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Recording of sales on accrual basis

(Guest)

Dear Experts

We want to record sales of goods on accrual basis without the corresponding removal of goods from the factory

As the client desire to take the delivery of goods on a later date
(All the substantial risk has been passed on to the buyer therefore the criteria set out in AS-9 is fulfilled)

Now my question is what will be the treatment of such sales ,without corresponding removal of manufactured goods from the factory, on Excise duty taxability

Hoping for an earliest reply from the experts

Thanks in Advance

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1 Replies

Siddarth R Sunder Ram (Finance Professional) (230 Points)
Replied 28 August 2011

See, there are two parts to this question. One is on the revenue recognition angle and the other is the excise duty liability.

As far as excise duty goes, the Central Excise Act 1944 read with the Rules clearly mention two things - Excise duty is attracted on manufacture, but the liability to pay the amount arises on removal from the factory. So only when you remove the goods from the factory, you are liable to pay excise duty. Let's say you agreed upon the sale today i.e 28.8.2011, but removed the goods only on 5.9.2011. Then excise duty liability is for the month of September and the payment has to be made by 5th / 6th of October.

From a revenue recognition persepctive, looks doubtful if you can recognise revenue. You will have to prove that there is transfer of risks and rewards, property of goods passes to buyer, recoverability and certainity of sale consideration as per AS-9. If the terms of agreement can prove that buyer takes the risks and rewards even without removal from factory, only then can u recognise revenue.