Sale of returned goods

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 October 2011 A munufcturing unit receives back materials from customer. The unit takes the creadit of returned material u/r 16.

Now the party has to resell the materiall to another party but the prices have gone up since the materials were returned.

Under the premises can the unit charge duty according to the present transaction value and charge duty accordingly, if so whether differential amount of duty needs to be in PLA or centvat credit in full can be availed.

PAWAN KUMAR

PAWAN KUMAR (Expert)
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07 October 2011 Duty is to be paid as per current transaction value which can be paid either from cenvat or PLA account.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 October 2011 ThanYou Mr.Pawan Kumar. Would the position hold even if no activity has been undertaken on the returned goods and they are being sold as such to another customer.

Would appreciate if you cite some case laws also.

Thanks

PAWAN KUMAR

PAWAN KUMAR (Expert)
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08 October 2011 It prescribed already in rule 16(2) whereas if your activity is not amount to manufacture reversal of cenvat taken would be done. In your case you will clear the returned goods without any activity on it, then, only cenvat taken would be done.

Querist : Anonymous

Querist : Anonymous (Querist)

08 October 2011 Mr.Pawan Kumar

Thanks again. Yes thats was not clear from your first response. However onc again request you to opine in the light of CESTAT Judgement, against appeal No. e/198/2009, given by west zone mumbai bench on 24.2.2010.

Thanks

PAWAN KUMAR

PAWAN KUMAR (Expert)
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10 October 2011 Judgements can not change the basic theory of rules. You should never favor any judgment except in the proceedings during an SCN.

Querist : Anonymous

Querist : Anonymous (Querist)

17 October 2011 Thanks.

However, in the present case the Revenue would stand to gain only. Is getting a specific permission from the department a solution?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 Thanks for sharing this detailed discussion about the sale of returned goods and the applicable duty implications. Let me summarize and clarify the key points and questions involved:

Situation Summary:
A manufacturing unit receives returned materials from a customer.

The unit took credit under Rule 16 (typically related to input tax credit on returned goods).

The unit wants to resell the returned goods to another party.

Since the original transaction, prices have increased.

The question is:

Can the unit charge duty based on the present transaction value (higher price)?

If so, can the differential duty be paid from the PLA (Public Ledger Account) or through CENVAT credit?

What if no processing is done on the returned goods and they are sold “as is”?

Are there relevant case laws or judicial decisions on this?

Key Points / Answers:
Duty based on Present Transaction Value
The unit can charge duty based on the current transaction value at which the goods are being sold to the new customer. This is because the resale transaction is a fresh supply and duty is payable accordingly.

Payment of Differential Duty
The differential duty can be paid either from:

PLA (Public Ledger Account, cash payment), or

CENVAT credit account, if the unit has eligible credit.

If No Activity is Done on Returned Goods
If the goods are sold without any manufacturing or processing activity (i.e., sold as-is), the duty payment process can be somewhat different.

The original CENVAT credit taken on inputs may need to be reversed under Rule 16(2) if the goods are cleared without manufacture or use.

The resale duty must be paid on the sale transaction value.

Regarding Judgments and Case Laws

It’s important to note that judicial decisions (like CESTAT rulings) do not override the statutory rules and principles of the Act.

The general principle from the West Zone Mumbai Bench CESTAT (Appeal No. E/198/2009, dated 24.02.2010) has been cited but rulings cannot change the basic theory or rules.

In case of a legal proceeding (Show Cause Notice, SCN), judicial rulings become more relevant.

Getting Specific Permission from the Department

Since the revenue stands to gain from the differential duty, seeking specific permission or advance ruling from the department might be prudent to avoid disputes.

Advance rulings or clarifications can reduce ambiguity and ensure compliance.

Additional Notes:
Rule 16 of Cenvat Credit Rules, 2004 deals with the treatment of returned goods and reversal of credit.

Differential duty treatment depends on whether the goods are being used in manufacture or cleared as such.

If goods are returned and not used, reversal of credit is necessary, and on resale, duty must be paid on the transaction value of resale.

Summary:
Scenario Duty Payable On Credit Reversal Payment Mode
Resale at increased price Current transaction value Credit may need reversal (Rule 16(2)) PLA or CENVAT Credit
Resale without any manufacturing activity Current transaction value Reversal of credit mandatory PLA or CENVAT Credit

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