Captive consumption

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Mahendra Singh Dhatarwal (Querist)
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28 December 2011 Hi,

Can you please let me know whether we need a commercial/Excise Invoice for captive consumption of the finished goods to reprocess the same???

Kindly also suggest how the transaction would take place as the goods captively consumed are being declared as finished goods in the monthly excise return???

Thanks & Regards
Mahendra S Dhatarwal

U S Sharma

U S Sharma (Expert)
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29 December 2011 usual way captive consumption is used when the intermediate goods are exisable but the ultimate finish goods are either tax free or taxed at lower rate.

you can seek permission from DC of excise to use TWO set of invoice 1) for home consumption 2) captive consumption

or

you can use your home consumption invoice for captive consumption.

under ER-1 goods issued for captive consumption would be shown as goods cleared for home

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Mahendra Singh Dhatarwal

Mahendra Singh Dhatarwal (Querist)
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29 December 2011 Thanks Mr. Sharma,

Actually till now we were treating this product as finished good which will now be captively consumed partly and rest will be treated as FG..

As captive consumption is exempted from the duty under notificatoin but the finished good will be dutiable. So May I please ask you to suggest if we consume this product captively, then do we need to write the DC for the same??? How the transactions would take place???

Please also suggest the performa invoice under which this would take place.

Regards
Mahendra S Dhatarwal

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Mahendra Singh Dhatarwal

Mahendra Singh Dhatarwal (Querist)
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29 December 2011 Please suggest.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 In the context of excise duty and captive consumption of finished goods for reprocessing within the same factory, here’s how the transactions and documentation typically work:

### Need for Commercial/Excise Invoice for Captive Consumption

1. **Excise Invoice Requirement:**
- For captive consumption of finished goods within the same factory, an excise invoice is generally not required because the goods are not being sold or removed from the factory premises for sale.
- Captive consumption refers to the internal use of goods for further manufacturing or processing within the same factory.

2. **Documentation for Captive Consumption:**
- While an excise invoice is not needed, it's essential to maintain internal records and documentation to track the movement of finished goods from production to captive consumption.
- This documentation should include details such as quantities consumed, dates of consumption, and the purpose (reprocessing in this case).

### Handling Captive Consumption in Monthly Excise Return

1. **Declaration in Excise Return:**
- In the monthly excise return, the finished goods that are captively consumed should be declared appropriately.
- Specify the quantity and description of the finished goods that have been used for captive consumption within the factory premises.
- These goods should be accounted for separately from the finished goods that are intended for sale or removal under duty payment.

2. **Treatment of Finished Goods:**
- Segment the finished goods into two categories in your excise return:
- Goods that are captively consumed (exempt from excise duty under notification).
- Goods that are intended for sale or removal (liable for excise duty).

### Transaction Process for Captive Consumption

1. **Internal Documentation:**
- Use Delivery Challan (DC): Instead of a commercial invoice, use a Delivery Challan (DC) or internal transfer note to document the movement of finished goods for captive consumption.
- The DC should specify details such as:
- Name and address of the consignor (your factory).
- Name and address of the consignee (same factory department or section).
- Description of goods (finished goods for reprocessing).
- Quantity consumed.
- Date of consumption.

2. **Proforma Invoice (Performa Invoice):**
- A Proforma Invoice or Performa Invoice is typically used for indicating a commitment to provide goods or services at a specified price. However, for captive consumption within the same factory, this may not be necessary since no sale or commercial transaction is occurring.
- Focus on using Delivery Challans or internal transfer notes for documenting captive consumption.

### Example of Delivery Challan Format:

```
Delivery Challan

Date: [Date of transfer]
From:
[Your Company Name]
[Address]

To:
[Department/Section within your Company]
[Address]

Details of Goods:
Sl. No. Description Quantity Purpose of Consumption Remarks
-----------------------------------------------------------------
1. Finished Goods [Description] [Quantity] Captive consumption for reprocessing

Certified that the goods mentioned above are being transferred for captive consumption within our factory premises.

Signature: _______________________
```

### Conclusion

- For captive consumption of finished goods within the same factory:
- Excise invoice is not required.
- Use Delivery Challans or internal transfer notes to document the movement.
- Ensure proper segregation and declaration in the monthly excise return.
- Maintain records as per excise requirements for audit and compliance purposes.

Consult with your company's tax advisor or excise consultant to ensure compliance with specific regulations and notifications applicable to your industry and location. They can provide tailored advice based on the exact nature of your operations and regulatory environment.