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subcontracting with excise

Former Member
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124

hi all,

i have a subcontracting scenario like this.

we send the material A to vendor(subcontractor) for job work,then vendor add some material B to material A and send back to us after finishing material will be(a+b).

because vendor paid the excise of material B to goverment,so he want to put execise on material B and send finish material with excise.

In SAP how po will be created for this and what condition type should i use to capture this excise of material B.

pls suggest how to handle this scenario.

regards

sumit

Accepted Solutions (1)

Accepted Solutions (1)

tejyadav
Active Contributor
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You need to create Subcontracting PO for Material C i.e. (A+B), I assume you are clear with Material A & C concept, you need to now map the Material B, Check some options

Option 1: If you just need to pay the value of B & do not want track in your system, then in that case you can add the cost of Material B along with the Job work charges in the PO,

Option 2: Since you say Vendor has paid Excise & he will pass the excise to you, In that case you also need to book the excise for that material in your system, so you can add 1 line item in the same Subcontracting PO like normal purchase without account assignment, Now when you do GRN for Material C then the Material B Stock is added & excise needs to be booked & later this material B can be Issued to Cost center with 201 Mvt. & removed from the system.

Option 3: If vendor do not pass the Excise Invoice separately to you to take the benefit of Excise, Then you can repeat the same above process of additional line item for Material B with Account assignment ‘K’

Check which options help you

former_member187965
Active Contributor
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Hi Tej,

Can you please clarify the following points,

Option 1 - If you add the cost of material B along with the job work charges then what about the Excise or VAT/CST because vendor is definitely going to charge the taxes for the material which he has used for manufacturing of material C. Also taxes are charged for the amount of material B and not on the total job work charges so how will you split the total PO amount into job work charges and amount of material B ?

Option 2 - If you add a separate line item in PO for material B then how the cost of material B will get added to the cost of material C because ultimately material B is used to manufacture material C ? Also how can you take material B into the company Inventory and in Excise books if the material B is NOT even entered into the factory premises ?

As you said if you issue material B to a cost center to reduce the inventory then what will happen of the Excise duty credit which was availed at the GR because as per Excise rule if the material is not used for production then company can NOT avail the Excise duty credit it must be reversed.

Option 3 - Again, it is sure that vendor is going to charge tax on material B. Vendor has to raise the Excise Invoice for the material B because for him its a sale and it is for sure that he will not bear the Excise duty, he will just recover it from his customer and legally he can NOT move the material out side of his factory premises without generating a Sales invoice.

tejyadav
Active Contributor
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Option 1 - If you add the cost of material B along with the job work charges then what about the Excise or VAT/CST because vendor is definitely going to charge the taxes for the material which he has used for manufacturing of material C. Also taxes are charged for the amount of material B and not on the total job work charges so how will you split the total PO amount into job work charges and amount of material B ?

In that case go for option 2 of my above reply

Option 2 - If you add a separate line item in PO for material B then how the cost of material B will get added to the cost of material C because ultimately material B is used to manufacture material C ? Also how can you take material B into the company Inventory and in Excise books if the material B is NOT even entered into the factory premises ?

As you said if you issue material B to a cost center to reduce the inventory then what will happen of the Excise duty credit which was availed at the GR because as per Excise rule if the material is not used for production then company can NOT avail the Excise duty credit it must be reversed.

Material C is FERT Material so there is no chance of addition of values of B in C, C will be having Standard Price which will already include the Value of B.Excise can be updated if you issue to cost center also.

Option 3 - Again, it is sure that vendor is going to charge tax on material B. Vendor has to raise the Excise Invoice for the material B because for him its a sale and it is for sure that he will not bear the Excise duty, he will just recover it from his customer and legally he can NOT move the material out side of his factory premises without generating a Sales invoice.

Again Option 2 is applicable over here, If you add B as separate line item, then for you it is purchase & for your vendor it is sales, he will also have to send the excise invoice which you will map like a normal purchase with excise booking

Answers (3)

Answers (3)

BijayKumarBarik
Active Contributor
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Hi,

To map your special purpose - create two Purchase orders, one is normal Purchase order for the Material-B to subcontracting Vendor(have excise tax code)  and based on subcontracting Vendor confirmation, you do GR for Material-B.In  this process, you can have excise tracked for material-B and all related processs which help at the end to get report.

Now create another Sub-contract Purchase order for finished product  C and keep material-A and material -B and do all subcontracting related process.

OR

If above simulation not serve your purpose, then create Sub-contract Purchase order for finished product  C and keep material-A ONLY and capture material -B cost in subcontracting charge but here you can not track excises on material-B.

Regards,

Biju K

former_member187965
Active Contributor
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Hi Sumit,

Even the vendor is charging "Excise and VAT or CST" for B material, your company can not take the entry of B material in to the company excise books as vendor is not selling material B and your company is not purchasing material B from the vendor.

This is the case of cascading of taxes. If material A is excisable then you have to create 57F4 challan to send material to vendor. Then after receiving "A+B" material, you can not split a Sub-contracting PO in two parts, that is, for reconciliation of 57F4 challan for material A and capturing Excise duty for material B.

Also vendor has to send two bills, one is for job work charges and another for material B with taxes.

I have mapped this scenario in my previous project in the following way,

First you have to sell the material A to the vendor under "Remove as such" Excise rule.

You create a standard PO for "A+B" lets say "C" material. Now this scenario becomes a common purchase scenario. Vendor will send the Excise Invoice for "C" material and during GR of "C" material you will capture this Excise Invoice. In this way there will not be any taxes conflict and he will send a single bill with taxes. The legal documents will be very clear and there will not be any confusion at the time of GR.

Also you will get the correct cost for material "C" and the reporting will also be very clear.

Discuss this solution with your team and the company excise executive.

tejyadav
Active Contributor
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You cannot show the Sales of Material A to the Vendor, Since it will show an exaggerated Sales of the Company

BijayKumarBarik
Active Contributor
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Hi,

You know how to handle material with -A with subcontractor and all related process.But 1st talk to business how they handle process, specially to excise department of company.

As you said finished product have both material -A and material-B. Now vendor adding material-B,so how you create subcontract order. Did you create subcontract order with  finished product and what components (raw material you have)? must have material -A  ONLY as you are not supplying material-B?

If ,YES----how subcontract order created????

If ,NO---- how subcontract order created????

If you are not at all dealing with material-B,then add this material-B cost in subcontract charge.

If you want tack material-B,then use dealer scenarios to get material-B and send to vendor by doing simillar subcontract process for material-B.

You need more  input from business to decide solution for your special process.

Regards,

Biju K