Warranty Claim

[RAJENDRA KHOMNE]

Sir,

In Sale against warranty claim, Excise duty is applicable or not.

We are selling material under warranty, if customer returned material to us against warranty and at the time of replacement of this material can excise duty applicable? Pl guide.

Thanks,

Khomne R. M.

[Ganeshan Kalyani]

Excise duty is applicable on removal of goods, warranty is your agreement with your customer.

[Rajagopalan Ranganathan]

Sir,

If you replace the defective material returned by your customer with new one you have to pay duty on the new material. Under rule 16 of Central Excise Rules, 2002 you can take credit of duty paid on the returned material and use the same for payment of duty on returned material when it is cleared after repair etc. If you scrap the returned material then you can pay duty on the scrapped material using the credit taken, if it is leviable as per first schedule of Central Excise Tariff Act, 1985. If the scrap is non-excisable then you have to reverse the credit taken when you clear the scrap under your commercial invoice.

[KASTURI SETHI]

The warranty is your headache. I agree with both the experts.

[RAJENDRA KHOMNE]

Thanks Sir

[Mahir S]

Sir,

Further to add that, Cost of packing, to and fro freight, delivery and transportation charges, etc, if any, collected from the buyer at the time of clearance of such replaced goods shall also be added to the assessable value, and duty required to be paid thereon.

[Ganeshan Kalyani]

I want to add a point to the discussion to get your feedback that the FG was removed with payment duty. The rejected material was returned by customer due to some reason. The said material was nearing expiry date. When it is received back in the factory it has crossed expiry date. Now whether as per 16 of CER, 2002 the credit can be taken or the credit is disallowed only because the FG is beyond expiry date. Please discuss.

AI Summary

Excise duty on warranty replacements: duty applies to replacement goods and assessable value includes packing and freight.
Excise duty is chargeable on replacement goods supplied under warranty; warranty obligations do not eliminate duty on new replacements. The supplier may take credit for returned goods and use it against duty on subsequent clearances, but must reverse credit where scrap is non excisable. Assessable value of replaced goods includes packing, freight and transportation charges. The expiry of returned finished goods may affect entitlement to credit under the returned goods credit mechanism.