Scrap materials: the "special byproduct" in processing trade

In the daily production of processing trade enterprises, leftover materials are like an "uninvited guest"—though unwelcome, they are always present. As goods under customs supervision, the management of leftover materials is directly related to a company's compliance operations and economic benefits.

According to the General Administration of Customs Order No. 111, scrap materials refer to the reasonable amount of waste, fragments, and leftover materials generated during the processing by processing trade enterprises within the unit material consumption approved by customs, which can no longer be used for processing the export finished products under the contract. Although this definition appears simple, in actual operations, it often leaves enterprises "lost in the fog."

• According to Customs General Administration Order No. 111, scrap refers to reasonable quantities of waste, fragments and leftover materials generated during processing within customs-approved material consumption rates that can no longer be used for processing export finished products under the contract. This seemingly simple definition often leaves enterprises seeing through a fog in practice.Not all waste qualifies as scrap
• : Unprocessed material quality issues belong to surplus materialsDefective products ≠ scrap
• : Non-conforming products during production should be classified as defective productsByproducts ≠ scrap

The "Three Golden Rules" for scrap material disposal

: Simultaneously produced other products should be identified as byproducts

Three Golden Rules for Scrap Disposal

Scrap disposal is like walking a tightrope - balancing customs compliance with economic efficiency. Here are three compliant disposal methods:

• When filling out the import customs declaration form, the supervision method must be correctly selected as either "Domestic Sales of Scrap from Processing with Customer's Materials" or "Domestic Sales of Scrap from Processing with Imported Materials."
• When completing import declarations, correctly select scrap domestic sales for processing with supplied materials or scrap domestic sales for processing with imported materials as the supervision mode
• Declared prices should be based on domestic sales prices

1. Domestic sales: The art of turning waste into treasure

Innovative methods like online auctions can be employed

• The customs declaration form for export must indicate the supervision method as "re-export of processing scrap materials" or "re-export of imported scrap materials".
• Export declarations must indicate scrap re-export for processing with supplied materials or scrap re-export for processing with imported materials as the supervision mode

2. Return shipment: The wisdom of simple returns

Returned scrap subject to export duties should have export tariffs assessed based on proportion of domestic material value

• Destruction disposal requires special attention:
• Must be entrusted to legally qualified units
• Customs may supervise the disposal process

A "Pitfall Avoidance Guide" for Scrap Material Management

Disposal income must be truthfully declared and taxed

• In practice, scrap management has several easily overlooked points:Tariff benefits
• : Scrap domestic sales exempt from deferred tax interest, some goods eligible for tariff quota ratesFor items subject to import license management, license documents are exempt from submission.
• Special tariff exemptionExempt from the imposition of additional special tariffs

Remember, while scrap materials may seem insignificant, improper management can lead to major issues. A well-known electronics company once mistakenly classified waste liquid as by-products, resulting in nearly a million yuan in back taxes and fines. This lesson teaches us that scrap material management should not be underestimated.

As a processing trade enterprise, only by thoroughly understanding customs policies and establishing a comprehensive scrap management system can one navigate with ease in this field where "details determine success or failure." After all, in the face of customs supervision, there is never such a thing as a "minor matter."