C.Ex duty on unused packing material

[deepak kalambate]

We are procuring Raw Materials/ Stores Spares/ Chemicals/Lub Oil etc on payment of duty & taking cenvat credit on inputs/ capital goods. We generally receive the above said material packed in Corrugated Boxes/ Separators, Plastic Cans/ Cones / Barrels  etc. Once the material packed in such material is consumed, the unused packing material is waste and therefore left for disposal, and we clear the same in local market without payment of duty.

Can department ask for exise duty on clearnce value of unused packing material?

[JAMES PG]

As per Rule 3(4) of CCR, when inputs or CG are removed as such ,  Cenvat credit to be reversed. Removal of waste packing matls requires no reversal. This has been clarified in the following CBEC Circular:

Circular No.  721 /37/2003-CX
6^th June, 2003

F.No.267/135/96-CX.8
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs           

Subject :  Central Excise- Payment of duty on waste package/ containers used for packing Modvatable inputs when cleared from the factory of the manufacturer availing Modvat/ CENVAT credit  – regarding.

            I am directed to refer to Board’s Circular No. 470/36/99-CX dated 19.7.99 on the above subject whereby the field formations were informed that the Department’s appeal against the CEGAT order in case of . West Coast Industrial Gases Ltd. Vs. Commissioner of Central Excise has been admitted by the Supreme Court. Accordingly, they were asked to take necessary action to safeguard revenue interest. 

2.         The said appeal has now been decided by Supreme Court. The Apex Court has held that no duty could be demanded on the containers used for the packing of inputs, on which credit has been taken, when cleared from the factory of the manufacturer availing credit as these containers could not be treated as scrap or waste arising out of the manufacturing process. Similarly, reversal of credit either on proportionate basis or otherwise is also not required as the utilization of input on which credit has been taken is not in dispute.  

3.         Accordingly, it is clarified that no duty shall be payable and no reversal of credit is also warranted on waste package /containers used for packing inputs, on which credit has been taken, when cleared from the factory of the manufacturer availing Modvat/ CENVAT credit. Consequently, Circular No. 470/36/99-CX dated 19.7.99 may be treated as withdrawn. Pending cases if any, may be decided accordingly. 

4.           Trade and field formations may please be informed suitably. 

5.           Receipt of the same may please be acknowledged. 

6.           Hindi version will follow.

Vijay Mohan Jain
Under Secretary to the Government of India

 

[deepak kalambate]

thank you very much sir!

[Ashokkumar Solunke]

The reply to above issue considering latest amended provisions of Section 2(d) of CEA, 1944 (Explaination)  may be resolved by taking stake of CBEC Circular No.904/24/2009 dated 28/10/2009, wherein, it is stated that assessee are required to follow obligation of Rule 6(3) of CCR, 2004 In short, assessee will be reuired to reverse an amount as per provisions of Rule 6(3) of CCR.  Further Circular No.  721 /37/2003-CX is silent regarding commom input services utilised in all such transactions as it was issued prior to implementation of 10/9/2004, from which, credit of service tax paid is been allowed to the assessee. Such issue are regularly raised by the Departmental Officers and also it's representation was made by ASSOCHAM befor pre BUDGET 20012-13 but clarifications on the matter are still not given by the Government.

[JAMES PG]

Please note the following points in this regard:

 1-    As per Rule 6 of  Cenvat Credit Rule credit shall not be allowed on such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted service or  input service used in or in relation to the manufacture of exempted goods.   Sub rule 2  & 3 further states that where a manufacturer or provider of output service avails credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services , either separate accounts shall be maintained or pay 6% of the  value of exempted goods /services  or pay an amount as per the prescribed formula.

          Exempted goods are defined under Rule 2 (e) of  CCR as those which are exempt from the whole of the duty of excise leviable thereon and includes goods which are chargeable to nil rate of duty

Clearance of waste packing materials in which Inputs /Capital goods are packed are  neither goods charged to Nil duty as per Excise Tariff nor exempted from Duty by way of any Notification and hence by no stretch of imagination, it can  be brought under the provisions of Rule 6(3)

2. Circular No. 904/24/09 is issued to clarify the “excisability of Bagasse, Aluminium/Zinc Dross and other such products termed as waste or residue or refuse arising during the course of manufacture” It is clarified that in case the rate of duty in respect of such products is Nil in the tariff or they are exempt from duty in terms of any exemption notification, and if Cenvat Credit has been taken on the inputs which are used for manufacture of dutiable and exempted goods, then in terms of rule 6 of Cenvat Credit Rules, 2004, the assessee is required to reverse the proportionate credit or pay 5% amount.

The above products are emerging as waste during the manufacturing process and are appearing in Tariff either as Nil duty  or exempted by way of specific notifications. Waste packing materials arising  out of unpacking the inputs before putting into production line is not a process waste or process scrap

3. Hon SC judgement in the case of  WEST COAST INDUSTRIAL GASES LTD regarding the reversal of credit on waste packing materials is still in force and not challenged by the Dept. Appeal filed by Dept in the case CCE Vs Gulf Oil India Ltd  (2011 (264) E.L.T. 382 (Guj.) is rejected by Hon Gujarat HC citing the above case and held that :

“ any packing material like barrels or poly-bags in which duty paid goods are received, whether by way of inputs or by way of packing material for finished products, on disposal of such material an assessee is not required to either reverse the Modvat/Cenvat credits or pay duty on such items”

4. In the Pre Budget Memorandum submitted by ASSOCHAM, the issue covered is for exempting process scrap and wastages. In fact, it was contended by them that just like exempting waste packing materials, process scrap also to be subjected to no excise levy. The text of the representation is given below:

“ It is submitted that clearance of scrap/waste generated by the use of cenvatable inputs in the manufacturing process is, conceptually, the same as clearance of waste packages

and containers and should, therefore, be outside the scope of central excise levy”

 

AI Summary

Cenvat credit reversal not required for unused packing materials when credit taken; departmental guidance may require proportional reversal. Disposition of unused packing materials for which Cenvat credit was availed generally attracts no duty and no reversal of credit per administrative guidance distinguishing such containers from process scrap; however, where items qualify as nil-rated or exempt outputs or are treated as manufacturing waste, Rule 6 CCR requires proportionate credit reversal or prescribed payment, producing divergent practices between revenue officers and trade.