Hello,
If you consume the same defective material in rework order then how will you produce the inventory for this material as there is no good receipt for the rework order header material created through CO07. 261 movement for rework order is for excess consumption of components which required during the rework process. So once the rework is complete then you need to move the material from block stock to normal unrestricted stock by using movement like 349..
Or another way is make different storage location for rework material post the rework quantity to this storage location as unrestricted stock then create new production order with CO01 with rework order type and here assign the rework material as component so that it will get consume and you will have GR for your production orders.
Best Regards,
R.Brahmankar