Conversion of Stock in RG-1

[Pradeep Jain]

Dear Sir,

Finished goods ( main Product ) lying in RG-1 and ER-1 return but the same is not in a position to dispatch. Now we want to convert this goods in to other product ( components) and will dispatches on payment of Excise Duty.

Query is that:-

- Can the said goods converted in to other product as a Captive Consumption without payment of Excise Duty.

Regards

Pradeep

[YAGAY andSUN]

Dear Pradeep,

You need to obtain specific permission from the Jurisdictional C.E. Commissioner/DC/AC (as the case may be) for conversion of finished goods for captive consumption. Further, you need to follow the captive consumption provisions along with the conditions mentioned in the permission granted by the C.E. Authority.

Regards,

Team YAGAY and SUN)

mMMM

[PAWAN KUMAR]

Dear Sir,

As per my view, there is no need to obtain the permission. Only raise an invoice of captive consumption and make the entry into the RG-1 Register. No need to pay duty on the same. Just mention the details of captive consumption in your ER1 return and account for the newly manufactured product in to the RG1 register on a new page, pay the duty at the time of clearance of new product from your factory.

[YAGAY andSUN]

Dear Pradeep,

As per the explanation to Rule 5(2) of the Central Excise Rules, if excisable goods are used within factory for captive consumption, the date of removal will be the date on which the goods are issued for such use within the factory. As per earlier instructions in case of goods consumed captively in continuous process, one Invoice may be made per day.

Rule 11 requires invoice for removal of goods from a factory. In case of captive consumption, there is no removal from factory. However, if duty is payable, invoice should be prepared as that is the only valid duty paying document prescribed.

In Dalmia Cements v CCE (2008) 224 ELT 484 (CESTAT) = 2007 (11) TMI 211 - CESTAT, CHENNAI , it was held that removal means physical removal. If goods are not removed physically from the factory, Rule 11 (1) has no role to play- relying on Bilt Industries Packaging Company vs. CCE (2007) 216 ELT 217 (CESTAT) = 2007 (6) TMI 47 - CESTAT,CHENNAI .

Earlier, proviso to Rule 52A(2) of the C.E.Rules,1944, provided that in case of captive consumption within factory in continuous process, manufacturer may make a single invoice at end of the day. The 1944 Rules were replaced by new rules on 01-07-2001 and further in 2002, the corresponding new Rule 11 does not have any such provision. Since these provisions have been specifically omitted in new Rules, it can be stated that the intention is clear that the earlier procedure is no more required.

If duty is not payable, invoice is not required, as per Rule 11 requires invoice only for 'removal ' from factory or warehouse.

In Modi Plastics v CCE (2007) 216 ELT 112 (CESTAT -SMB) = 2007 (4) TMI 499 - CESTAT, KOLKATA , final products entered in DSA (that time RG-1) were found defective. These were reused within the factory. Waste was also recycled. Final products after processing were cleared on payment of duty. It was held by the Hon'ble Tribunal that assesse was eligible for duty exemption under Notification No. 67/1995-CE dated 16-03-1995.

The Cost of production is required to be calculated as per CAS-4.

Further, in our opinion it would be better to seek permission or provide the intimation to the concerned department in this regard.

Best Regards,

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

Only when the finished goods are removed outside the factory you have to pay duty. As long as the goods remain within your factory premises you need not pay any duty. When you consume the finished goods fro braking them into their components you can do so under intimation to the Range Officer. In the finished goods folio you show the removal of the goods under the column 'removed without payment of duty. In the remarks column you state that the said goods were removed for conversion into components. When the components so manufactured is removed from you factory you pay the appropriate duty.

There were different rates of duty for finished goods and components long before. Now the rate of duty is almost same for all excisable goods, there will be no loss of revenue to the Government. Therefore chance of objection from the Department is remote and even if any objection is raised the same can be tackled easily.

[Vinay Sharma]

Dear Sir,

Pease let me know if a component named as "X" is produced but wrongly entered in RG- 1 Register as Component "Y", then how to transfer this item to item "X".

It is necessary to transfer because invoice will be raised in the item name as "X" only.

[Pradeep Jain]

The same can be corrected by internal ( Captive Consumption )from Y product to X Product without payment of Excise duty.

Regards

Pradeep

[YAGAY andSUN]

Dear Bhuwan,

In addition to above reply, please also provide intimation to the jurisdictional Range Superintendent about this arrangement in writing to avoid any unwarranted situation.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[DEEPAK ROHERA]

but i a query in same case how can we show this transaction in Excise Return ER-1

AI Summary

Captive consumption: conversion within factory avoids excise duty until physical removal, subject to intimation or permission. Conversion of finished excisable goods within the factory for manufacture of components can be treated as captive consumption, so excise duty is not payable until physical removal of the resulting components. Invoice requirements under Rule 11 apply when duty is payable on removal; if no duty is payable for internal use an invoice is not required. Cost of production must be calculated under CAS-4. It is advisable to intimate or seek permission from the jurisdictional Range Officer and to record the transaction in the RG-1 folio and ER-1 return to avoid disputes.