central excse

(Guest)

Originally posted by :SREELALITHA V
"	the total turnover of one of my client crosses Rs. 1.50 crores and eligible for ssi exemption. For determining the turnover of rs. 1.50 crores whether sales returns to be deducted. the central excise people is not agreeable for deduction of sales returns for the exemption limit. what is the correct status.	"

as per SSI exemption notification, there is no provision for duductring sales return while calculating turnover. Reason is that excise duty is on manufacturing activity and on sale, excise duty is payable on removable of goods.. hence as per my opinion sales return cannot be considered to computing turnover for SSI exemption

regards

sandeep

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 29 September 2008

Yes that is the correct sitution.

SREELALITHA V (Audit Assistant) (98 Points)
Replied 29 September 2008

THANK YOU MR. SANDEEP AND SRI SRINIVASARAGHAVAN FOR YOUR KIND REPLY.

PL. LET ME KNOW IF ANY CASE STUDY IN THIS REGARD YOU COME ACROSS OR WE CAN GO FOR APPEAL AND YOUR OPINION FOR THE POSSIBILITY OF ITS DECESSION IN OUR FAVOUR.

THANK YOU

(Guest)

Originally posted by :SREELALITHA V
"	THANK YOU MR. SANDEEP AND SRI SRINIVASARAGHAVAN FOR YOUR KIND REPLY. PL. LET ME KNOW IF ANY CASE STUDY IN THIS REGARD YOU COME ACROSS OR WE CAN GO FOR APPEAL AND YOUR OPINION FOR THE POSSIBILITY OF ITS DECESSION IN OUR FAVOUR. THANK YOU	"

Please refer Sl No. 3A of General Exemption No. 1, Notification No. 8/2003 dated 01.03.2003, wherein clearances not to be considered for calculating aggregate value of clearances for SSI exemption is specifically mentioned. Any clearance other than this cannot be exclude from aggregate value. As i mentioned in above reply that, basic principle behind this is that excise is on manufacturing activity and not on sale of goods. Therefore there is no question of deducting sales return from aggregate value. i am not aware if there is any case law regarding this.

sandeep

(Guest)

Originally posted by :SREELALITHA V
"	the total turnover of one of my client crosses Rs. 1.50 crores and eligible for ssi exemption. For determining the turnover of rs. 1.50 crores whether sales returns to be deducted. the central excise people is not agreeable for deduction of sales returns for the exemption limit. what is the correct status.	"

(Guest)

Originally posted by :SREELALITHA V

"

the total turnover of one of my client crosses Rs. 1.50 crores and eligible for ssi exemption. For determining the turnover of rs. 1.50 crores whether sales returns to be deducted. the central excise people is not agreeable for deduction of sales returns for the exemption limit. what is the correct status.

Recently our company got audited by excise officials here also they are telling that sale returns should not be considered while calculation ssi exemption turn over limit. If you find laws or rule that say it should be considered pls update us also. so that we can also avoid getting penalised

Regards

V.Srinivasa

"

(Guest)

Originally posted by :S.Srinivasaraghavan
"	Yes that is the correct sitution.	"

Dear Sir

Like Ms Sree lalitha case , Excise audit was carried out on our company and they have said sales return should not be accounted to claim exemption limit turnover of 150 lakhs. For this we have replied as given below . Pls let us know your comments on that

Query 1: Whether Rejections supported by debit notes should be excluded for calculating the notified limit of 150 lakhs

Excise duty is a duty on manufacture and it is payable even by a small unit manufacturing excisable goods. The manufacturer claiming exemption under this notification can avail full exemption up to Rs. 100 / 150 lakhs and pay normal duty thereafter. Such units can avail Cenvat credit on inputs only after reaching turnover of Rs 150 lakhs in the financial year. (The exemption was Rs 100 lakhs up to 31.3.2007)

If the goods cleared are returned back, then the same is to be excluded from the initial exemption limit. In our case the product being rough castings, there is bound to be 10-15% rejection. These returned goods are remelted and remanufactured. When removed if we have crossed the limit we pay the duty else not. If the returned goods were to be included in the value of clearances then there would be a double taxation on the same which is not envisaged in the Act/ Rules.

In fact the CER 2002 specify that if the goods returned are those goods on which duty has been paid, then as per rule 16 of Central Excise Rules, if the duty paid goods are brought for being remade, refined, reconditioned or for any other reason, the manufacturer is allowed to take Cenvat credit of duty paid as if such goods are received as inputs under Cenvat Credit Rules and utilize the credit according to Cenvat credit Rules. If the process further conducted is not manufacture then the credit has to be replaced and in case of re-manufacture (as in our case) the value would be under Rule 4.

Notification No. 8/2001 says FIRST CLEARANCE UPTO AN AGGREGATE VALUE not exceeding Rs. 150 Lacs.

The word Value for the purpose of above notification as per Para 5 (C)(ii) means value as determined in accordance with the provisions of Sec. 4 of the Central Excise Act 1944.

As per Sec. 4 of the Act, Transaction Value means, the Price actually paid or payable for the goods, when sold, and include……………

The meaning of the word, price actually paid to payable for the goods means, the buyer should accept the goods for payment. If he does not accept the goods and returns the goods then there is no transaction value.

Hence the basic conditions to be fulfilled for Sec.4 is that there should be a sale and the buyer accept the sold item for payment.

As per Sec. 2(h) of the Central Excise Act, 1944, the term sale is defined as any transfer of the possession of goods by one person to another in the ordinary course of business for cash or deferred payment or other valuable considerations.

But in the case of Sales returns the possession of goods is re transferred to the seller and no payment is will be received. Hence for charging duty on sales returns, the conditions of Sec. 2 (h) is not fulfilled and there is no transaction value and not a value for the purpose of notification No. 8/2003.

The other interesting point is that the notification is silent regarding considering the sales returns as sale for calculating the aggregate value of Rs. 150 Lacs.

In normal course, when the materials are returned by the buyer, it is reduced from the sales or turnover as sales returns. As per standard accounting norms , for depicting sales in the Financial Statements also, the accounting principle provides that the quantum of sales returns should be deducted from sales.

Under Central Sales Tax provisions also, when the materials are rejected and returned, the tax on such returns need not be paid.

Again when the rejected goods after re work are sold, then such sales amount would be included in the sales amount.

If the value of rejected goods are not reduced from the sales, then when the re-work materials are sold then it would be amounting to double accounting of the same amount i.e. same materials would be accounted as sales twice in the financial statements.

Even at Tribunal level, there are no case laws providing that rejected materials should not be excluded for calculating the notified limit for 150 lakhs or 400 lakhs even though the SSI exemption has been in place for more than 20 years!!.

From the above points we hope that we are eligible for deduction towards sales rejection. Also we are not in a position to pay the duty on the turnover which is not a sale as per Sec. 2(h) of the Act.

Considering the above reasons the issue may be dropped.

We would be glad to provide any further information as may be required in this regard.

Regards

V.Srinivasa

malleables @ gmail.com

(Guest)

Originally posted by :SREELALITHA V
"	the total turnover of one of my client crosses Rs. 1.50 crores and eligible for ssi exemption. For determining the turnover of rs. 1.50 crores whether sales returns to be deducted. the central excise people is not agreeable for deduction of sales returns for the exemption limit. what is the correct status.	"

Dear Ms Sree Lalitha

Like your case , Excise audit was carried out on our company and they have said sales return should not be accounted to claim exemption limit turnover of 150 lakhs. For this we have replied as given below . Hope this will be of some help to you. Pls update

Whether rejections supported by debit notes should be excluded for calculating the notified limit of 150 lakhs

Excise duty is a duty on manufacture and it is payable even by a small unit manufacturing excisable goods. The manufacturer claiming exemption under this notification can avail full exemption up to Rs. 100 / 150 lakhs and pay normal duty thereafter. Such units can avail Cenvat credit on inputs only after reaching turnover of Rs 150 lakhs in the financial year. (The exemption was Rs 100 lakhs up to 31.3.2007)

If the goods cleared are returned back, then the same is to be excluded from the initial exemption limit. In our case the product being rough castings, there is bound to be 10-15% rejection. These returned goods are remelted and remanufactured. When removed if we have crossed the limit we pay the duty else not. If the returned goods were to be included in the value of clearances then there would be a double taxation on the same which is not envisaged in the Act/ Rules.

In fact the CER 2002 specify that if the goods returned are those goods on which duty has been paid, then as per rule 16 of Central Excise Rules, if the duty paid goods are brought for being remade, refined, reconditioned or for any other reason, the manufacturer is allowed to take Cenvat credit of duty paid as if such goods are received as inputs under Cenvat Credit Rules and utilize the credit according to Cenvat credit Rules. If the process further conducted is not manufacture then the credit has to be replaced and in case of re-manufacture (as in our case) the value would be under Rule 4.

Notification No. 8/2001 says FIRST CLEARANCE UPTO AN AGGREGATE VALUE not exceeding Rs. 150 Lacs.

The word Value for the purpose of above notification as per Para 5 (C)(ii) means value as determined in accordance with the provisions of Sec. 4 of the Central Excise Act 1944.

As per Sec. 4 of the Act, Transaction Value means, the Price actually paid or payable for the goods, when sold, and include……………

The meaning of the word, price actually paid to payable for the goods means, the buyer should accept the goods for payment. If he does not accept the goods and returns the goods then there is no transaction value.

Hence the basic conditions to be fulfilled for Sec.4 is that there should be a sale and the buyer accept the sold item for payment.

As per Sec. 2(h) of the Central Excise Act, 1944, the term sale is defined as any transfer of the possession of goods by one person to another in the ordinary course of business for cash or deferred payment or other valuable considerations.

But in the case of Sales returns the possession of goods is re transferred to the seller and no payment is will be received. Hence for charging duty on sales returns, the conditions of Sec. 2 (h) is not fulfilled and there is no transaction value and not a value for the purpose of notification No. 8/2003.

The other interesting point is that the notification is silent regarding considering the sales returns as sale for calculating the aggregate value of Rs. 150 Lacs.

In normal course, when the materials are returned by the buyer, it is reduced from the sales or turnover as sales returns. As per standard accounting norms , for depicting sales in the Financial Statements also, the accounting principle provides that the quantum of sales returns should be deducted from sales.

Under Central Sales Tax provisions also, when the materials are rejected and returned, the tax on such returns need not be paid.

Again when the rejected goods after re work are sold, then such sales amount would be included in the sales amount.

If the value of rejected goods are not reduced from the sales, then when the re-work materials are sold then it would be amounting to double accounting of the same amount i.e. same materials would be accounted as sales twice in the financial statements.

Even at Tribunal level, there are no case laws providing that rejected materials should not be excluded for calculating the notified limit for 150 lakhs or 400 lakhs even though the SSI exemption has been in place for more than 20 years!!.

From the above points we hope that we are eligible for deduction towards sales rejection. Also we are not in a position to pay the duty on the turnover which is not a sale as per Sec. 2(h) of the Act.

Considering the above reasons the issue may be dropped.

We would be glad to provide any further information as may be required in this regard.

Regards

V.Srinivasa

malleables @ gmail.com