Whether credit can be availed on basis of debit notes?

PJ/CASE LAW/2016-17/3120

Case:-HINDUJA FOUNDRIES LTD Vs COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I

Citation:-2016-TIOL-1158-CESTAT-MAD

Brief facts:-The brief facts were that the appellants have availed service tax credit of Rs.83,722/- based on the debit notes raised. The adjudicating authority had disallowed the credit of Rs.83,742/- and imposed penalty of equivalent amount and interest. Commissioner (Appeals) upheld the adjudication order.

Appellant’s contention:-The learned counsel for the appellant-company submitted that the service receiver had raised debit note instead of issuing invoice. Since they had availed service from the service provider and paid the consideration, they were eligible to avail credit. The debit note contained all details and description and service tax particulars. He relied upon the decisions of Tribunal in the cases of CCE, Jalaram Plastic Pack - 2014 (34) STR 66; CCE Vs Grasim Industries Ltd. - 2011 (24) STR 691 = 2011-TIOL-1660-CESTAT-DEL; Shree Cement Ltd. Vs CCE Jaipur II - 2013 (29) STR 77 (Tri.-Del.) and United Phosphorus Ltd. Vs CCE Surat - 2013 (30) STR 509 (Tri.-Ahmd.) = 2013-TIOL-793-CESTAT-AHM.

Respondent’s contention:-On the other hand, the learned AR for Revenue reiterated the findings recorded by both the authorities below. The demand amount is less than Rs. 2 lakhs and appeal need not be entertained and liable for rejection. He submitted that debit notes were not prescribed documents for availing CENVAT credit. He relied on the following decisions:-

- Parle Biscuits (P) Ltd. Vs. State of Bihar - 2005 (192) ELT 23 (SC) = 2004-TIOL-105-SC-CT

- CCE Vs. TFL Quinn India Pvt. Ltd. - 2013 (294) ELT 421 = 2012-TIOL-35-CESTAT-BANG

- Friends & Friends Shipping Pvt. Ltd. Vs. CCE - 2014 (35) STR 811

Reasoning of judgment:-On hearing both sides and on perusal of the records, it was found that the appellants had availed input service tax credit based on the debit notes for the input services received on professional fees, and internet tele-communication service amounting to Rs.83,722/-. The appellants relied upon the decisions of the Tribunal in the cases of Jalaram Plastic Work (supra) and Grasim Industries Ltd. (supra) wherein the Tribunal dismissed the Revenue's appeal and held that credit cannot be denied simply because service tax was paid on the basis of debit notes and not against proper invoices. The decision of the Tribunal in the case of Friends & Friends Shipping Pvt. Ltd. (supra), as relied upon by the learned AR, was not applicable to the present case as in that case the issue related to eligibility of service tax paid by the CHA on behalf of the appellant for the service rendered by Kandla Port Trust and Kandla Dock Labour Board where the CHA issued the debit note. In the present case, the appellant availed the credit on the service tax paid on professional fee and internet telecommunication service. In view of the Tribunal's decision, as relied upon by the learned counsel in the case of Shree Cement Ltd. Vs CCE Jaipur II (supra), the Hon'ble Tribunal's decision was squarely applicable to the facts of the present case. The relevant paragraphs of the Tribunal's order were reproduced as under :-

3. Rule 9 of Cenvat Credit Rules, 2004 is a compendium Rule to deal Cenvat credit relating to goods and services. Invoices are normally issued for the goods cleared under Central Excise Rules, 1944. Similarly Bill of Entry is issued under Customs Act, 1962. Certificate is issued by Appraiser of Customs. A document issued in terms of Rule 9(1)(f) of Cenvat Credit Rules, 2004, i.e. an invoice, a bill or challan are used to claim Cenvat credit. Apart from that, there is a document issued under Rule 4A of Service Tax Rules, 1994 by distributor of input services to enable the beneficiary to get Cenvat credit. By express provision of law, legislature has used three terms i.e. ‘invoice', ‘bill', and ‘challan' in Rule 9(1)(f) of Cenvat Credit Rules, 2004.

The appellant's case falls under Rule 9(1)(f) of Cenvat Credit Rules, 2004 instead of falling under Rule 4A of Service Tax Rules, 1994. Therefore, claim under Rule 4A is rejected because the present appeal was not relating to service distribution.

An invoice is normally issued under Central Excise Act, 1944 while clearing goods and also when goods are traded. Legislature permitted a Bill of Entry to be issued under Customs Act, 1962 for the goods involved in clearance. Law has still gone on to say that certificate of an Appraiser of Customs is recognised to be an evidence to grant Cenvat credit. Accordingly, while enacting Rule 9(f) of Cenvat Credit Rules, 2004, legislature intended a ‘bill' issued shall also serve the purpose for claiming Cenvat credit. What a ‘bill' means is that which gives right to an actionable claim. A party raising the bill communicates its intention to the recipient of service making him aware of his contractual obligation and value involved to provide such service. That may be a substitute of invoice because of phraseology used in Rule 9(1)(f) of Cenvat Credit Rules, 2004.

Substance is more important than the format and the doctrine of substance over format is sanction of Rule 9(1)(f) of Cenvat Credit Rules, 2004. Accordingly, when Revenue did not find that the service tax realised through debit note had not gone into treasury, there was no scope to deny relief to the appellant. Added to this, the service provider had realised certain reimbursement of expenses while providing consultancy service in terms of debit note appearing at pages 51 to 55 of appeal folder. Therefore, once assessable value of service provider is intended to include even the reimbursement of expenses, the appellant cannot be denied benefit of Cenvat credit without finding no deposit of service tax by service provider.

Relying on the above decision of Principal Bench of this Tribunal, the appeal was allowed.

Decision:-Appeal allowed.

Comment:- The gist of this case is that debit notes issued are covered under the term “bill” used in Rule 9(1)(f) and therefore credit cannot be denied to the assessee stating that invoice was missing. It was held that ‘bill' means a document which gives right to an actionable claim. A party raising the bill communicates its intention to the recipient of service making him aware of his contractual obligation and value involved to provide such service. That may be a substitute of invoice because of phraseology used in Rule 9(1)(f) of Cenvat Credit Rules, 2004. Substance is more important than the format and the doctrine of substance over format is sanction of Rule 9(1)(f) of Cenvat Credit Rules, 2004. Accordingly, when Revenue did not find that the service tax realized through debit note had not gone into treasury, there was no scope to deny relief to the appellant. The substantial benefit of cenvat credit cannot be denied for procedural lapse.

Prepared by:- Prayushi Jain

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PJ/CASE LAW/2016-17/3120

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