Rule 16 of CER, 2002 and SSI exemption - any solution?
A Netizen sent us this mail-
“I am registered with the Central Excise department. As a SSI unit, I am entitled to small scale exemption of Rs. 1.5 Crores in terms of Notification No. 8/2003-CE. This February, as I had crossed the SSI exemption limit, I cleared a consignment to a customer on payment of Excise duty after availing CENVAT. The customer found certain defects in the goods and returned the same to me in the month of March. Since he had taken CENVAT credit, he debited the same while returning the goods. Upon receipt of the goods, I took CENVAT credit of the duty in terms of rule 16 of the CER, 2002 and found that the goods required a minor repair job. Needless to mention, since the finished goods were returned, their value was not taken into account while computing the aggregate value of clearances of four crores under the SSI notification.
When I opted for the SSI exemption this financial year, I had to observe the provisions of rule 11(2) of the CENVAT Credit Rules, 2004 which required me to do as below -
"A manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a notification based on the value or quantity of clearances in a financial year, and who has been taking CENVAT credit on inputs or input services before such option is exercised, shall be required to pay an amount equivalent to the CENVAT credit, if any, allowed to him in respect of inputs lying in stock or in process or contained in final products lying in stock on the date when such option is exercised and after deducting the said amount from the balance, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export."
Accordingly, my CENVAT credit account which also contained the credit taken under rule 16(1) was reduced to nil balance.
Incidentally, the goods received back have now been repaired and I intend to clear the same to the original consignee.
I faced the following two problems -
+ While clearing the repaired goods, in terms of rule 16(2) of the CER, 2002, I am required to pay an amount equal to the CENVAT credit taken earlier in terms of rule 16(1) of the CER, 2002. As can be seen, the CENVAT credit has already been reversed in terms of rule 11(2) of the CCR, 2004 and, therefore, I do not have any balance in my CENVAT credit account.
+ I am presently operating under SSI exemption and am required to clear the goods at Nil rate of duty ONLY.
Without seeking any advise, I cleared "these repaired goods" at nil rate of duty.
There is no loss of Revenue to the exchequer but I fear that I may receive a demand from the department by invoking the provisions of rule 16(2) of the CER, 2002 read with rule 14 of the CCR, 2004 as rule 16(1) deems the “returned goods” as ‘Inputs” under the CENVAT Credit Rules.
Presuming I had paid the ‘amount' through the Personal Ledger Account, I might have landed in another trouble - and that is that the SSI notification makes a mention that if I forego the exemption, I am required to pay the ‘normal' rate of duty for the entire financial year - albeit the fact remains that this was not my first clearance!