Repair v/s Remission

[Submitted by CA. K. A. Asmath,
Bangalore, Karnataka]

September 12, 2007

Receipt of goods for repair, remake etc., into the Factory:

Once I visited to Concorde Show room in Bangalore to repair a car. The mechanic said that a particular spare part of the car is damaged, so he will replace as the car is under warranty period, I need not have to pay for the spare but for labour. So I was happy to get it changed, later it struck to mind as how do the TATA motors will avail the CENVAT benefit of the spare part which the service station person has removed from my car. Then I was searching for the relevant provisions under the Central Excise Rules.

I found that Rule 16 of Central Excise Rules provides for receipt of duty paid goods into the factory for repair, remade etc.

Rule 16(1) of the said Rules provides that the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2001 and utilize the credit according to the said Rules. The goods received into the factory for repair, re-making, reconditioning etc. might have been produced or manufactured in the same factory or in some other factory.

Rule 16(2) of the said Rules provides that if the process carried out after receipt does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken. In any other case (where it amounts to manufacture), the manufacturer shall pay duty at the prevailing rate on the value determined under Section 3(2), 4 or 4A of the Central Excise Act, 1944.

Rule 16(3) of the said Rules provides that in the event of assessee facing difficulty, the Commissioner is empowered to resolve and permit the entry of goods. Board, in its supplementary instructions, has stated that the Commissioner may exercise his powers either on case to case basis by a special order or to be applied to a particular type of case by a general order and impose such conditions as may be necessary for safeguarding the interest of revenue.

Now I got one more doubt as to, in the rule the word "goods" used , it means goods as such i.e. in the given case CAR as such, because I have purchased a Car as such and not a component out of it, which is replaced now. In this regard I made a lot of research and I found answer given by the commissioner of Central excise Chennai which is as follows:

Office of the Chennai Commissioner -II, Dated 27-02-2002, Trade Notice No.15/2002, where in the commissioner has described the procedure to be followed in the case of goods returned for repair, remake, refine purpose.

(i) No prior permission is necessary to receive such goods. However, the assessee has to file with the Range Officer intimation within 24 hours (excluding holidays) of receipt of such goods. In case the assessee is prevented from filing the intimation within the specified time for any reason, the jurisdictional Assistant or Deputy Commissioner may consider the case on merits for condonation of delay on an application.

(ii) The goods received shall be accompanied by a document at least Delivery Challan of the sender/consignor. The sender shall clearly mention in the challan the purpose for which the goods are returned to the assessee's factory.

(iii) The assessee shall receive the goods within one year from the date of clearance or warranty / guarantee period, whichever is later. However, for relaxation of this clause, the assessee will apply well in advance stating the reasons to the jurisdictional Assistant or Deputy Commissioner who will grant extension of time on being satisfied.

(iv) The assessee shall not be entitled to CENVAT credit, since the goods received have not been accompanied by valid duty paying document prescribed under the CENVAT Credit Rules, 2001.

(v) The assessee shall re-despatch the goods received within six months from the date of receipt of goods into the factory. The assessee shall issue invoice as per Rule 11 of the Central Excise (No.2) Rules, 2001 at the time of such re-despatch. The invoice shall be super-scribed "GOODS RETURNED AFTER REPAIR / ...... PURPOSE". In case the assessee is not able to re-despatch the goods within six months of receipt of goods, he will apply well in advance stating the reasons to jurisdictional Assistant or Deputy Commissioner who will grant extension of time on being satisfied.

(vi) If the assessee, in the course of repair, reconditioning etc., adds or replaces parts or components etc from their own production or from inputs on which CENVAT credit was taken, he has to discharge duty or pay an amount equal to excise duty at the rate and value applicable as per relevant Rules. These added / replaced parts, components etc. may be incorporated in the same invoice or by a separate invoice as may be convenient to the assessee.

(vii) Where the process undertaken by the assessee amounts to 'manufacture' in terms of Section 2(f) of the Central Excise Act, 1944 read with Chapter / Section Notes of the Schedule to the Central Excise Tariff Act, 1985, the assessee shall pay duty and clear the goods under an invoice.

(viii) The assessee shall maintain records of receipt and disposal of such goods. Such receipt and disposal shall also be reflected in the quarterly / monthly returns being submitted to the Range Office.

Now the issue is what happens during the process of repair if the goods are damaged so much they are fit for nothing. The question is remains unanswered at the Trade Notice.

In those situations the Assessee may apply for remission of duty to the concerned officer under Rule 21 of Central Excise Rules, 2002.

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