can we reuse rejected material? Yes, you can use as input without credit reversal
Can we sell unusable rejected goods without duty? Technically no — Excise duty is payable even at nominal value
Can we maintain separate register and invoice? Yes, advisable for audit trail and clarity

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