Whether assessee is eligible to take and utilize Cenvat credit on the basis of the improper invoices?

PJ/Case Study/2012-13/48

Prepared by:- CA Neetu Sukhwani &

Kavita Thanvi

CASE STUDY

Introduction:-

The assessee was issued with a Show cause notice alleging that they have availed Cenvat credit of Service tax on the basis of improper invoices in contravention of Rule 9 of the Cenvat Credit Rules, 2004. The assessee contended that although the invoices were issued by the service provider in the name of their head office but the services were provided in their factory from where the consignments of their finished goods have been cleared. It was held by the Commissioner that the Cenvat credit is admissible to the assessee as the same has been availed and utilized only after the receipt of input services by the assessee and thus, the credit taken by the assessee is correct and not improper.

M/S BHANSALI ENGINEERING POLYMERS LTD [OIO No. 152/ST/JPR-II/2012, dated 26.12.2012]

Relevant Legal Provisions:-

Rule 9. Documents and accounts.-

(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 :-
(a) 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;
(ii) an importer;
(iii) 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;
(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of 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, 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, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.
Explanation.- For removal of doubts, 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 of the Customs Tariff Act; or
(c) a bill of entry; or
(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or
(e) 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
(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or
(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.
Provided that the credit of additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) 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;
(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 said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, Central Excise or Service tax Registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of taxable service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit;

Issue Before the Adjudicating Authority :-

The issue that was made before the Additional Commissioner, Adjudicating Authority was that-

Whether assessee is eligible to take and utilize Cenvat credit on the basis of the improper invoices?

Brief Facts:-

The assessees are engaged in the manufacture of SAN & ABS falling under chapter 39 of the schedule to the schedule to the CETA, 1985. They appear to have wrongly taken and utilized the Cenvat credit of Service Tax amounting to Rs. 10,81,806/- (Ser. Tax Rs.1050295/- + Cess Rs. 21007/- + Sec. H. Ed. Cess Rs.10504/-) during the period from February 2009 to May 2010 on the basis of improper documents. During the course of audit, it was observed that the assessee had availed Cenvat Credit of Service Tax of Rs.10,81,806/- on the basis of improper invoices in contravention of Rule 9 of the Cenvat Credit Rules 2004. The assessee was requested by the Superintendent Central Excise Range Abu Road vide letter dated 20.07.2010 to produce the copies of invoices/documents in respect of the irregularity pointed out by the audit. Reminder letter of even No. 539 dated 28.07.2010 was also sent. The assessee, vide their letter dated 06.08.2010, submitted the copies of the invoices referred by the audit. On perusal of the copies of the invoices, it was found that these were not in the name of the assessee and also not bearing the PAN based Service Tax registration number. In some of the invoices even Service Tax registration No. of the provider of the service was not mentioned.
As per Rule 9(2) of the Cenvat Credit Rules, 2004 no Cenvat Credit under sub rule (1) shall be taken unless all the particulars prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994 as the case may be are contained in the said document. The document on the basis of which the Cenvat Credit has been taken arid utilized in the present case does not appear proper documents because the invoices do not contain particulars as required under provisions of the Rule 11 of the Central Excise Rules, 2002. Therefore, it appears that the assessee is not entitled to take and utilize Cenvat Credit on the basis of such improper documents. The assessee has to take all reasonable steps to ensure that the documents on the basis of which he has taken the CENVAT Credit is a proper document. As per Rule 11 (2) of Central Excise Rules 2002, an Invoice should necessarily contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transport, vehicle registration number, rate of duty, quantity and value of goods and the duty payable thereon. In the instant case as detailed in the SCN, the invoices do not contain the name of the assessee and some invoices were either not having the registration No. or PAN based Service Tax registration number. Therefore, the said invoices do not contain the basic information, therefore, such invoices/documents are not proper documents for taking Cenvat Credit in terms of Rule 9 of the Cenvat Credit Rules, 2004 read with Rule 11 of Central Excise Rules, 2002.
As per rule 9(5) of Cenvat Credit Rules, 2004 the manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, Cenvat Credit taken and utilized, the person from whom the input or
capital goods have procured are recorded and the

burden of proof regarding the admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service. The assessee has to take all reasonable steps to ensure that the input or capital goods or input service in respect of which he has taken the Cenvat credit should contain all basic information as per rule. But it appears that the same steps were not taken by the assessee while taking and utilizing the Cenvat credit on the said invoices, which do not contain basic information and as such do not appear entitled to take and utilize Cenvat Credit of duty on the basis of the said invoices. It appears that insistence on document evidencing payment of duty on the inputs/capital goods as prescribed by Rules is not a mere technicality to be complied with for availing credit. When a particular thing is directed to be performed in a manner prescribed by Rules, it should be performed in that manner itself and not otherwise. In the instant case, the assessee has never brought to the notice of the department the vital fact of availing and utilizing Cenvat Credit of such documents which are not in the name of the assessee and which do not contain the basic requirement as per Rule 9 (1) & 9(2) of Cenvat Credit Rules 2004 and Rule 11(2) of Central Excise Rules 2002. This vital fact came into the notice of the department only during audit of the records and documents of the assessee by the Departmental Audit Party. Thus it is clear that the assessee has willfully and knowingly suppressed the facts with intention to evade payment of duty in contravention of rule 9 of Cenvat Credit Rules 2004.
From the above records, it appears that the assessee has wrongly taken and utilized Cenvat Credit by willfully suppressing the facts of improper documents which are not in the name of assessee or contain PAN based Service Tax registration with intent to evade payment of duty amounting to Rs.10,81,806/- (Ser. Tax Rs. 1050295/- + E Cess Rs. 21007/- + Sec. H. Ed. Cess Rs.10504/-) which appears recoverable along with interest in terms of Rule 14 of CENVAT Credit Rules, 2004 read with proviso to section 11 A (1) and Section 11 AB of the Central Excise Act, 1944. The assessee also appears liable for penal action under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 for contravention of provisions of Rule 9 (1), 9 (2) and 9(5) of Cenvat Credit Rules 2004 by willfully suppressing the facts with intent to evade payment of duty, therefore, proviso to Section 11 A(1) of the Central Excise Act, 1944 for issuing demand tor extended period of limitation is invokable. It also appears that the assessee has deliberately taken and also utilized such Cenvat Credit for payment of Central Excise duties, which was not admissible to them, thereby, the assessee appears to have cleared goods without payment of Central Excise duty amounting to Rs.10,81,806/- (Ser. Tax Rs.1050295/- + E Cess Rs. 21007/- + SHE Cess Rs.10504/-. It appears that the assessee has also contravened the provisions of Rule 4 & 6 of the Central Excise Rules, 2002, therefore, also liable for penal action under Rule 25 of the Central Excise Rules, 2002. In view of these facts, a Show cause notice was issued to the assessee.

Appellant’s Contention:-

The appellant submit that the show cause notice issued to them proposing to deny cenvat credit of service tax on services availed by them is wholly and totally erroneous and is liable to be set aside. Further they submit that in the impugned show cause notice it is alleged that invoices issued by the service provider was not in their name and therefore Cenvat credit could not be availed by them. In this regard, it is submitted that the invoices were in the name and address of their head office. It is submitted that although the invoices were issued by the service provider in the name of their head office but the services were provided in their factory situated at Abu Road from where the consignments of their finished goods have been cleared. It is submitted that the invoices of the service provider clearly establish a co-relation between the service provided and the finished goods cleared from their factory in Abu Road. Therefore, it is clear that the service provided to them only and to nobody else and therefore, the cenvat credit of service tax was available to them. Merely because the invoices is not issued in the name of factory but in the name of their head office cannot alter the fact that the services were utilised for in or in relation to manufacturing of their goods from Factory at Abu Road and that the service tax was paid by them on the availment of the said services. Therefore, the cenvat credit of service tax cannot be denied to them on this ground. It is submitted that there is no factory situated at the Head office address, therefore, the service could not have been utilised at the said premises. In this regard, reliance is placed on the following decisions: -
·         M/s Lakshmi Automatic Loom Works Ltd v/s CCE, Coimbatore [2011-TIOL 1369-CESTAT-MAD]

·         M/s Modern Petrofils v/s CCE, Vadodara [2010-TIOL-1204-CESTAT-AHM]

They further submit that in the impugned show cause notice, it is alleged that invoices were not bearing PAN based Service Tax registration number and in some invoices even the Service tax registration No. of the provider of service was not mentioned. On this ground the cenvat credit is being denied to them. In this regard, they submit that the invoices were issued by the service provider and they are required to take registration as well as apply for PAN based registration number. They have only received the services from the said output service provider and have no control over the activities of the service provider. It is submitted that the action was required to be taken against the service providers and not against them who have only availed their services for which they have already paid the amount of service tax to the output service provider.
It is submitted that the impugned show cause notice does not reveal that any action has been initiated against the Output service providers of which services have been availed by them. It is submitted that when at the time of assessment of service tax at the Output Service provider’s end no objection has been raised then at the time of availing credit, objection cannot be raised by the Department against the service receiver by denying the service tax credit to them.
The appellant further submit that in the impugned show cause notice it is said that it is upto the assessee to take all reasonable steps to ensure that the input or capital goods or input service in respect of which he has taken the cenvat credit should contain all basic information as per Rule. It was alleged that they have not taken reasonable steps while taking credit on said invoices which do not contain basic information and therefore are not entitled to take and utilize cenvat credit of duty on the basis of the said invoices. In this regard, they submit that the Rule 9 (3) prescribing that reasonable steps are to be taken by the assessee has been omitted since 2007. It is submitted that even the omitted Rule prescribed taking reasonable steps were required to be taken to ensure that the input or capital goods or input service in respect of which he has taken the CENVAT credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid. The Explanation to the said Rule 9(3) also indicated towards ensuring the identity of the service provider issuing documents evidencing the payment of duty or service tax. Accordingly, they submit that they have taken all reasonable steps to ensure that the invoices issued by the said Service provider contained the details of service tax paid and of services availed from them. It is submitted that in the impugned show cause notice also, no allegation has been raised doubting the receipt of service and of payment of service tax by them to the Service provider and by the service provider in the Govt. Exchequer. Therefore, apart from these details if the service tax registration number is not mentioned, it would amount only to a procedural infraction. It is submitted that for procedural infractions, the substantial benefit of cenvat credit cannot be denied to them.
It is further submitted that the learned Adjudication Officer should exercise the power under Proviso to Rule 9(2) of the Rules and condone the discrepancies in the invoices which contain the details of duty or service tax payable, description of the goods or taxable service, assessable value, Central Excise or Service Tax registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of taxable service. There is no doubt about the said invoices contain all the said details, therefore, the cenvat credit should not be denied to them.
Further they submit that merely because the discrepancies in the said invoices were noted during the Audit does not by itself mean that they have acted with mala fide intention to avail cenvat credit wrongly. It is also submitted that the facts have come to light during the audit and not in any anti-evasion raise etc. At the time of Audit, they themselves have submitted all the records and the said invoices for scrutiny. No documents were suppressed. Therefore, the allegation of deliberate suppression is not sustainable. In this regard, reliance is placed on the following judgments: -
·         Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in (2002-TIOL-235-SC-CX)
·         M/s Neptune Equipment Pvt Limited v/s CCE, Ahmedabad [2011-TIOL-1069-CESTAT-AHM]
Further they submit that in the impugned show cause notice it is alleged that they appear to have contravened the provisions of Rule 4 and 6 of the Central Excise Rules, 2002 and therefore, they are also liable for penal action under Rule 25 of the Central Excise Rules, 2002. In this regard, it is submitted that Rule 4 of the Central Excise Rules, 2002 contains provisions for duty payable on removal of goods and Rule 6 of the Central Excise Rules, 2002 contains provisions for assessment of duty. It is submitted that the impugned show cause notice was not issued to them for violation of provisions contained in these provisions. But were issued to deny cenvat credit on invoices of service provider from whom they have received certain services. Therefore, both the provisions are not applicable in this case and therefore no penalty can be imposed on them under Rule 25 of the Central Excise Rules, 2002.

They further submit that the extended period of limitation was not invokable in this case as there is no deliberate suppression on their part to avail cenvat credit wrongly. They have submitted all the records including the said invoices to the Audit party during the audit. It is submitted that legal provisions did not provide that they are required to submit the invoices to the Department at the time of filing of Service Tax Return ST-3. Therefore, the extended period of limitation cannot be invoked against them. Extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. This has been held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX). Thus, in the light of this decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-

·         M/s Idea Cellular Ltd Vs CCE, Rohtak [2009-TIOL-387-CESTAT-DEL]
·
·         M/s Reliance Industries Ltd v/s CCE, Vadodara [2011-TIOL-636-CESTAT-AHM]
In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. Therefore, in the case of the appellant also the extended period of limitation could not have been invoked.

Reasoning of the Additional Commissioner (Adjudicating Authority):-

The Commissioner held that Rule 9(1) of the Cenvat Credit Rules, 2004 has prescribed some documents on the basis of which the manufacturer or the service provider or input service distributor can take the cenvat credit. The provisions of Rule 9(1) of the Cenvat Credit Rules, 2004 needs to be revisited. Further, the provisions of sub-rule 9(2) of Cenvat Credit Rules, 2004 prescribes that "No Cenvat credit under sub-rule 9(1) of the Cenvat Credit Rules, 2004 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 said documents.
Provided that if the said documents does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, [assessable value, Central Excise or Service tax registration number of the person issuing the invoice, as the case may be], name and address of the factory or warehouse or premises or first or second stage dealers or provider of taxable service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or service covered by the said documents have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.
From the provisions of Rule 9(1) & sub-rule 9(2) of the Cenvat Credit Rules, 2004 and the service tax payment documents received by the assessee are not issued in the name of factory but in the name of their head office. They find that there is no dispute regarding the service tax payment in respect of the input service, receipt of input service by the assessee and genuineness of the service tax paying documents. It was held that the Cenvat credit is admissible to the assessee as the same has been availed and utilized only after the receipt of input services by the assessee.
Thus, the credit taken by the assessee is correct and not improper. They observe that the SCN issued in the instant case is not sustainable and the same deserves to be dropped. Since the show Cause Notice is not found sustainable, therefore, the interest and the penalty provisions in the instant Show Cause Notice are not attracted.

Decision:- Demand, penalty and interest dropped.

Conclusion:- The crux of this decision is that service tax credit is admissible even if it is taken on the basis of invoices that have incomplete particulars provided the adjudicating authority is satisfied that the said service was received and availed for the purposes of dutiable final products.

***********

Comments

PJ/CASE STUDY/2012-13/48
30 March 2013

Comments

Post a Comment

Query

Comments

PJ/CASE STUDY/2012-13/48 30 March 2013

Comments

Post a Comment

Query

PJ/CASE STUDY/2012-13/48
30 March 2013