Circular No. 930/20/2010-CX, New Delhi, dated the 9th July, 2010.
Subject: Tolerance of breakage of bottles due to handling during storage and clearance-reg.
It has been brought to the notice of the Board that some of the manufacturers of bottled beverages are claiming the benefit of duty exemption in respect of breakage of PET bottles upto 0.5% citing the Board’s Instruction letter No. ID/3/70-CX8, as amended vide letter F.No. 261/ID/1/75-CX8 dated 17.09.1975. As per the letter dated 17.09.75, tolerance of 0.5% is allowed on account of breakage of bottles due to handling in the course of movements from the manufacturing area to bonded store rooms and breakages during storage and clearance there-from. It has also been observed that in some judicial pronouncements, this benefit has been allowed to the parties, on the limited ground that the said instruction has not been rescinded/ modified by the Board and further the cenvat credit taken on bottles as input have been allowed to be retained by the assessee.
2. The matter has been examined. The instructions mentioned above were issued primarily in the context of use of glass bottles. At the relevant time, the scheme of Modvat/CENVAT credit was not available to the assessees and, therefore, there was no issue of reversal of credit taken on bottles, which were subsequently broken/ destroyed. After the introduction of MODVAT and subsequent replacement of the same with CENVAT, any circular, instruction or provision inconsistent with the same has no relevance. As per the provisions of Rule 21 of Central Excise Rules, 2002, remission of duty before removal can be claimed on any goods lost or destroyed by natural causes or unavoidable accident, claimed by manufacturer to be unfit for consumption or marketing. The said remission is granted subject to the condition of reversal of cenvat credit taken on inputs used in the final product, as per the CircularNo.800/33/2004-CX dated 01.10.2004. Rule 3(5C) was also inserted in CENVAT Credit Rules, 2004, w.e.f 07.09.07, to specifically provide for the same. Further, as per Rule 3(5B) of CENVAT Credit Rules, 2004, if the value of any input is written off, the cenvat availed on the same is required to be reversed. Therefore, if the final product (i.e bottled beverage) is broken/ destroyed then remission can be claimed and if the bottle (input) is written off by the assessee as destroyed, the same is required to be dealt with as per the provisions of Rule 3(5B) of CENVAT Credit Rules, 2004.
3.In view of above, the application of the letters/ instructions quoted in para1 above, in the said judicial pronouncements, without recourse to the aforesaid provisions of law, is therefore per incuriam. Necessary action may be taken to safeguard revenue. Nevertheless, to avoid such disputes in future, it is stated that the instructions/ letters quoted in para1 above have no relevance in the present CENVAT scheme, and the instructions stand rescinded.
4. Trade & Industry as well as field formations may be suitably informed.
5. Receipt of this circular may kindly be acknowledged.
6. Hindi version will follow.
(Amish Kumar Gupta)