The Hindu Business Line : No Cenvat credit for duty on freebies

This is with reference to excise-exempted zones in North-Eastern States. In case of a company launching promotional campaigns, it may offer freebies of products purchased from the market and pay excise duty. Would Cenvat credit be available for such finished goods used as a freebie (as an input in the manufacture of the company's product)? Is the company required to declare such finished goods as a principal input?

Gautam Jain

In the situation described by you, Cenvat credit of the duty paid on the finished goods cannot be availed of. The answer can be illustrated with two examples. Take the case of a branded tea manufacturer promoting his tea packets with free offers of glass bowls or stainless-steel spoons with each packet. Another example can be that of a manufacturer of talcum powder promoting his sales with free offers of shampoo packets both packed together.

In the above situation, the items offered free with the manufactured products — the stainless steel spoon, the glass bowl or shampoo packets — are themselves finished goods. Though they are packed with the other products and offered to customers, they are not required for manufacturing of tea or talcum powder. The essential condition for an item to qualify as `input' as per Cenvat Credit Rules 2004, is that it should be used in or in relation to the manufacture of the final product either directly or indirectly. The above items such as stainless steel spoon will not satisfy this condition. Hence, they cannot be declared as inputs in the manufacture of the other goods and Cenvat credit cannot be taken.

The Central Excise Tariff Act, 1985 contains provisions relating to deemed manufacture. As per this definition of "deemed manufacture" for certain products, labelling or re-labelling of containers intended for consumers or re-packing from bulk packs to retail packs or adoption of any other treatment to render the products marketable to consumer will amount to manufacture. The packing of the free offer goods along with the products sold as part of promotional campaign will not meet this criterion.

In your question, you have stated that it relates to excise exempted zone in the North-Eastern States. Cenvat credit itself is not available when the inputs are used in the manufacture of exempted products as per Rule 6 of Cenvat Credit Rules, 2004. As such, even otherwise, in the situation described by you, there is no scope for getting any Cenvat credit.

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S. Murugappan

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