Sales/Customer return material Scrap

[SNEHAL SHAH]

R/sir,

We are manufacturing of Chemical . We have sold the material to our party but due to technical problem this material was not accepted by party and reject . We have received this material u/r 16 (1)(2) and take cenvat credit on party invoice copy .

Now as per our chemical expert this material not able to resent to party and we want to send fresh material to party ( as a replacement ) and pay the Excise duty .

Our old rejected material will be either scrap or dispose off .

What implication in excise , please suggest us .

Thanks and Regards,

SNEHAL SHAH

[Mahir S]

You can send the replacement material as per normal sale under invoice and payment of excise duty.

As returnable goods are to be disposed off/scrapped, therefore you shall have to reverse the credit availed on the rejected goods.

[YAGAY andSUN]

Dear Snehal,

If goods which were returned to you if are not able to be manufactured or are not able to resend again to the customer, then, you are under obligation to reverse the CENVAT credit on such goods.

There would not be any replacement of such goods but a fresh sales would be counted, if you sell goods in lieu of rejected goods to cater the needs of your customer.

Regards

YAGAY and SUN

[Rajagopalan Ranganathan]

Sir,

It is held in CCE vs. RFH Metal Castings 2005 (184) ELT 194 (CESTAT) = 2005 (2) TMI 235 - CESTAT, NEW DELHI

that -

"assessee processed the returned goods but they got rejected in processing. these were cleared as scrap and duty was paid on scrap value. It was rightly held that though scrap is different from the goods, it does not mean that assessee has manufactured scrap.No one undertake a process to produce scrap. Hence amount equal to Cenvat credit availed should be paid even if processed goods are removed as scrap."

The above decision was followed in Menon Piston rings v. CCE- 2007 (211) ELT 394 (CESTAT).= 2007 (2) TMI 22 - CESTAT,MUMBAI

In view of the above decisions, you have reverse the credit taken under rule 16 (1)(2) of Central Excise Rules, 2002 while clearing the scrapped material.

 

[SNEHAL SHAH]

All of you thanks a lot for timely and valuable reply .

SNEHAL SHAH

AI Summary

Cenvat credit reversal required when returned goods are scrapped; replacement supplies treated as fresh taxable sales. If returned goods cannot be re sent and are scrapped or disposed of, the manufacturer must reverse the CENVAT credit availed on those goods; replacement supplies are treated as fresh taxable sales and attract excise duty. Case law requires repayment of credit even when scrap value is declared, so compliance with the rule for reversal is necessary on disposal of returned material.