CENTRAL EXCISE LAW AND PROCEDURE - for removal of goods as supply under warranty claims/ free samples and goods brought in for repairs

Procedure for removal of goods as supply under warranty claims/ free samples:

It is to be noted that excise duty is payable on removal and not on sale. Therefore even if the goods are removed as a replacement duty is payable on such goods. Now the question is how the duty is to be determined in case of supply under warranty claims or free samples?

Section 4(1)(b) of the Central Excise Act states that if Assessable Value' cannot be determined u/s 4(1)(a), it shall be determined in such manner as may be prescribed by rules. Under these powers, Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 have been made effective from 1-7-2000.

If goods are not sold at the time of removal, then value will be based on the value of such goods sold by assessee at any other time nearest to the time of removal, subject to reasonable adjustments. [Rule 4]

This rule applies when price at the time of removal is not available as the goods are not sold by the assessee at the time of removal. Thus, this rule should apply in case of removal of free samples or supply under warranty claims. In case of removal of samples or free replacement under warranty claims, duty will be payable on price of identical goods sold by assessee near about the time of removal of the samples.

Procedure for the goods brought to the factory:

[It is relevant to note that Rule 16 is applicable only if cenvat credit it to be availed. This view has been held in case of Kailash Transformers V. CCE-2008 228  E.L.T. 460. It was also held that when Rule 16 is not applicable, then permission of Commissioner contemplated under that rule is also not required. Under the new Rule 16 there is no time limit for receiving the goods and return thereof.  Further after remaking, re-fining, re-conditioning the goods may be returned to any other customer and need not be the same customer from whom the goods were received.]

RULE 16.  Credit of duty on goods brought to the factory. —

(1)  Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.

(2)   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) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.

Explanation. - The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.

(3)   If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.

Duty paying document for availing cenvat credit:

1.    In case of own goods: The credit can be availed on the incoming goods based on the customer’s invoice or OWN INVOICE where the rejected goods can be linked to the original invoice under which it was removed. This has been clarified under CBEC instructions F.No.267/44/2009 dated 25.11.2009.

2.    In case of other’s goods: The credit would be admissible on the basis of the invoice of the customer.

3.    Apply to Commissioner for special permission: In case where link is not established or the customer does not issue an invoice under Rule 11 as the case may be in those cases manufacturer could apply to the Commissioner Central Excise.

Procedure for seeking permission of the Commissioner when goods received without duty paying documents:

Board vide Trade Notice No.21/2004, dated 18-10-2004 has clarified with respect to Rule 16(1) and 16(2) that where ever the goods are received without any duty paying document, the manufacturer shall keep them separately in factory and intimate the details about the goods to the range officer within 24 hours of the receipt of the same. The Range Officer will visit the factory within 24 hours from the time of intimation received and verify the genuineness about the details furnished with the goods and report to the Divisional Officer. The Divisional Officer will scrutinise the report and send it to the Commissioner for approval along with his recommendation regarding credit of duty paid. In respect of the goods received without duty paying documents credit shall be taken by the manufacturer only after the receipt of such approval from the Commissioner. After reprocessing the duty shall be discharged in accordance with the provisions of sub Rule 2 of Rule 16 of Central Excise Rules 2002.