Rejected goods

[ASHOK AMIN]

Dear Experts,

We received two excisable raw materials from a supplier in the same invoice. Before taking the cenvat credit we normally check the raw materials in our laboratory deptt. If it is ok we avail cenvat credit on it. In this case one of the item got rejected. Now please let us know how to deal with it.

[Ganeshan Kalyani]

Sir, if the credit is not availed then no action to be taken and if availed then reverse the credit and if utilised then reverse the credit with interest. Thanks.

[KASTURI SETHI]

Sh. Amin Ji,

I agree with Sh. Ganeshan Kalyani, Sir. Clearly solved the problem as per law.

[ASHOK AMIN]

Thanks Sir. But, what about the other raw material which is not rejected. How to avail credit on it since the invoice contains two products whereas one item got rejected. How to deal with it ?

[Ganeshan Kalyani]

Sir, you would have entered the input in RG23A in two separate line and you would have maintained serial number also. Now that you are reversing one of the input, you should give reference of the original serial number of which the input is rejected. Thanks.

[CSSANJAY MALHOTRA]

Agree with Experts. CCR Rule 3(5) clearly provides for payment of amount equal to the CENVAT Credit availed in respect of "Input cleared as such scenario" If no CENVAT has been availed, nothing to be paid, only remarks to be mentioned on invoice.

Secondly in respect of material which is accepted, CENVAT credit can be claimed to such extent proportionately only against the Invoice.

[Rajagopalan Ranganathan]

Sir,

If the invoice indicates separately the transaction value of the two items, then you can calculate the duty on the accepted item and then take credit. Do not take credit on the rejected item Which can be arrived at after deducting the credit taken on the accepted item from the total amount of duty shown in the invoice.

[Suryanarayana Sathineni]

Dear Friend,

Considering the situation, I suggest you to take the total credit on both the materials in your cenvat account and then return the rejected material by raising excise invoice on payment of duty equal to the credit taken under Rule 3(5) of CCR,2004.

The above procedure not only solve your problem before you but also facilitates the supplier to take credit under Rule,16 of CER,2002 under Market returns.

If it is not so, how you satisfy the supplier for the amount of duty paid by him by sending the rejected material without duty paid invoice.

Another alternative available to you is to return both the materials under the cover of the supplier's invoice as it is so that the supplier can take credit hassle free and subsequently, he would be dispatching the required material under a single invoice which is again subject to condition of amounting to manufacture etc under Rule 16 which is again going to be a complicated one

Hence, I suggest to proceed with the first advise.

Best Regards

Suryanarayana

[Ganeshan Kalyani]

Sir the first option seems to be fine. But it may attract interest if reversal is in subsequent month. Thanks.

[ASHOK AMIN]

Thanks to all experts.

[Suryanarayana Sathineni]

Dear Kalyani Ji,

Interest provision will not be applicable, since he has taken credit of duty paid on the inputs after receipt in the factory of maufacture and paid duty equivalent to the credit taken at the time of clearing such inputs being found defective . Further, you are kindly aware that there is no bar on taking credit immediately on receipt of the inputs into the factory and this cannot be treated as a wrong credit.

Best Regards

Suryanarayana

[Ganeshan Kalyani]

Thanks for sharing your view Sir.

AI Summary

Cenvat credit reversal: reverse credit for rejected inputs and apportion credit to accepted items accordingly.
If cenvat credit on a rejected input was not availed, no action is required; if availed it must be reversed, and if utilised the reversal attracts interest. When an invoice covers both accepted and rejected inputs, apportion the credit to the accepted item, reference the original accounting serial when reversing the rejected item, and alternatives include returning the rejected material on payment of duty equal to the credit taken so the supplier can claim market-return relief.