Subcontracting Without Payment of Excise Duty (SAP Library

Subcontracting Without Payment of Excise Duty

Purpose

When you issue materials to a subcontractor, you need to keep track of what materials you have issued and when they have to be returned by.

The reason for this close monitoring has to do with India’s tax law. Under excise law 57AC, when you send materials to a subcontractor for processing, you are not required to pay any excise duty, even though the materials have left your premises. However, if the materials have not been returned to you within a given length of time specified by the law (in 2000, 180 days), you will have to reverse any excise credit that you posted when you purchased the materials (see Completion, Reversal, and Recredit). In the case of materials that you have manufactured in-house, you will have to post credit entries to the extent of the CENVAT rate of the assessable value of the materials.

Prerequisites

You have:

Maintained the subcontracting information in the material masters (see Material Master (Excise Data))

Made the appropriate Customizing settings in the Country Version India (CIN) Implementation Guide (IMG), by choosing:

Logistics ® Subcontracting

Accounting ® Maintain Transaction Accounts

Accounting ® Assign G/L Accounts to Transaction Types and Excise Groups

Number Ranges (maintain number ranges for the object J_1I57FC, the number range number being mentioned in the subcontracting attributes)

Made the Customizing settings in the standard IMG, under Materials Management ® Inventory Management and Physical Inventory:

Goods Issue/Transfer Postings ® Define Screen Layout.

For movement type 541, in the Change View Field Selection Overview, pick the 541 movement type and in the Select Group Materials Management, make the Purchase Order field an optional entry.

Output Determination ® Maintain Output Types

Output Determination ® Assign Forms and Programs

Output Determination ® Printer Determination ® Printer Determination by Plant/Storage Location

Process Flow

You create a subcontract order for the goods that you want to subcontract.

You create a transfer posting order for the materials that are to be sent to the vendor. This document is, however, for your own use only.

You create a subcontracting challan on the basis of the transfer posting order.

This is the consignment document that you will send to the subcontractor along with the materials that are to be processed.

You send the materials to the subcontractor, along with a printout of the subcontracting challan.

The subcontractor processes the materials and returns the finished goods. When the goods are delivered back to you, the storeperson posts the goods receipt and the challan.

The delivery may not necessarily cover all the goods from the challan: It may also include goods from a number of different challans. The SAP functions allow for this eventuality.

The excise department reconciles the goods receipt against the challan, thereby accounting for the return of the materials that you have sent for subcontracting.

The challans here include those that have been captured online at the time of goods receipt and those entered manually.

You create a list of the outstanding challans.

You complete the challan.

If a subcontractor fails to return all the materials within the time allotted, you have to scrap the material by specifying it as such in the bill of material for the parent material then assigning the bill of material to the subcontracting purchase order. If the scrap generated is not returned by the subcontractor, excise duty relevant to the scrap generated has to be paid. If this scrap is returned after the duty has been paid, an excise journal voucher should be created to reverse the excise duty paid.