partial sales return - cenvat credit availed on returned goods

[Srijit V]

Dear Sirs,

ours is a manufacturrng firm of PVc pipes. We are invoicing goods to our delaers through out kerala. From time to time, some of the invoiced goods are returned by our dealers , with in 4-5 weeks of taking delivery owing to several reasons. This happens owing to various reasons.

In many cases the returned item may be one among several items invoiced in the same invoice. Owing to dissatisfaction of quality/ low sale , these items have to be taken back by us . We have been keeping such returned goods in seperate area for 48 hours, and giving intimation about returned goods to Range office and thereafter taking credit of the cenvat crdit charged on account of these goods.This practise has been going on for several years now, and none of the Revenue audit teams have point out any aberration in this procedure.

Recently,we have received a show cause notice from the Range Superintendent for availing credit in this manner and we have been requested vide the notice to give cause and remit the cenvat credit so availed with in 30 days. Though the amount involved is not substantial, we are sceptical that submitting to such a payment of justifiably availed credit is in contradiction to the very foundation of the concept of CENVAT.

We searched this forum and found many CESTAT orders favouring the assessee in similiar cases.

In our case the principal contention of the revenue is that such returned gods are not subjected to any further manufaturing process before resale and that we are availaing credit on the basis of triplicate of our own invoice. As such, during the discussion with the range, we had pointed out that our dealer has to retain the original invoice since he has retained stock of the other itmes in the invoice and only partial sales return has been affected by him. This is necessary as per KVAT rules which stipulate that original invoice should be retained by the purchaser and , goods if any, returned should be returned wth a debote note only. We do have debit notes so issued by the Dealer who has returned the goods, but it does not reflect the CENVAT content since Debit note procedure is not as per Central Excise rules.

Please advise how to reply to this notice

regards,

Srijit V

AI Summary

Cenvat credit reversal required where returned goods are not further manufactured; invoice copy may support credit otherwise.
Manufacturers may avail Cenvat credit on the basis of their invoice copy, including triplicate copies, but must reverse the credit taken when returned goods are not subjected to further manufacture before resale; proper documentary proof and application of the reversal obligation are the operative compliance requirements.