Excise credit in case of job work

1141 views 6 replies

Dimple Gulati

none

31 Points Joined June 2012

I am currently auditing the accounts of a company where in I got a little stuck at the excise point

the company is a manufacturing company.It purchases raw material and pays excise duty on the purchases,the material is then transferred to the job worker who does the processing and converts it into FGs.The excise duty liability on the FGs is paid by the job worker.But as per the manufacturing agreement,the same is indemnified by the manufacturer company to the Job worker.I would also like to mention that that manufacturer company is registered with the excise deptt and is filing nil return.

my query is-isnt the job worker taking a double benefit-it pays excise duty to the deptt. and claims the CCR on its own purchase of raw material that it uses for the purpose of conversion into FGs.also it takes reimbursement of the excise duty paid to the deptt from the manufacturing company.

on the other hand,the manufacturer is the one who is actually bearing the burden of excise duty but at the same time isnot able to take the CCR of the raw material it purchases for transferring to JW coz the depp gets duty from the JW.

The confusion is that the manufacturer is filing a nil excise return,the JW is paying the excise duty on FGs that it produces on behalf of manufacturer.though the manufacturer is indemnifying the JW for this excise duty but it is not claiming the same before the depptt.But then how can the manufacturer claim this exciose duty before the depptt coz from the pt. of view of deptt,duty is coming from JW.I know the manufacturer is doing something wrong,I do not know how to get it rectified?also,the manufacturer refuses to undertake the payment to deptt of excise directly instead of JW coz of teh tedious work involved,help me solve

Replies (6)

Ajit kumar Dubey

Taxation Manager

637 Points Joined September 2008

Please go through the provision of rule 10A of the Excise Valuation rules which states the procedure for determining the value on which duty is to be paid by the JW. Please clear myself as I find this contradictory:- "Manufacturer is filing nil return", "reimbursement of the excise duty paid to the dept from the manufacturing company". Kindly come back with some clarity on this.

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

in such case the Job worker itself is deemed manufacturer, and original manufactrer is "merchant manufacturer" only. so all duty liability remains with job worker, and he is entitled to pay duty and claim cenvat credit ( if the input invoice is made in his name and regn number)

Dimple Gulati

none

31 Points Joined June 2012

Originally posted by : U S Sharma
	in such case the Job worker itself is deemed manufacturer, and original manufactrer is "merchant manufacturer" only. so all duty liability remains with job worker, and he is entitled to pay duty and claim cenvat credit ( if the input invoice is made in his name and regn number)

thanks,i agree to what you said but despite the fact that the deptt is getting the duty from the JW and that makes him entitled for teh excise credit,but teh anomaly here is that as per the manufcaturing agreement,the manufacturer indemnifies the entire excise duty on FGs paid to the deptt by the JW to the JW.so the ultimate burden of excise duty falls again on the manufacturer and JW seems to be taking a double advantage.

one advantage is that he(JW) gets the entire excuse duty paid to the deptt on FGs reimbursed from the manufcaturer,secondly,since he pays the duty to the deptt,he claims a credit of the same since he pays ED on RM he purchases at his end for the purpose of conversion of RM to FGs

Dimple Gulati

none

31 Points Joined June 2012

Originally posted by : Dimple Gulati

thank you all,i read through my own question again and realised there were alot of anomalies in the ques itself

thank you for the replies

Ajit kumar Dubey

Taxation Manager

637 Points Joined September 2008

I could sense there some interesting transaction which you are talking about. If possible update your query with the actual facts, it would be helpful for us to understand the query in a better way.

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

cenvat credit is a procedural input benefit for which he had to forbid his 150 lacs duty free clearance.

now the question comes to his duty paid inputs, yes he is eligible to get credit, cos he has paid from his own pocket for such RM used in such JW, and for that purpose only he is maintaining such dozens of rules/ acts and records and registers.

the principal manufacturer has to look into the same at the time of placing order and negotiate the same at the time of placing orders, and not to make hue and cry after finalization of the deals.