Rate of Excise duty to be paid at the time of removal of sales return goods
Practical Situation:
When manufacturers remove the goods manufactured from the factory, he needs to pay the applicable excise duty on the same. After some days the goods may come back as due to some issues in properties of good, or as per not requirements of customer, or for any other reason. However, the manufacturer can take the credit of the duty paid on the sales return goods subject to certain condition. After receiving the goods manufacturer may sell the same goods to another customer, at the same time he needs to pay/reverse the applicable duty. If there is change in rate of duty between goods coming back to factory as sales return and the removal of sales returned goods than duty needs to be reversed at the rate when actual sale took place i.e at the time of original sale.
- At what rate of duty goods need to be removed where same rejected goods sold to any other customer without any further processing?
- At What rate of duty goods need to be removed where same rejected goods are sold after reprocessing which amounts to manufacturer?
Statutory Provision
As per Rule 16 of Central Excise Rules 2002,
a. Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take 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.
b. If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and 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.
General View
1. Without reprocessing selling of rejected goods
When any goods which has been rejected by customer and received in the factory, manufacturer can take the credit of duty paid on the same even though if those goods are sold to customer without any reprocessing. (This may be technically called as “Trading of goods”).
Provided the amount of CENVAT credit taken on the day of receipt of rejected goods shall be reversed on the day of selling those goods to any customer.
Further, the duty should be reversed limited to the CENVAT Credit taken on the day of receiving the rejected goods. However, it is generally seen that people are paying the duty at the rate applicable on the day of selling the returned goods. Ultimately the same goods resulted into excess payment of duty i.e difference between the rate applicable on the day of receiving the returned goods & selling of the same returned goods.
For Example:
Rate of duty on 2nd march 2015: 12%
Rate of duty on 4th April 2015: 12.5%
If A has sold the 1000 unit of goods to B on 1st Jan 2015 and duty has been paid @ 12% on the removal of goods, the same good has been rejected by customer on 2nd March 2015 the manufacturer can take the credit of 120 on the receipt of goods. Further if A sold the same goods to C on 4th April 2015 than A has to reverse the credit of only Rs.120 but not Rs.125.
It has been observed in many cases where people are reversing the credit in excess than what they needs to be reversed in actual. With proper interpretation of statutory provisions excess tax payment can be saved.
2. Further reprocessing of the rejected goods
When any goods which has been rejected by customer and received in the factory, manufacturer can take the credit of duty paid on the same, if the same goods are reprocessed further in accordance with rule 16. There are no practical issues in this regard. However, if reprocess amounts to manufacture than the manufacturer needs to reverse/pay the duty at the rate applicable on the day of removal.
For Example:
Rate of duty on 2nd march 2015: 12%
Rate of duty on 4th April 2015: 12.5%
If A has sold the 1000 unit of goods to B on 1st Jan 2015 and duty has been paid @ 12% on the removal of goods, the same good has been rejected by customer on 2nd March 2015 the manufacturer can take the credit of 120 on the receipt of goods. Further if A sold the same goods to C on 4th April 2015 than A has to reverse the credit of only Rs.125.
Statutory requirement
As per Trade Notice No. 21/2004 dated 8-10-2004, in case the sales return take place then the intimation should be given to Range excise officer within 24 hours of the receipts of the goods in the factory. After receiving the intimation, the officer will come and check the genuineness of the assessee. The officer will send the report regarding the sales return to Commissioner; will allow the credit which can be taken.
Article Written By Atul Rathod
CAclubindia
