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Process documentation Subcontracting Without Payment of Excise Duty  Locate the document in its SAP Library structure

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 made the Customizing settings in Customizing for Logistics – General, by choosing Taxes on Goods Movements → India → Business Transactions → Subcontracting.

You have made the Customizing settings for the accounting postings in Customizing for Logistics – General, by choosing Taxes on Goods Movements → India → Account Determination.

You have set up the number range for the subcontracting challan in Customizing for Logistics – General, by choosing Taxes on Goods Movements → India → Tools → Number Ranges.

You have maintained the subcontracting information in the material masters (see Material Master (Excise Data)).

You have made the following settings in Customizing for Materials Management → Inventory Management and Physical Inventory:

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.

Process Flow

  1. You create a subcontract order for the goods that you want to subcontract.
  2. 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.
  3. You create a subcontracting challan on the basis of the transfer posting order.

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

  4. You send the materials to the subcontractor, along with a printout of the subcontracting challan.
  5. 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.

    6. Note

    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.

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

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

  7. You create a list of the outstanding challans.
  8. 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.

Alternatives

The procedure given in step 5 shows how to enter the goods receipt using the old Goods Movement transaction. If you want to use the new Goods Movement transaction, MIGO, see Entering Goods Receipts and Subcontracting Challans Together.

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