Cenvat credit can be taken only on the basis of original invoices of service provider.

PJ/Case Study/2013-14/83

Prepared by: Kavita Thanvi,
Prayushi Jain &
Ranu Dhoot

Case study

Introduction:-

Punjab National Bank, is hereinafter referred to as the assessee who is a provider of banking and other financial services and had availed Cenvat credit of input service amounting to Rs 271342/-. During the course of audit of the records of the assessee, it was alleged that the above cited credit of service tax was availed without any supporting documents as prescribed under Rule 9 of the Cenvat Credit Rules, 2004. Hence, a show cause notice was issued to the assessee to show cause as to why such credit taken by them was tenable as per Rule 9 of the Cenvat Credit Rules, 2004. During the course of hearing, the assessee provided the photocopies of the invoices on the basis of which credit was taken by them and also produced original copies of such invoices for verification. Consequently, credit amounting to Rs 259402/- was allowed to them while remaining amount of Rs. 11490/- was confirmed for denial along with interest. However, taking lenient view as being Nationalised Bank, and taking recourse to Section 80 of the Finance Act, 1994 no penalty was imposed under Section 76 of the Finance Act, 1994. The assessee had shown original invoices during the course of hearing and submitted the photocopies of the invoices along with written submissions. However, the adjudicating authority mistakenly wrote in the impugned order in original that photocopies of the invoices were shown to them and on that basis service tax credit was taken on them. The impugned order in original was reviewed and consequently the revenue filed appeal against the said order in original to the Commissioner Appeals. The appeal was filed on two grounds- first that the operative part of the order in original did not specifically mention the dropping of demand and second that the credit was allowed on the strength of photocopies of the invoices. On receipt of the notice regarding filing of appeal by the revenue, the assessee came to know of the defect in the order in original and immediately filed rectification of mistake application as the mistake was apparent on record. Simultaneously, the assessee also filed cross objections with respect to appeal filed by the revenue.The outcome of the departmental appeal is the subject matter of the case study.

M/S PUNJAB NATIONAL BANK [OIA 348(OPD) ST/JPR-II/2013 Dated 18.12.2013]

Relevant legal provisions

Rule 9 of Cenvat Credit Rules, 2004:

1) 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 :-

an invoice issued by-

i. a manufacturer for clearance of –

I. 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;

               ii. inputs or capital goods as such;

    2.an importer;

3.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 Central Excise Rules, 2002;

4.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 Central Excise Rules, 2002;

Section 74. Rectification of Mistake:-

(1) With a view to rectifying any mistake apparent from the record, the [Central Excise Officer] who passed any order under the provisions of this Chapter may, within two years of the date on which such order was passed, amend the order.

(2) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub- section (1), the [Central Excise Officer] passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(3) Subject to the other provisions of this section, the [Central Excise Officer] concerned

(a) may make an amendment under sub-section (1) of his own motion; or

(b) shall make such amendment if any mistake is brought to his notice by the assessee or the [Commissioner] of Central Excise or the [Commissioner] of Central Excise (Appeals).

(4) An amendment, which has the effect of enhancing [the liability of the assessee or reducing a refund], shall not be made under this section unless the [Central Excise Officer] concerned has given notice to the assessee of his intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(5) Where an amendment is made under this section, an order shall be passed in writing by the [Central Excise Officer] concerned.

(6) Subject to the other provisions of this Chapter where any such amendment has the effect of reducing [the liability of the assessee or increasing the refund], the [Central Excise Officer] shall make any refund which may be due to such assessee.

(7) Where any such amendment has the effect of enhancing the [liability of the assessee] or reducing the refund already made, the [Central Excise Officer] shall make an order specifying the sum payable by the assessee and the provisions of this Chapter shall apply accordingly.

Issue Involved:

The following issue was made before the Commissioner Appeals:-
Cenvat credit can be taken only on the basis of original invoices of service provider.

Brief facts:-
M/s Punjab National Bank, Ratanada, Bhati Circle, Jodhpur (Rajasthan) are engaged in providing the “Banking and Other Financial Services” having registration no. AAACP0165GST001. The assessee appears to had irregularly taken and availed Cenvat credit of Service Tax amounting to Rs 271342/- in contravention to rule 9 of the Cenvat Credit Rules, 2004. During the course of audit of service tax records for the period 04/2005 to 03/2009 it was noticed that the assessee had availed and utilized credit of input services amounting to Rs 271342/- without having any supporting documents/invoices for availing such credit which was contrary to rule 9.

According to rule 9 of Cenvat Credit Rules, 2004; the Cenvat credit shall be taken by the manufacturer or the provider of output services or input service distributor as the case may be, on the basis of documents shown in Rule 9. Further as per rule 9(2) No Cenvat credit under sub rule(1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax rules, 1994 as the case may be; are contained in the document/invoice. Hence the assessee were requested to deposit the requisite amount of irregular availment of Service tax Credit without having any documents. But the assessee had not deposited the same.

As per Revenue the assessee had wrongly taken and availed CENVAT credit amounting to Rs.271342/- by suppressing the facts from Department with intention to evade the payment of Service Tax by above modus operandi taking credit on input service without prescribed documents (2007-08 Rs. 166964/- and 2008-09 Rs. 104378/-). Therefore the CENVAT Credit taken and availed by the assessee did not appear to be correct to them in terms of Rule 9(1) & (2) of Cenvat Credit Rules 2004 which was recoverable under Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of the Finance Act 1994 along with interest under Section 75 Finance Act, 1994 for contravention of Rule 9(1) & (2) of the Cenvat Credit Rules, 2004.

The adjudicating authority after personal hearing, discussion and finding held that as assessee had submitted photocopied invoices for amount Rs 259402/- so the credit was admissible on the same. It further ordered the recovery of balance amount of Rs. 11940/- with interest amounting to Rs. 903. Also, taking lenient view as being Nationalised Bank, taking recourse to Section 80 of the Finance Act, 1994 no penalty was imposed under Section 76 of the Finance Act, 1994. It is worth mentioning here that the assessee had shown original invoices during the course of hearing and submitted the photocopies of the invoices along with written submissions. However, the adjudicating authority mistakenly wrote in the impugned order in original that photocopies of the invoices were shown to them and on that basis service tax credit was taken on them. The impugned order in original was reviewed and consequently the revenue filed appeal against the said order in original to the Commissioner Appeals. The appeal was filed on two grounds- first that the operative part of the order in original did not specifically mentioned the dropping of demand and second that the credit was allowed on the strength of photocopies of the invoices. On receipt of the notice regarding filing of appeal by the revenue, the assessee came to know of the defect in the order in original and immediately filed rectification of mistake application as the mistake was apparent on record. Simultaneously, the assessee also filed cross objections with respect to appeal filed by the revenue.

Appellant’s contention:-The revenue filed appeal before the Commissioner Appeals on the following grounds:-

that as discussed in discussion & findings of OIO the adjudicating authority has held that assessee has held that assessee has furnished the photocopy of invoices and dropped the demand by accepting the same as prescribed documents for allowing the Cenvat credit of Rs. 2, 59,402/- while the photocopy of invoices are not prescribed under Rule 9(1) of the CENVAT CREDIT RULES, 2004.
that the adjudicating authority has dropped the demand of Rs. 2,59,402/-.However the operative portion of the order is silent about the dropping of the demand

Respondent’s contention:-The following submissions were made by the respondent in the cross objections filed by them to the Commissioner Appeals:-

The respondent-assessee submitted that the impugned appeal filed by the department was wholly and totally erroneous and was liable to be quashed and the order in original no. 12/ST/2013 dated 11.02.2013 should be upheld.

The respondent submitted that the revenue had preferred appeal against the order in original on the ground that in the discussion and findings of the Order in Original, the adjudicating authority had held that the respondent have furnished the photocopy of invoices and dropped the demand by accepting the same as prescribed documents for allowing the Cenvat Credit of Rs. 2,59,402/- while the photocopy of invoices were not prescribed document under Rule 9(1) of the Cenvat Credit Rules, 2004. In this respect, the respondent clarified that the contention of the revenue that photocopy of invoices were not prescribed documents for availing Cenvat Credit was true but not relevant in the facts and circumstances of the present case. It was submitted that they have availed credit on the basis of original documents itself and had duly followed the procedure prescribed in the Cenvat Credit Rules, 2004 for availing the eligible credit. They submitted that during the course of personal hearing, original documents were furnished by them and a copy of the said documents was submitted to the adjudicating authority. The respondent submitted that they had rightfully taken credit on the strength of original documents and for submission purpose only they had given copy of the invoices and as such, they were rightly eligible for availing the credit of service tax paid by them. Hence, on perusing the facts of the case, it was clear that the credit of service tax had been availed on the strength of original invoices only and the grounds of filing the appeal by the revenue was totally baseless and erroneous. Moreover, mere mention in the order that the assessee had furnished photocopy of invoices could not be the sole ground to deny the rightly admissible input service tax credit to them without observing the circumstances of the case and when no doubt had been raised as regards receipt of the said input services and the payment of service tax by them. The respondent submitted that as all the conditions for availing credit stood satisfied by them, the credit could not be denied to them and the impugned appeal filed by the department did not holds merit and deserved to be quashed. Therefore, the order in original dropping the recovery of Cenvat Credit along with penalty should be upheld.

Notwithstanding the fact that the original invoices were shown to the adjudicating authority at the time of hearing, it was submitted that even if it was accepted for the sake of argument also that the credit had been availed on the basis of photocopy of the invoices, then too, the credit could not be disallowed on this basis solely unless the fact of receipt and consumption of input services was not disputed. Therefore, the impugned order had been issued by literally interpreting the language of rule 9 which was not permissible when the literal interpretation defeats the intent of framing any legislation. It has been held by Hon’ble Punjab and Haryana High Court in the case of COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]. In the said decision, Hon’ble High Court observed that the credit cannot be denied on the basis of mechanical interpretation of rule 9 of Cenvat Credit Rules, 2004. It was held that so long as there is no dispute regarding the receipt of goods, their duty paid nature and their use in the factory of manufacturer, credit cannot be denied. Similar decisions had been given in the following cases:-

UNION OF INDIA Versus KATARIA WIRES LTD. [2009 (241) E.L.T. 31 (M.P.)]-
Krishna Cold Rolled Sections Ltd. v/s CCE, Kanpur [1996 (88) ELT 98 (Tri.-Delhi)]:-

In the above cases, it had been held that the credit cannot be disallowed so long as the use of inputs in the manufacture of final products is not disputed. Though these decisions pertains to availment of credit on inputs, their ratio is equally applicable in case of input services also as the receipt and use of input services by them is not disputed in the entire proceedings. Since the receipt of input services and their use in the provision of output service is not disputed, the impugned appeal filed by the Revenue is liable to be quashed on this ground also.

It was further submitted that the appeal was being filed on this ground also that the adjudicating authority had dropped the demand of Rs. 2,59,402/-, however, the operative portion of the order in original was silent about the dropping of the demand. In this context, the respondent submits that the appeal filed by the revenue on this ground that the operative part of the order in original was silent about dropping of the demand seems to be absurd and illogical due to the fact that on one hand the revenue was filing appeal against the order in original that was dropping the demand of Cenvat credit amounting to Rs. 2,59,402/- and on the other hand the ground of filing the appeal was that the operative part of the order in original was not specifically mentioning that the said demand for recovery of Cenvat credit had been dropped. The respondent submits that the revenue had filed appeal to the Commissioner Appeals only due to the fact that it accepts that demand for recovery of Cenvat credit had been dropped and then raising an objection that order does not states that the demand had been dropped was not understandable. The respondent submits that they accept that the operative part of the order in original was silent about dropping of demand, but it was also a fact that the order also does not specifically confirm the recovery of demand for the said Cenvat credit amounting to Rs. 2,59,402/-. As such, filing of appeal merely on the basis that the order was silent about dropping of demand was irrelevant and inconsequential as from the perusal of the body of the order, it was crystal clear that the demand for recovery of cenvat credit amounting to Rs. 2,59,402/- had been dropped.

In continuation to above, it was worth mentioning here that an order was to be read as a whole and it was not fruitful to read the operative part of the order and the body as separate as then it would not serve the purpose and would render the order meaningless. It was submitted that the content of the order was bifurcated into two parts, i.e., the body and the operative part. The body of the order states the reasons and detailed discussions and findings of the case while the operative part summarizes the final decision and there was no need to mention that the summarization of the final decision would be definitely according to the body of the order and merely because the specific mention of dropping of demand with respect to credit of Rs. 2,59,402/- had escaped from the operative portion of the order, it cannot be taken as a ground for not accepting the said order when the merits of the case are clearly in favour of them as discussed in the body of the order. In this respect, the respondent also wishes to reproduce the relevant extracts from the order in original to justify that the proceedings with respect to the recovery of credit of Rs. 2,59,402/- had been dropped as follows:-

“From the above table and the copy of Cenvatable invoices submitted by the assessee I find that the demand of wrong availment of Cenvat Credit of Rs. 2,59,402/- is not liable for confirmation, whereas demand of Rs. 11,940/- is liable for recovery from the assessee along with interest under Rule 14 of the Cenvat Credit Rules, 2004.”

On perusing the above extract, there was no doubt that the order in original had dropped the demand for recovery of cenvat credit of Rs. 2,59,402/- and so filing of appeal by the revenue on this ground that the operative part of the order was silent about dropping of demand does not hold good and consequently the appeal filed by the revenue deserves to be quashed.

Aligning with the above, the respondent also placed reliance on the judgement delivered by the Hon’ble High Court of Gujarat in the case of COMMISSIONER OF C. EX. & CUSTOMS, SURAT-I Vs P. S. SINGHVI [2011 (271) E.L.T. 16 (Guj.)]wherein it had been held that the order had to be read as a whole and the body of order and its operative part cannot be read separately. Thesynopsis of this case was produced for the sake of convenient reference as follows. In this case, the main body of the order of Tribunal had given findings that the director of the company was involved in the evasion of duty and was liable for penalty under rule 26 of the Central Excise Rules, 2002. However, while drafting the operative part of the order, the mention of rule 26 was skipped. The Tribunal set aside the penalty on the grounds that the operative part of the order did not mention any rule under which the penalty was imposable. However, the hon’ble High Court held that the finding of Tribunal was not justified as the main body of the order was clear enough to confirm the penalty on the director and merely because it skipped from the operative part cannot be a reason to withdraw the penalty when it is otherwise imposable as per discussion in the main body of the order. Thus, accordingly it was held that the main body of the order and its operative part are to be read simultaneously and cannot be read in isolation. Similarly, in the present case, the body of the order states that recovery of Cenvat Credit of Rs. 2,59,402/- is not liable for confirmation but the same had escaped mention in the operative part of the order. However, this cannot be the reason to oppose the order and question its legality as the merits of the case are clearly in favour of them. Therefore, as the facts and circumstances of the above cited decision are exactly same to the present case, its benefit should be extended to them and the impugned appeal filed by the revenue should be set aside.

It is also worth mentioning that the above basis of filing of appeal that the operative part of the order in original does not mentions the fact of dropping the demand for recovery of credit is any way not sustainable in view of the fact that section 74 of the Finance Act, 1994 provides for rectification of mistake that is apparent from the record. In light of the said provisions, it is submitted that they are going to file the rectification of mistake application under section 74 (3)(b) for rectification of the mistake that occurred in the operative part of the order in original. Also, they had shown the original invoices at the time of hearing and for the sake of convenience the photocopies were submitted for retention by the department. However, the order in original is merely stating that the photocopies were submitted; the fact of showing the original invoices had not found the space in the entire order. Thus, they will file the rectification on this account also. Accordingly, as the lacunae in the order will be rectified soon, the impugned appeal filed by the department had no force and should be quashed.

Aligning with above, it is submitted that the rectification of mistake apparent on record is allowable even when the appeal against an order is pending before the higher forum provided the rectification should be in legal framework. In the case of Sai Securities [2006 (3) STR 41 (Commr. Appl.)], it was held that the rectification of mistake in the order is allowed even if the appeal had already been filed against the said order. However, the rectification should be of the mistake apparent on the record and it should not be in contravention to existing legal provisions. In the instant case, the main body of the order was explicitly stating that the demand amounting to Rs. 259402/- is liable to be dropped but by mistake this fact escaped from being included in the operative part of the order. Obviously, this is a mistake apparent on record and is liable for rectification under section 74 of the chapter V of the Finance Act, 1994. The time period prescribed in this section is two years from the date of order. The date of order in this case is 11.2.2013, therefore still there is sufficient time to rectify this mistake apparent on record. Therefore, in view of judgment given in the case of M/s Sai Securities, the rectification of mistake should be allowed despite fact that the appeal had been filed against this order.
Without prejudice to above submissions, the respondent also requested to kindly had the notice of mistake apparent on record and reject the appeal filed by the Revenue. It is also requested to kindly direct the adjudicating officer to rectify the impugned order in original in view of the provisions contained in sub section 3(b) of the section 74 discussed here above which state that the rectification of mistake is allowed even if the mistake is brought to notice of the adjudicating officer by the Commissioner (Appeals). It is therefore requested to take care of the legislative intent and direct the adjudicating authority to rectify the mistake apparent on record by exercising the powers conferred in section 74 of the chapter V of the Finance Act, 1994 and drop the appeal filed by the Revenue.

Thus, on the basis of above grounds it is ample clear that the allegations raised while filing the impugned appeal are wholly and totally erroneous and consequently the impugned appeal filed by the department is not sustainable and is liable to be quashed. The demand for recovery of cenvat credit is non-sustainable on the merits. The order in original no. 12/ST/2013 dated 11.02.2013 which had been passed by considering all the facts and circumstances of the case and submissions forwarded by them, should be upheld.

Reasoning of the judgment:-The Commissioner (Appeals) held that this is not of any body’s case that credit was not availed on the basis of original copy of invoices as per the provisions of Rule 9 of Cenvat Credit Rules, 2004 but original documents were not produced either before AG audit or before the department for the verification. The appellants have contended that they possess the copy of original invoices on the basis of which credit was taken which can be verified by the department and the same were also produced before the adjudicating authority. In such circumstances, it would be proper to hold that credit is admissible provided the respondents get verified the same from the original documents. The department’s another plea that operative part of the impugned order is silent about dropping of the demand is not justified in as much as the issue was discussed in the order and demand of Rs. 11490/- was only confirmed out the demand of Rs. 271342/-. It clearly shows that remaining demand of credit of Rs. 259402/- was held by the adjudicating authority to inadmissible to the respondent. Thus, the impugned order cannot be said to be in order.

Decision:-Revenueappeal was rejected.

Conclusion:- This case represents the lenient approach followed by the revenue department and unnecessary litigation initiated with respect to settled matters. In this case, the credit was taken on the basis of original invoices and the same were also produced to the adjudicating authority during the course of hearing. However, one mistake in drafting the order in original that credit was taken on the strength of photocopies of invoices lead to unwarranted litigation. Moreover, it is also worth observing that one of the grounds taken in the appeal was also that the operative part of the order in original did not specifically mention that the demand for recovery of credit was dropped while on reading the order as a whole it was crystal clear that the demand of credit was set aside as the credit was taken on the basis of proper documents. All these practices lead to unnecessary disputes and wastage of time and resources.

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PJ/Case Study/2013-14/83
11 January 2014

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PJ/Case Study/2013-14/83 11 January 2014

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PJ/Case Study/2013-14/83
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