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Job work and scrap

Amit (Accountant) (261 Points)

22 May 2011

In noti. 83/94, there is condition that scrap be returned by job worker to the supplier availing exemption under noti. no. 8/2003 . But, in noti. 214/86, there is no such condition for return of scrap by job worker to supplier.

My question is, if an SSI unit does not avail exemption and gets job work done by supplying material to job worker under noti. 214/86, then, is the supplier required to return scrap or waste back to the supplier?

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Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14477 Points)
Replied 22 May 2011

The principal manufacturer is responsible for the duty payment on the scrap generated at the job worker’s premises. The job worker may also remove such scrap on payment of appropriate duty of excise and in which case principal manufacturer will be relieved from his duty liability. The principal manufacturer should therefore have a proper mechanism for the purpose of tracking the quantum of waste or scrap generated at the job worker's premises. principal menufacturer can take back scrap and resale/manufacture other excisable items .

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Amit (Accountant) (261 Points)
Replied 22 May 2011

Originally posted by : Ram Avtar Singh
	The principal manufacturer is responsible for the duty payment on the scrap generated at the job worker’s premises. The job worker may also remove such scrap on payment of appropriate duty of excise and in which case principal manufacturer will be relieved from his duty liability. The principal manufacturer should therefore have a proper mechanism for the purpose of tracking the quantum of waste or scrap generated at the job worker's premises. principal menufacturer can take back scrap and resale/manufacture other excisable items .

Thank you for your reply Ram Avtar Singhji,

I still want to know why scrap is to be returned by job worker to the supplier not availing exemption under noti 8/2003 when there is no mention about scrap in the relevent job work notification no. 214/86.

Pl. clarify in more detail if possible.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 22 May 2011

units which are not availing any exempition, means they are availing input credit on raw materials,

inputs on which credit has been availed are to be sent to job worker under Rule 4(5)a of CCR 2004.

as the scraps so generated are product/bye product / part of inputs on which input credit has been availed, so the principal manufacturer ( who is sending goods for job work) has to clear the scrap so generated on "payment of duty", and to reconcile the quantity send and quantity received by the sender, the scrap portion would generate difference in stocks.

say A sent 1000 kgs of inputs to B for job worker

B produced 20 nos of finiish/ semi finish goods consuming 930 kgs of such inputs, scrap generated 70 kgs

now at the time of return of such materials B has to give statement that 20 nos goods are made on job work basis from 1000 kgs inputs, 930 kgs remains in goods, while 70 kgs is scrapped.

these 70 kgs has to be cleared by principal on payment of duty at invoice value, otherwise he would face trouble at audit stage, and such shortage would result reversal of input credit in proportionate ratio, where the value would be input value itself.