Canvat Credit on sales return material

[Guest]

Dear Sir,

We are a manufacturer and we sale the goods from factory to our depots and from to they sales to various sales branches all over-india. After some months or some years these material are send back to our factory for different reason like

(1) Customer rejection,

(2) Repacking and putting the new MRP.

(a) In such case the branches are send material direct to factory with commercial invoice which materials are not sale by factory to this branch we sale to our Depot. Depot sales to our sales branches.

(b) Depot also send back us the old material with their commercial invoice what ever ols stock laying in the sales depot in that case they are not tracking the material that on which excise factory invoice they received these material from factory.

After receiving these material we putting new MRP and repacking these ans sale into the depot again.

Please guide me in the above mentioned case eligible of Cenvat credit and how we show this stock in RG-1 as we further sales these material again with the excise invoice.

Regards

Swapneswar Muduli

[ashish chaudhary]

Two questions are relevant to discuss:

1. Whether credit is admissible on returned goods received in the factory?

Manufacturer, under Rule 16 of CER, can take the credit of excise duty originally charged as if the goods received are inputs. If the process undertaken on the returned goods amount to manufacture, their subsequent clearance is required to be made charging excise duty. If no manufacturer, credit taken earlier is required to be reversed. In your case, you have been undertaking deemed manufacturing activity, hence eligible to take credit on receipt of returned goods.

2. On what documents can the credit be taken?

Credit can be taken based on the copy (say triplicate copy) of excise invoice originally issued. If sold through depot, suggested to establish the correlation of goods originally cleared and returned back. Could be done by insisting branches to mention depot invoice number on their commercial invoice, description of goods and establishing correlation of factory challan/invoice with depot's invoice. Without correlation, department objection likely.

Returned goods could be considered as "inputs" for all the purpose under Cenvat Credit Rules.

[YAGAY andSUN]

Rule 16 of CER 2002 is relevant in this matter. Please go through it, read it, understand its implication then apply in your matter.

[Mahir S]

Sir,

Rule 16 is applicable only if some manufacturing activity is undertaken on the returned goods. Agreed that the returned goods are re-packed and new MRP is put thereon; however packing and repacking does not amount to manufacture for all the goods, but only for such goods specifically allowed under Tariff notes.

So , if packing and repacking of returned goods does not amount to manufacture for your product, which i do believe it ; then you cannot avail cenvat credit on such returned goods.

[MUKUND THAKKAR]

Dear Sir,

According to your querry you need to putting new MRP which stock laying at your depot. my suggestion is instated of calling back to material and spending transportation expenses. you have to sending new stickers with MRP and pay the differntial duty from you unit under reference of initial clearance to your depot.

[YAGAY andSUN]

Dear Swapneswar,

First of all Rule 16 would be applicable even if goods are being called off for any reason.

Secondly, Legal Metrology Act read with LM (PC) Rules, 2011 as amended by 2015 Rules, do not permit to put a sticker to change the MRP. In the case of non compliance, the notice would be served on the Nominated Director. Hefty penalty can be imposed also.

This is for your kind information.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

AI Summary

Cenvat credit on returned goods hinges on whether processes constitute manufacture; invoice correlation is required. Cenvat credit for returned goods is available if processes on returns amount to manufacture under Rule 16, treating returns as inputs; otherwise previously availed credit must be reversed. Credit must be supported by original excise invoice copies and clear correlation between factory and depot/branch invoices; lack of such linkage invites departmental objection. Repacking often does not qualify as manufacture and so may preclude credit, and relabelling with new MRP stickers raises Legal Metrology compliance and penalty risks.