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Urget query ! set off of excise duty ?

CA Abhishek Singh (practice) (2105 Points)

19 July 2012

Hello everyone,

one of my client wishes to start new business of supplying "aluminium foils" which is required to pack the capsule to pharma company.

He will get the "aluminium foils" duly printed from other manufacturers. [He do not have any brand name]

He will purchase the "aluminium foils" from the above manufacturer and sell it to the pharma company. He will issue his own invoice.

manufacturer charges him 12.36% excise duty.

My question :

1. How can he show excise duty paid in his invoice to the pharma company so that the pharma company can claim the CENVAT CREDIT ?

2. If answer to 1 is no, then what are the other options available ?

waiting for your reply urgently ?

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5 Replies

CA MOHAMMED IRFAN (Chartered Accountant) (136 Points)
Replied 19 July 2012

Your client needs to get registered under Central Excise as a First Stage Dealer (FSD). After registration as FSD your client can pass on the credit of excise duty paid on purchase of alluminium foils to the Pharma Company. Certain other regulatary requirements could be maintenance of proper records as per Central Excise and passing on the the credit of duty on proportionate basis.

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CA Abhishek Singh (practice) (2105 Points)
Replied 19 July 2012

thank u very much. plz. explain passing of duty on proportionate basis. i mean full excise duty cannot be passed to the parma company for set off.

CA MOHAMMED IRFAN (Chartered Accountant) (136 Points)
Replied 20 July 2012

Sir, I am making you available the extract from CENVAT Credit Rules, 2004. Plz have a look....

"Rule 9(4): The CENVAT credit in respect of input or capital goods purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, has maintained records indicating the fact that the input or capital goods was supplied from the stock on which duty was paid by the producer of such input or capital goods and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him."

Hence, as per me by above it is clear that the FSD or SSD can pass on the whole amount of duty paid by manufacturer on such inputs or capital goods. Here "on pro rata basis" indicates that if you (being a FSD) purchased certain units of inputs, say 100 kgs.and paid Rs.10,000 as Excise duty on it on purchase from a manufacturer and you sold only 40 kgs to other manufacturer, then in the CENVATABLE Invoice which you will issue to the buyer only an amount of Rs.4000(Rs.10,000 x 40/100) of Excise Duty can be passed on and the rest Rs.6000 should be retained and would be passed on subsequently to the other buyer when it will be actually sold.

Dear CCI members if anyone have other views,,,its welcomed.

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