partial sales return - cenvat credit availed on returned goods, Central Excise

[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

Posts / Replies

[KASTURI SETHI]

Sh.Srijit V Ji,

Both State and Central Govt. have their own rules. However, your problem can be solved by following Rule 16(2) of CE Rules, 2002. Emphasis is laid on ,"in any other case' ----------------------may be.

Pl. read between the lines and then post query, if any.

[Ganeshan Kalyani]

Sir, In my view what department has done is correct. Sir please go through the rule as advised by Sri Kasturi Sir your query will be resolved. Thanks.

[KASTURI SETHI]

Sh.Srijit V Ji,

Under Rule 9 of Cenvat Credit Rules, 2004, there is no prohibition for availment of Cenvat Credit on the strength of triplicate copy of invoice. Only 'invoice' word is mentioned. A few years ago, only 'duplicate copy of invoice' was prescribed for availment of cenvat credit. Now only word, invoice' exists.

[Rajagopalan Ranganathan]

Sir,

Availment of credit on the basis of triplicate copy is in order since rule 9 (1) of Cenvat Credit Rules, 2004 permits to take credit on the basis of "invoice" issued by the manufacturer. Since you are the manufacturer and triplicate copy is your office copy you are within your rights to take credit on the basis of triplicate copy.

Only point for consideration is Revenue's observation " such returned gods are not subjected to any further manufaturing process before resale". If it is the case you have to reverse the credit taken in full at the time of resale of the returned goods. If you pay duty on the transaction value it is not correct. You have to reverse the entire credit taken at the time of receipt of returned goods for the reason that rule 16 (2) of Central Excise Rules, 2002 stipulates that " if the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1)".

[MADAN RAHEJA]

Dear Sir,

Reply given above by Sh. Ranganathan is perfect and supported by Tribunal decision in the case of Jindal Photo Ltd. reported at 2009 (247) ELT 730 (Tri. Ahmd) = 2009 (7) TMI 971 - CESTAT, AHMEDABAD

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Extract:-

[KASTURI SETHI]

Sh.Srijit V Ji,

I agree with both experts i.e. Sh. Ranganathan, Sir and Sh.Madan Raheja, Sir. I further add that sometimes goods are returned for the reasons other than quality and manufacturing defect. One of my clients is engaged in the manufacture of pesticides. His buyer returned the goods after two years from the date of clearance and that too after the date of expiry. It happened thrice.The following were the reasons:-

1. Dispute of price.

2. Dispute regarding the clauses of contract/agreement

3. Dispute regarding money transaction.

4. Non-cordial relation between manufacturer and buyer.

5. Glass ceiling.

Thus there can be so many reasons for return of goods. In such situation, the manufacturer has to resort to the clause "In any other case ----------" under Rule 16(2). This case law is relevant.

2015 (12) TMI 1004 - CESTAT CHENNAI M/s. Tube Products of India & CCE & ST, LTU, Chennai Versus CCE, Chennai-IV & M/s. Tube Products of India

 

[Srijit V]

Dear Sirs,

Shri Kasthuri Sethi, Shri Rajagopalan Rangnathan, Thank you for your valuable help.I will be citing the refrred clauses in my reply to the Range. Thank you again