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Querist : Anonymous

Querist : Anonymous (Querist)

27 May 2010 x is a pharma co. it recives material from parties processes and send them back. in doing so it pays excise on behalf of client and uses their credit.
is it right in doing so?

Kishor Darole

Kishor Darole (Expert)
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29 May 2010 Dears,

It is a Sale-Purchase Transaction, This help to increase the Turnover of the organisation instead of using Job-work Method, Its Ok.

Regards
Kishor

Querist : Anonymous

Querist : Anonymous (Querist)

30 May 2010 .

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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03 August 2024 In the context of excise duty and the pharmaceutical industry, the handling of excise duty and credits involves specific rules. Here’s a detailed look into whether it’s appropriate for a pharmaceutical company (referred to as "X") to pay excise duty on behalf of clients and use their credit:

### **1. **Understanding the Process:**

- **Material Processing:** If Company X receives materials from parties, processes them, and then returns them, this is a typical scenario in job work or contract manufacturing.
- **Excise Duty Payment:** When X pays excise duty on behalf of its clients (the parties sending the material), this means that X is effectively acting as a custodian of the excise duty on behalf of its clients.

### **2. **Regulations Under Excise Duty:**

#### **Central Excise Act, 1944:**
- **Job Work Provisions:** Under the Central Excise Act, 1944, job work is a process where the principal manufacturer (the client) sends raw materials or semi-finished goods to a job worker (Company X) for further processing. The job worker processes the goods and returns them to the principal.
- **Excise Duty and Credit Utilization:** The principal manufacturer is usually responsible for paying excise duty on the final products. However, if the job worker (X) pays excise duty on behalf of the principal, it must ensure compliance with the relevant provisions.

#### **Rules on Credit Utilization:**
- **Input Credit:** Excise duty paid on inputs used in manufacturing is eligible for credit under the Input Tax Credit (ITC) scheme. However, the credit should ideally be utilized by the manufacturer (principal) and not by the job worker.
- **Job Worker’s Role:** If X is not the principal manufacturer, it should not claim input credits on behalf of its clients unless specifically allowed under the rules.

### **3. **Key Considerations:**

#### **A. Legal Compliance:**
- **Authorization:** Ensure that X is authorized by its clients to pay excise duty on their behalf. This typically requires formal agreements and proper documentation.
- **Documentation:** Maintain proper records of excise duty payments, including invoices and receipts, and ensure that these are correctly attributed to the principal manufacturer.

#### **B. Credit Utilization:**
- **Eligible Credits:** Verify whether the excise duty paid by X on behalf of the clients can be utilized as input credit. Generally, input credit should be claimed by the principal manufacturer.
- **Accountability:** Ensure that the credit utilization complies with the rules and is properly accounted for in the principal’s records.

#### **C. Regulatory Approval:**
- **Excise Authorities:** Consult with excise authorities or legal experts to ensure that X’s practices are in line with current regulations and guidelines.

### **4. **Practical Steps:**

1. **Agreement with Clients:**
- **Formal Agreement:** Draft formal agreements with clients specifying the role of X in paying excise duty and handling credits.

2. **Accounting and Documentation:**
- **Proper Accounting:** Maintain meticulous records of all transactions, including excise duty payments and credits.
- **Documentation:** Ensure all documentation supports the claim of any credits or deductions.

3. **Consultation:**
- **Legal Advice:** Consult with a tax professional or legal expert specializing in excise duty to confirm compliance with regulations and avoid potential issues.

### **Summary:**

While it is possible for a pharmaceutical company (Company X) to pay excise duty on behalf of its clients, the process must adhere to legal and regulatory requirements. The principal manufacturer typically utilizes input credit, not the job worker. Ensure proper authorization, maintain detailed records, and consult with regulatory authorities or legal experts to ensure compliance with excise duty regulations and proper credit utilization.