Documents for availing Cenvat credit - Some Issues

Cenvat credit

Documents for availing Cenvat credit - Some Issues

The CENVAT Credit Rules, 2004 allows the manufacturer/output service provider to take credit on the duty/service tax paid on input/input services against the duty/service tax paid by him to the credit of the Central Government. Availing of Cenvat credit is subject to some conditions. One among them is the condition to maintain documents as per rule 9 of the Cenvat Credit Rules. This article discusses the allowability of the Cenvat credit in case documents could not be maintained as required in rule 9 with reference to decided case-laws.

Documents for availing Cenvat credit

1. Rule 9 of the Cenvat Credit Rules prescribes the documents and accounts to be maintained for availment of CENVAT Credit. Rule 9 (1) provides that the CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely:

Ø       an invoice issued by-

Ø      a manufacturer for clearance of-

o       inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;

Ø      inputs or capital goods as such;

Ø      an importer;

Ø      an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of the Central Excise Rules, 2002;

Ø      a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of the Central Excise Rules, 2002; or

Ø      a supplementary invoice issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of the Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, 1975 has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act or the Rules made thereunder with intent to evade payment of duty.

By Explanation it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3; or

Ø      a bill of entry; or

Ø      a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or

Ø      a challan evidencing payment of service tax by the person liable to pay service tax under sub-clauses (iii), (iv), (v) and (vii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994; or

Ø      an invoice, a bill or challan issued by a provider of output service on or after the 10th day of September, 1994; or

Ø       an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.

It further provides that the credit of additional duty of customs levied under section 3(5) shall not be allowed if the invoice or the supplementary invoice, as the case may be, bears an indication to the effect that no credit of the said additional duty shall be admissible. It is, thus, clear that for availment of CENVAT credit in respect of inputs, capital goods and input services one has to receive the goods under certain documents which are prescribed under the above Rules.

Issue

In availing CENVAT credit the assessee is to comply with various conditions. One among them is maintaining necessary documents. It is clear that documents should be as per the Rules. In case the documents are not in accordance with the rules whether the assessee will be allowed to avail CENVAT credit or not, is not clear. It is based on facts and circumstances of the case.

Improper documents

In the case of BSNL, In re [Order-in-Appeal No. 6/COMMR/ST/2008, dated 15-1-2008], the effect of use of improper documents for availing CENVAT credit is discussed.

The General Manager, Telecom District, BSNL, Ambedkar Chowk, Jabalpur was engaged in providing taxable ‘telephone service’. During the course of scrutiny of ST-3 returns and available records of the assessee, it had been noticed that the assessee had availed CENVAT credit of input services and capital goods during the period 1-10-2005 to 31-3-2006. It appeared to the department that the assessee availed the credit wrongly due to the following reasons:

Ø      the credit was taken on the strength of ‘Advice of transfer’ (Debit Note) issued by the Accounts Officer of other circle of BSNL which is not a proper document for taking credit in terms of rule 9(1);

Ø      Credit was taken on the strength of photocopies of the documents;

Ø      Credit was availed on the strength of documents, which were not in the name of the assessee.

Certificate-A

In Steel Authority of India Ltd. v. CCE & ST 2010 (255) ELT 129 (Trib. - Kol.), the appellant availed credit on the strength of Certificate A issued by the supplier evidencing the payment of differential duty under rule 57E of the Central Excise Rules, 1944. The Tribunal held that there was no dispute regarding payment of differential duty by the suppliers of the goods and availment of original credit. The Tribunal further held that there was no dispute regarding duty paid character and receipt of the goods. The certificate A issued in this case was covered by relevant invoices. Therefore, the credit disallowed was not permissible.

Triplicate copy

In Hindustan Coca Cola Beverages (P.) Ltd. v. CCE 2010 (255) ELT 94 (Trib. - Delhi), the appeal was against the order of Commissioner of Central Excise (Appeals) upholding the bill of entry generated on EDI system. The original authority denied the credit holding that in terms of rule 57G(3)(k), the credit can be taken only on the basis of duplicate copy of the bill of entry generated on Electronic Data Interchange (EDI) system installed in the Customs of Central Excise Commissionerate. The appellant submitted that rule 57G(3)(c) has prescribed ‘triplicate copy of bill of entry’ as relevant document for the purpose of taking credit. There is no stipulation that the triplicate copy referred to in rule 57G(3)(c) relates only to triplicate copy of the bill generated in manual system. Since the initial stage of the EDI system some of the Commissionerates were not generating second copy of the bill of entry, the Central Government included the duplicate copy of the bill of entry generated in EDI also as document for the purpose of taking credit. The department contended that when the rule prescribes a particular document, the appellant is required to produce the said document only to enable himself to take credit. The Tribunal held that the appellant clearly showed divergence in practice regarding generation of triplicate copy of the bill of entry, thus, necessitating prescribing the duplicate copy generated on EDI system also as document for the purpose of taking credit. Sub-rule (3)(k) prescribing such duplicate copy as the relevant document has been done with without amending sub-rule (3)(c) of rule 57G. The Tribunal found merit in the submission of the appellant.

Gate pass

In CCE v. Venus Auto (P.) Ltd. 2010 (255) ELT 73 (All.), the issue as to the credit availed on gate pass was discussed. In the Notification No. 16/94-CE, dated 30-3-1994 documents have been prescribed by the Central Government in exercise of powers conferred by rule 57G of the Central Excise Rules, 1944. The said notification also provides that the Modvat credit on the basis of the documents mentioned in column (3) of the Table annexed to the notification can be availed of, provided the documents have been issued before 1-4-1994 and credit under the said Rule has been taken on or before 30-6-1994. At Sl. No. 10 of the column (3), the document specified was endorsed as gate pass/subsidiary gate pass/certificate. Admittedly in the present case the respondent had taken Modvat credit on the basis of amended gate passes which were issued prior to 1-4-1994 and the Modvat credit on the basis of endorsed gate passes before 30-6-1994. The High Court held that there was no contravention and set aside the order.

Wrong document

In CCE v. Sai Ram Industries 2010 (255) ELT 256 (Trib. - Delhi), the goods had been manufactured by Swastika Pipes Ltd., Rohtak who had sold goods to Rameswar Das Devi Dayal, Faridabad. The invoice issued by Swastika Pipes Limited mentioned that the goods were sold to Rameswar Das Devi Dayal, though the same were consigned to Gautam Steel Trader. As per the definition of ‘First stage dealer’ given in rule 2(ii) of Cenvat Credit Rules, 2004, the ‘First stage dealer’ means the dealer who purchases the goods directly from the manufacturer or from the depots of the manufacturers or the premises of consignment agent of the said manufacturer or from any premises from where the goods are sold by or on behalf of the said manufacturer or from an importer or from the premises of consignment agent of such importer. In this case, Gautam Steel Trader had not purchased the goods directly from the manufacturer but had purchased the same from Rameswar Das Devi Dayal and the manufacturer’s invoice mentioned Rameswar Das Devi Dayal as the buyer, and, thus, Gautam Steel Trader cannot be called ‘First stage dealer’ within the meaning defined in rule 2(ii) of CENVAT Credit Rules, 2004. Since Golden Steel Co. had purchased the goods from Gautam Steel Trader and Gautam Steel Trader was not ‘First stage dealer’, Golden Steel Co. would not be covered by the definition of ‘Second stage dealer’ as the term ‘Second stage dealer’ as defined in rule 2(s) of the Cenvat Credit Rules, 2004 means a dealer who purchases goods from the first stage dealer. In view of this, the invoice issued by Golden Steel Co. cannot be said to be a valid duty paying document for taking credit in terms of rule 9. Therefore, the Commissioner of Central Excise (Appeals)’s order permitting CENVAT credit on the basis of this invoice was not correct.

Covering Letter

In ‘Eupec-Welspun Coatings India Ltd. v. CCE [Final Order No. A/1534/2008-WZB/Ahd., dated 6-8-2008], the Tribunal found that there was no dispute that the goods had been received by the appellants and the importers had directly supplied the material to the appellants and covering letters had been issued by the importers certifying/declaring that the appellant can take the credit and there was an endorsement by the Customs Officer also. One of the arguments advanced by the Commissioner of Central Excise (Appeals) in support of his decision was that the document did not contain the particulars prescribed in the Rules. According to him, such a document has to include the Central Excise or Service Tax Registration number of the person issuing the invoice, name of particulars of the factory or warehouse or premises, first or second stage dealer’s name and address of the consignee. On the other hand, the Tribunal found that rule 9(2) provides that credit shall not be denied on the ground that the document does not contain all the particulars required to be contained under these rules, if the document contains details of payment of duty or service tax, descripttion of goods, assessable value and, name and address of the factory of the receiver. Further, according to the provision of rule 9(2), the jurisdictional Assistant Commissioner can allow CENVAT credit if he is satisfied that the duty has been paid and goods have been actually used. In the instant case, all these details were available except name and address of the factory on the bill of entry. The only omission was that instead of endorsing the bill of entry itself in the name of the assessee, the importer has issued separate certificate/declaration. It was to be seen in as part of the bill of entry and both of them cannot be segregated and seen in isolation, as done by the department. It was quite clear that the credit had to be allowed in view of the provisions of rule 9(2). Therefore, the appeal was allowed with consequential relief to the appellants.

RG 23A Register

Dina Mahabir Re-Rollers (P.) Ltd. v. CCE [Final Order No. A-112/Kol./2010, dated 12-2-2010. As per rule 9, a challan evidencing payment of service tax by the persons liable to pay service tax is a valid duty paying document. Before the lower authorities, the appellant pleaded that the credit was taken on the strength of debit entry made in RG 23A, Pt.II of the statutory record showing the payment of service tax. In reply to the show-cause notice also the appellant specifically mentioned that the service tax was paid through CENVAT credit register and, hence, on the basis of entry made in the register, the credit was availed. It was also the submission of the appellant that a consolidated entry was made in respect of the payment of service tax. The Tribunal found that in the absence of any challan, no verification can be done regarding the service received by the appellant or where the service tax was paid regarding the service received by the assessee. The Tribunal found that there was no infirmity in the impugned order.

Private challans

In CCE v. Stelko Strips Ltd. 2010 (255) ELT 397 (Punj. & Har.), the Tribunal had referred the question of law for adjudication of the High Court, namely, - Whether the private challans other than the prescribed documents are valid for taking MODVAT credit under Central Excise Rules, 1944? The High Court held that the Punjab and Haryana High Court in ‘CCE v. Gujarat Medicraft (P.) Ltd. held that once duty payment is not disputed and it is found that documents are genuine and not fraudulent, then the manufacturer would be entitled to MODVAT credit on duty paid inputs. The Division Bench of Punjab & Haryana High Court in CCE v. Ralson India Ltd. 2006 (202) ELT 759 held that if the duty paid character of inputs and their receipt in manufacturer’s factory and utilization for manufacturing a final product is not disputed, then credit cannot be denied. In this case, the High Court held that the respondent-manufacturer would be entitled to claim MODVAT credit on the strength of private challans as the same were not found to be false and there was a proper certification that duty had been paid.

Xerox copy

In CCE&C v. Steelco Gujarat Ltd. 2010 (255) ELT 518 (Guj.), the original/duplicate invoices had been lost in transit. As such, the assessee availed CENVAT credit on the basis of xerox copy of the triplicate copy of the invoice, duly attested by the Jurisdictional Range Superintendent at the supplier end to evidence the duty payment character of the said invoice in question. The Commissioner of Central Excise (Appeals) observed that there was no dispute about the duty paid character of the input, receipt of the same in the appellant’s factory and utilization for manufacture of final product. Therefore, the Commissioner of Central Excise (Appeals) came to the conclusion that the legitimate right of the appellants cannot be denied just because the original/duplicate invoices were lost in transit. The department could at best, as a precaution to prevent availment of double credit in the case of appellants recover the original document and insist for an undertaking or indemnity bond from the appellants. The Tribunal while confirming the order of the Commissioner of Central Excise (Appeals) observed that mere xerox copy by itself should not be made the basis of allowing the credit but where the assessee had made efforts to get the said xerox copy attested by the Range Superintendent at the supplier’s end and had established beyond doubt that the duty, stood paid on the goods and the goods stood received by him, denial of credit on the procedural irregularity would not be justified. The High Court did not find any infirmity in the order passed by the Tribunal and Commissioner of Central Excise (Appeals).

Invoices issued in the name of branch office

In ‘Manipal Advertising Services (P.) v. CCE [2010] 25 STT 30 (Bang. - CESTAT), the issue as to the eligibility of invoice to avail credit which was issued in the name of the branch office is discussed. In this case, it was undisputed that—

Ø      the appellant was not having any service tax registration in respect of branch offices on whose name the invoices were issued by the service providers;

Ø      the appellant had got centralized billing and centralized accounting system.

The Tribunal held that if a person is discharging service tax liability from his registered office, the benefit of CENVAT credit on the service tax paid by the service provider cannot be denied to him only on the ground that the said invoices were in the name of the branch office. There was no dispute that the said invoices were in the name of the Branch Office. There was no dispute that the branch offices were not registered with the service tax authorities and they were not discharging the service tax liability, obviously, the appellant was discharging service tax liability on the services provided by branches. The Tribunal found that the documents on which the appellant had taken the service tax credit, though in the name of the Branch Office, were actually being paid from the premises wherein the service tax registration had been taken. In view of the above finding, the impugned order was unsustainable and the Tribunal set aside the same and allowed the appeal with consequential

relief, if any.

Invoice not in the name of the assessee

In ‘Kitply Industries Ltd. v. CCE [2010]26 STT 369 (New Delhi - CESTAT), two elements are involved—

Ø      disallowance of CENVAT credit in respect of service tax paid on cellular phone service availed while bills thereof were not in the name of the assessee; and

Ø       disallowance of credit on account of payment of service tax for availing insurance services on the strength of photocopy of insurance policy.

The Tribunal held that so far as the demand raised disallowing the CENVAT credit of service tax on the cellular phones was concerned, integrity, dependability and relevancy test was applied by adjudicating authority to reach the conclusion. Accordingly, the Adjudicating Authority was justified to disallow the claim. So far as the service tax on insurance was concerned, if the appellant would produce relevant documents having force of evidence, the authority would reconsider the claim. If the authority founds that service tax was paid on the input service meeting all the three tests aforesaid, the claim would be admissible.

Conclusion

 From the above discussion, it is clear that the assessee in order to avail CENVAT credit has to maintain documents as required under rule 9. However, in cases where such documents could not be maintained and other sorts of documents are with the assessee by which he availed credit, then the following requirements are to be fulfilled—

ü      There shall be no dispute about the duty paid character of the input;

ü      Receipt of the goods in the factory of the assessee;

ü      Utilization for manufacture of the final product.

The authority, in such cases, has to satisfy the three tests, viz., integrity, dependability and relevancy as held in Kitply Industries Ltd. (supra). The Tribunal in Stelco Gujarat Ltd. case (supra) rightly held that the denial of credit on the procedural irregularity would not be justified. Even though favourable judgments are there, the assessee should try to maintain documents for availing credit in accordance with the rule with utmost care to avoid unnecessary litigations.