Whether credit on input services can be denied on ground that invoices are issued in name of CHA?

Case Study

Prepared by:- CA Neetu Sukhwani
& Somya Jain

Introduction:-Shree Extrusions Limited, (hereinafter referred to as assessee) are registered under the Central Excise Laws and are engaged in manufacturing excisable goods falling under chapter 74 of the First Schedule to the Central Excise Tariff Act, 1985. A show cause notice was issued to them wherein it was alleged that they have wrongly availed cenvat credit on input services to the extent of Rs. 1,32,266/- for the period from April, 2014 to September, 2014 as the invoices on the basis of which the credit has been availed were in the name of Customs House Agent/Shipping Agent. Therefore, the credit availed was proposed to be recovered as the invoices were alleged to be invalid documents as per Rule 9(2) of the Cenvat Credit Rules, 2004. The outcome of the show cause notice is the subject matter of present case study.

SHREE EXTRUSIONS LIMITED [OIO NO. 43 & 44/ADC/PV/2014-15 DATED 06.04.2015]

Relevant legal provisions:
Rule 9(2) of Cenvat Credit Rules, 2002

Issue involved:The issue involved before the adjudicating authority in this case was that-
Whether credit on input services can be denied on ground that invoices are issued in name of CHA?
Brief facts:M/s Shree Extrusions Ltd. are in the receipt of show cause notice wherein it is alleged that they have wrongly availed cenvat credit on input services to the extent of Rs. 1,32,266/- for the period from April, 2014 to September, 2014 as the invoices on the basis of which the credit has been availed are in the name of Customs House Agent/Shipping Agent. Therefore, the credit availed is proposed to be recovered as the invoices are alleged to be invalid documents as per Rule 9(2) of the Cenvat Credit Rules, 2004.
They were asked to show cause as to why:-
      i.        The amount of Rs. 1,32,266/- should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with section 11A(1) of the Central Excise Act, 1944.
     ii.        Interest at the appropriate rate should not be recovered from them on the aforesaid amount under Rule 14 of the Cenvat Credit Rules, 2004 read with section 11AA of the Central Excise Act, 1944; and
    iii.        Penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944 should not be imposed on them.

Assessee Contentions:The assessee submitted following reply to the adjudicating authority:-

1.    They submit that the impugned show cause notice issued to them is wholly and totally erroneous and is liable to be quashed.

2.    It is alleged that it was observed that they have availed cenvat credit on input service wherein the invoices are in the name of Customs House Agent/Shipping Agent whereas their name was shown as ‘consignee’. It is contended that as the services are not provided to them directly and invoices are not in their name, the said invoices are not valid documents to avail the Cenvat Credit in terms of Rule 9(2) of the Cenvat Credit Rules, 2004. In this regard, they wish to first explain the factual position of the case. They submit that they have availed the services of CHA with respect to import of brass scrap which is their principal raw material. They submit that practically it is very common that the CHA incurs all the expenditure and avails various services in relation to clearance of goods at the port on behalf of their clients and gets the said amount reimbursed from their clients. Accordingly, in their case also, the CHA appointed by them incurred all the expenditure and availed different services for the purpose of clearance of goods imported by them on their account. They submit that on certain services availed by the CHA, service tax was also paid on their account which was ultimately reimbursed from them. They submit that as the CHA availed services on their behalf, the service providers issued invoices for the services rendered in the name of CHA and thereafter, the CHA issued debit notes to reimburse the said amounts from them. They submit that merely due to the procedural lapse of non-mention of their name and address as the service recipient, the credit of service tax paid on various services availed by them through CHA cannot be denied to them. Moreover, the fact that the substantial conditions for availing the cenvat credit are satisfied by them is proved in the succeeding paragraphs. As such, denial of cenvat credit merely on the grounds that the invoice issued by the service provider does not contain their name and address as service receiver is totally erroneous when the fact of receipt and use of said service in relation to manufacture of final products is not disputed and the service tax paid by them is also confirmed. Therefore, the impugned show cause notice proposing to deny rightly admissible credit to them is not at all sustainable and deserves to be quashed.

3.    The impugned show cause notice has also placed reliance on the provisions contained in Rule 9(2) of the Cenvat Credit Rules, 2004 which reads as under:-

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 said document.

It has been contended that the credit of service tax has to be allowed on the strength of invoices issued by a provider of input service distributor under Rule 4A of the Service Tax Rules, 1994 if it contains the basic details of the invoice i.e., (i) Name and address, Registration no. of the service provider, (ii) Name and address of the person receiving taxable service, (iii) Description, classification and value of the taxable service provided and (iv) service tax payable thereon. Accordingly, it is contended that the name and address of the person receiving the taxable service is essential as it clearly distinguishes that the person receiving the taxable service is the person who is availing input service directly whereas in the present case invoices of the input services are in the name of Custom House Agent/Shipping Agent. In this respect, they submit that the impugned show cause notice has placed reliance on the provisions of Rule 9(2) of the Cenvat Credit Rules, 2004 without even producing the proviso to the said Rule. They submit that the impugned show cause notice has placed reliance on incomplete provisions contained in the Rules in a manner beneficial to the revenue and to recover the service tax credit availed by them. They submit that the proviso to Rule 9(2) of the Cenvat Credit Rules, 2004 reads as follows:-

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 output 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 accounts of the receiver, he may allow the cenvat credit.

The perusal of the above proviso reveals that there is no hard and fast necessity that the credit is admissible only if all the requirements as contained in the Service Tax Rules, 1994 are mandatorily present. The law makers also realised that practically, there are situations wherein there may be cases where all the particulars as prescribed may not be present but there is no doubt as regards the admissibility of cenvat credit. In such cases, exception has been provided in Rule 9(2) itself by way of proviso that if the document contains particulars like:-

·        Service tax payable
·        Description of taxable service
·        Service tax registration number of the person issuing the invoice
·        Name and address of the provider of output service

then, the service tax credit may be availed by the service recipient if the Assistant Commissioner/Deputy Commissioner of Central Excise is satisfied that the services covered by the said document have been received and accounted by the service receiver.

In the present case, while observing the admissibility of cenvat credit of Rs. 4130/- on sample basis, it is find that the CHA, Prime Forwarders has issued us one invoice no. PF/MUN-M696/14-15 dt 18.07.2014 for agency charges having service tax amount as Rs. 630/- (inclusive of cess) and has issued one debit note having no. as PF/MUN-0696/14-15 dated 18.07.2014 which contains reimbursement of service tax on various services availed on our behalf to the tune of Rs. 3500/-. The details of the same are as follows:-

Invoice issued by CHA:-The invoice issued by CHA is for agency charges to be payable to them. The invoice issued by CHA contains all the details as are required under Rule 4A of the Service Tax Rules, 1994 as follows:-

Name of service provider	Prime Forwarders
Address of service provider	Plot no. 9 & 10, Sector-2, Near Lions Club, Gandhidham, Kutch, Gujarat- 370201
Registration number of service provider	PAN: ABUPD6492Q Service Tax No. AR/BHUJ/CHA-19/KCH/97-98 The service tax registration number mentioned is as per old pattern. However, if the present status of the assessee is inquired online on ACES website with above mentioned PAN no., the same details as mentioned above appear. The copy of Assessee Code Details as appearing online is enclosed for your reference.
Name of service receiver	M/s Shree Extrusions Ltd.
Address of the service receiver	217/218, G.I.D.C., Phase-II, Jamnagar.
Description of Taxable Service	Agency Service Charges
Value of taxable service	Rs. 5,100
Service tax payable	@12%- Rs. 612 @3%- Rs. 18

It is observed that the above referred invoice contains all the details as are mandatorily required under the Rule 4A of the Service Tax Rules, 1994. Therefore, there is no embargo in availing the credit of service tax paid on the said invoice.

Debit Note issued by CHA:-The debit note issued by CHA also contains the total amount recovered from them for the services availed by CHA on their behalf including the amount of service tax reimbursed from them. They have availed credit of service tax on the basis of invoices of various service providers. The fact that the invoices of various service providers on the basis of which service tax credit has been availed by them contains the particulars as required under Rule 4A of the Service Tax Rules, 1994 is established as follows:-

Name of Service Provider	Vishva Movers
Address of service provider	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham (Kutch)- 370201
Registration number of service provider	ABUPD6491PST001
Name of service receiver	Prime Forwarders (on account of M/s Shree Extrusions Ltd.)
Address of the service receiver	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham (Kutch)- 370201
Description of Taxable Service	Local transportation charges on account of M/s Shree Extrusions Ltd.
Value of taxable service	Rs. 2,700/-
Service tax payable	@3.09%- Rs. 84

They submit that on the above invoice issued by M/s Vishva Movers, it is very clear that the services of local transportation charges have been provided on account of M/s Shree Extrusions Ltd. Moreover, the invoice also mentions the container no. GESU-398696/1 which is the same container number that is also mentioned on the Bill of Lading No. SCJUA5207374AA dated 10.06.2014 pertaining to M/s Shree Extrusions Ltd. As such, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Moreover, it is also established that the said services has been availed for M/s Shree Extrusions Ltd. Therefore, mere mention of name of CHA on the invoice issued by the service provider as service receiver is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	Ashutosh Container Services Pvt. Ltd.
Address of service provider	Survey no. 169/42 & 169, on the way to Mundra Port & SEZ, Village: Dhrub, Mundra-(Kutch), Gujrat-370421
Registration number of service provider	AAFCA4072QST001
Name of service receiver	Prime Forwarders
Address of the service receiver	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham- 370201
Description of Taxable Service	LIFT OFF CHARGES (EMPTY)
Value of taxable service	Rs. 1068
Service tax payable	@12%-Rs. 128.16/-, @2%- Rs. 2.56/- @1%-Rs.1.28

They submit that on the above invoice issued by Ashutosh Container Services Pvt. Ltd., it is very clear that the invoice mentions the container no. GESU-398696/1 which is the same container number that is mentioned on the Bill of Lading No SCJUA5207374AA dated 10.06.2014 pertaining to M/s Shree Extrusions Ltd. This clearly establishes that the said services have been availed for M/s Shree Extrusions Ltd. As such, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Therefore, mere mention of name of CHA as service receiver on the invoice issued by the service provider is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	Ashutosh Container Services Pvt. Ltd.
Address of service provider	Survey no. 169/42 & 169, on the way to Mundra Port & SEZ, Village: Dhrub, Mundra-(Kutch), Gujrat-370421
Registration number of service provider	AAFCA4072QST001
Name of service receiver	Prime Forwarders (on account of M/s Shree Extrusions Ltd.)
Address of the service receiver	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham (Kutch)- 370201
Description of Taxable Service	Loaded for factory de-stuffing, weight for container, Container detention charges
Value of taxable service	Rs. 7742/-
Service tax payable	@12%-Rs. 929.04/- @2%-Rs. 18.58/- @1%-Rs. 9.29/-

They submit that on the above invoice issued by Ashutosh Container Services Pvt. Ltd., the importer is mentioned as M/s Shree Extrusions Ltd and it also mentions the container no. GESU-3986961 which is the same container number that is mentioned on the Bill of Lading No. SCJUA5207374AA dated 10.06.2014 pertaining to M/s Shree Extrusions Ltd. As such, it is established that the said services has been availed for M/s Shree Extrusions Ltd. the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Therefore, mere mention of name of CHA on the invoice issued by the service provider as service receiver is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	Ashutosh Container Services Pvt. Ltd.
Address of service provider	Survey no. 169/42 & 169, on the way to Mundra Port & SEZ, Village: Dhrub, Mundra-(Kutch), Gujrat-370421
Registration number of service provider	AAFCA4072QST001
Name of service receiver	Prime Forwarders on account of Shree Extrusions Ltd.
Address of the service receiver	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham (Kutch)- 370201
Description of Taxable Service	Detention charges
Value of taxable service	Rs. 400/-
Service tax payable	@12.00%-Rs. 48/- @2%-Rs. 0.96/- @1%-Rs. 0.48/-

They submit that on the above invoice issued by Ashutosh Container Services Pvt. Ltd., the importer is mentioned as M/s Shree Extrusions Ltd. and the container no. is mentioned as GESU-3986961 which is the same container number that is mentioned on the Bill of Lading No. SCJUA5207374AA dated 10.06.2014 pertaining to M/s Shree Extrusions Ltd. As such, it is established that the said services has been availed for M/s Shree Extrusions Ltd. Moreover, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Therefore, mere mention of name of CHA as service receiver on the invoice issued by the service provider is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	Ashutosh Container Services Pvt. Ltd.
Address of service provider	Survey no. 169/42 & 169, on the way to Mundra Port & SEZ, Village: Dhrub, Mundra-(Kutch), Gujrat-370421
Registration number of service provider	AAFCA4072QST001
Name of service receiver	Prime Forwarders on account of Shree Extrusions Ltd.
Address of the service receiver	Plot No. 9 & 10, Sector 2, Near Lions Club, Gandhidham (Kutch)- 370201
Description of Taxable Service	Reworking 25% to 50 %
Value of taxable service	Rs. 4950/-
Service tax payable	@12%-Rs. 594/- @2%-Rs.11.88 @1%-Rs.5.94

They submit that on the above invoice issued by Ashutosh Container Services Pvt. Ltd., it is very clear that the services have been availed on account of M/s Shree Extrusions Ltd. and the invoice also mentions the container no. GESU-3986961 which is the same container number that is mentioned on the Bill of Lading No. SCJUA5207374AA dated 10.06.2014 pertaining to M/s Shree Extrusions Ltd. As such, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Moreover, it is also established that the said services has been availed for M/s Shree Extrusions Ltd. Therefore, mere mention of name of CHA as service receiver on the invoice issued by the service provider is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	J.M. Baxi & Co.
Address of service provider	Seva Sadan-II, New Kandla, Gujarat-370210
Registration number of service provider	AAAFJ5198EST002
Name of service receiver	Prime Forwarders
Address of the service receiver	Gandhidham
Description of Taxable Service	DO Charges + High Seas Sales Charges
Value of taxable service	Rs. 6500/-
Service tax payable	@12%-Rs. 780/- @2%-Rs.15.6/- @1%-Rs.7.8/-

They submit that on the above invoice issued by J.M. Baxi & Co., mentions Bill of Lading No. SCJUA5207374AA dated 10.06.2014 which is pertaining to M/s Shree Extrusions Ltd. As such, there is no doubt that the services have been availed for M/s Shree Extrusions Ltd. Moreover, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Therefore, mere mention of name of CHA as service receiver on the invoice issued by the service provider is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

Name of Service Provider	The Shipping Corporation of India Ltd.
Address of service provider	Shipping House, 14^th floor, 245, Madame Cama Road, Mumbai-400021
Registration number of service provider	AAACT1524FST001
Name of service receiver	M/s B. R. Metal & Alloys (Guj) Pvt. Ltd.
Address of the service receiver	Ahmedabad
Description of Taxable Service	Container washing charges
Value of taxable service	Rs. 5980/-
Service tax payable	@12%-Rs. 838/- @2%-Rs.17/- @1%-Rs.8/-

They submit that the above invoice issued by M/s The Shipping Corporation of India Ltd. mentions the Bill of Lading No. SCJUA5207374AA dated 10.06.2014 which pertains to M/s Shree Extrusions Ltd. As such, it is established that the said services has been availed for M/s Shree Extrusions Ltd. Moreover, the credit is being taken on the basis of proper and valid documents that fulfills all the mandatory requirements. Therefore, mere non-mention of our name on the invoice issued by the service provider is only a procedural lapse for which substantial benefit of credit cannot be denied to them.

They submit that the above referred invoices contains all the mandatory details and the supporting documents submitted by them also indicate that the invoice pertains to services availed by them. Therefore, when substantial conditions for credit availment has been satisfied by them, the impugned show cause notice proposing to deny credit for procedural lapses should be dropped. A copy of the invoices and Bill of Lading was also enclosed.

4.    In continuation to the above, they also wish to place reliance on the decision of Delhi Tribunal in the case of CHANDRA ENGINEERS VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2013 (30) S.T.R. 699 (Tri. - Del.)] wherein it has been held that:-

Demand - Cenvat credit of Service Tax - Credit denied on invoices in the name of CHA or     sub-contractor engaging services of other agencies for clearance of imported raw material paying charges on behalf of assessee - If Bills of such agencies linked to import documents of assessee, even though through CHA acting as intermediary, benefit of credit of Service Tax paid by such other agencies available to assessee - Matter remanded to original Adjudicating Authority to examine facts and if such linkage proved, allow credit to assessee - Rules 3 and 14 of Cenvat Credit Rules, 2004. [para 4]

They submit that the facts and circumstances of the above cited case are exactly the same as the present case. Moreover, they have also established with supporting documents that the invoices on the basis of which credit has been taken pertain to import of raw material by them and have been availed on their account. Therefore, merely because the invoices are in the name of CHA cannot be the reason to deny the substantial benefit of cenvat credit to them. Hence, the impugned show cause notice is not at all sustainable and is liable to be quashed.

5.    Aligning with the above, they also wish to submit that there have been a number of cases wherein the substantial benefit of cenvat credit was held to be admissible even when there were certain procedural infractions of law. For example, if the invoice was not in the name of factory availing the services but was in the name of head office. In such cases also it is common practice to deny cenvat credit on the ground that the invoice is not in the name of service recipient. However, it has been held in favour of the assessees in such cases in number of decisions that credit should not be denied if the other substantial conditions for credit availment have been satisfied and there is no dispute as regards use of said services by the service recipient. In this regard, they wish to place reliance on certain decisions wherein it has been held that cenvat credit is to be allowed even on the basis of invoices which are in the name of head office but it has been established that the said services have been availed at the factory and have been used in the manufacturing activities undertaken by the factory. The said decisions are as follows:-

·        PASHUPATI ACRYLON LTD. VERSUS COMMISSIONER OF C. EX., MEERUT-II [2013 (30) S.T.R. 477 (Tri. - Del.)]

·        BLOOM DEKOR LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD [2012 (28) S.T.R. 182 (Tri. - Ahmd.)]

·        CHEMPLAST SANMAR LTD. VERSUS COMMR. OF C. EX., LTU, CHENNAI [2011 (267) E.L.T. 392 (Tri. – Chennai)]

·        LAKSHMI AUTOMATIC LOOM WORKS LTD. VERSUS COMMR. OF C. EX., COIMBATORE [2011 (274) E.L.T. 375 (Tri. – Chennai)]

·        MODERN PETROFILS VERSUS COMMISSIONER OF C. EX., VADODARA [2010 (20) S.T.R. 627 (Tri. - Ahmd.)]

·        COMMISSIONER OF CUSTOMS & C. EX., VAPI VERSUS DNH SPINNERS [2009 (244) E.L.T. 65 (Tri. - Ahmd.)]

They further wish to place reliance on the latest decision given by the Mumbai Tribunal in the case of M/s Inox Air Products Ltd. Vs CCE [2015-TIOL-08-CESTAT-MUM] wherein it has been held that:-

CENVAT - Only basis for denying credit has been that invoices are either in the name of another unit of the appellant or in the name of their Head Office - quite natural that the service provided by CHA would be in the name of the HO where clearance of goods through Customs will be centralized - doubt has never been raised regarding the actual receipt of the services, so credit admissible - Appeal allowed: CESTAT [para 6] - Appeal allowed : MUMBAI CESTAT

They submit that the ratio of the above cited decisions is that the substantial benefit of credit should not be denied if there are procedural defects in the invoices on the basis of which credit has been availed. They submit that the ratio of the above cited decisions are clearly applicable in the facts and circumstances of the present case. Therefore, the benefit of the above decisions should be extended and the impugned show cause notice should be set aside.

6.    The impugned show cause notice has also alleged that Rule 9(6) of the Cenvat Credit Rules, 2004 stipulates that the burden of proof regarding admissibility of cenvat credit shall lie upon the manufacturer or provider of output service taking such credit. In the era of self assessment, the responsibility of taking legitimate cenvat credit has been passed on to the assessee in terms of Rule 9(6) of the Cenvat Credit Rules, 2004. It has been contended that it is the responsibility of the assessee to take cenvat credit only if the same is legally admissible. In the instant case, the credit taken in respect of photocopies of invoices appear to be inadmissible as the said documents are not valid documents in terms of Rule 9(2) of the Cenvat Credit Rules, 2004 for taking the credit. In this respect, they submit that the provisions of Rule 9(6) of the Cenvat Credit Rules, 2004 have been wrongly invoked in the present case because they have not availed any ineligible cenvat credit. The Rule 9(6) of the Cenvat Credit Rules, 2004 states that:-

The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, cenvat credit taken and utilised, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit.

In this respect, they submit that they have correctly availed the credit of service tax paid on various input services as the credit has been taken on original invoices and the credit pertains to services availed on their account. They submit that the fact of admissibility of cenvat credit has been sufficiently established by them with the help of supporting documents. As such, there is no doubt as regards credit admissibility and the provisions of Rule 9(6) have been wrongly invoked in the present case. Hence, the impugned show cause notice is not at all tenable and is liable to be dropped.

7.    It is also alleged that they have at no point of time disclosed facts to the department in any manner as they have availed cenvat credit on input services wherein the invoices are in the name of Customs House Agent/Shipping Agent and they have availed cenvat credit on the photocopies of the invoices. This fact came on record only when the information in this respect was demanded from the department. Therefore, it is alleged that they have deliberately suppressed the material facts from the department with an intention to evade payment of duty and so have rendered themselves liable for penal action. In this regard, they submit that there has been no suppression of facts as the consolidated amount of cenvat credit availed by them was reflected in the ER-1 return filed by them. They submit that there is no mechanism to separately show the amount of cenvat credit taken for particular inputs/input services and a consolidated figure is shown in the return. When any information is not required to be provided, its non provision cannot be alleged as suppression as held in following cases:-

Ø APEX ELECTRICALS PVT. LTD. VS UNION OF INDIA [1992 (61) E.L.T. 413 (GUJ.)]:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”

Ø PROLITE ENGINEERING CO. VS UNION OF INDIA [1995 (75) ELT 257 (GUJ.)]:-

“Demand - Limitation - Non-disclosure of information which is not required to be disclosed or recorded by statutory provision or prescribed proforma does not amount to suppression or concealment - Extended period of limitation not invokable - Proviso to Section 11A(1) of Central Excises & Salt Act, 1944 - Rules 9(2) and 57-I of Central Excise Rules, 1944.”

An analysis of both of these decisions given by hon’ble High Courts makes it clear that the information not required to be submitted under law does not amount to suppression. In the instant case, they were not required to provide the details of credit taken for various input services availed separately and so consolidated credit amount was shown in the return. The law only required to disclose the cumulative figure of the total credit availed and utilized which is duly being shown by them. Moreover, it has already been established with supporting documents that they have rightly availed the credit of service tax paid on various input services availed by CHA on our behalf for clearance of imported goods. As such, non providing of information not required to be provided under law, does not amount to suppression. Therefore, in the light of above decisions, the allegation of suppression is not sustainable and no penalty is imposable on them.

8.    They further submit that when the demand for recovery of cenvat credit is not tenable, the question of levy of interest under section 11AA of the Central Excise Act, 1944 does not arise. Hence, the impugned show cause notice proposing to levy interest is liable to be dropped.

9.    They further submit that it is contended that they have wrongly availed the cenvat credit inadmissible to them and have contravened the provision of Rule 3 of the Cenvat Credit Rules, 2004 and have rendered themselves liable for penal action under Rule 15 of the Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. It is submitted in the preceding paragraphs that there was no suppression of facts and so no penalty can be imposed on them. They submit that when it has been established that there was no fraud, collusion or wilful mis-statement or suppression of facts with malafide intention, then the penalty under section 11AC cannot be imposed. Moreover, it is reiterated that there is no revenue loss as the cenvat credit has been taken of service tax paid by them. Further, as excise duty has been paid on the final products, the credit availed on input services stands reversed. Hence, the proceedings initiated vide the impugned show cause notice are not at all tenable and deserves to be quashed.

10. They further submit that the impugned show cause notice has used the two contrary terms, i.e., “Wrongly” and “intentionally” simultaneously to level the charge of suppression of facts. They submit that on one hand, the impugned show cause notice in paragraph no. 3 states that “As the services are not provided to the noticee directly and invoices are not in the name of the noticee. Hence, it appears that the noticee wrongly availed the said cenvat credit and the notice are required to pay an amount equivalent to such wrong availment of cenvat credit so availed in terms of Rule 14 of the Cenvat Credit Rules, 2004.” Whereas, on the other hand, the impugned show cause notice in paragraph 12 alleges the charge of deliberate intention to evade payment of duty. We submit that such an act is not at all tenable and the impugned show cause notice deserves to be dropped. We also wish to place reliance on the latest decision given by the Hon’ble Mumbai Tribunal in the case of M/s ANTHEA AROMATICS PVT. LTD. VS CCE, BELAPUR [2014-TIOL-2416-CESTAT-MUMBAI] wherein it was held that:-

CE - Instead of claiming refund of duty paid on finished goods exported, the appellant took credit in RG23A part II - appellant reversing the credit - Penalties imposed on the appellant and two others- appeal to CESTAT. Held : since co-appellant expired, Appeal is disposed of as abated - Penalty u/r 13 of CCR, 2002 can be imposed on person taking credit - since credit has been taken by M/s. Anthea Aromatics P. Ltd.& not by Vincent Paul, penalty set aside - When the department is of the view that credit has taken wrongly then it cannot be held that it has been taken intentionally, as ‘intentionally' and ‘wrongly' are contrary terms and cannot be applied concurrently - penalty u/r 13(2) cannot be imposed - as appellant has apparently lost the refund admissible to them, they have made out a case for leniency in imposing penalty u/r 13(1) of CCR, 2002 - Penalty reduced to Rs. 50,000/- : CESTAT [para 8, 9, 10]

They submit that the benefit of the above cited decision should be extended in the present case as penalty under the erstwhile Rule 13(2) of the Cenvat Credit Rules, 2002 is akin to penalty under Rule 15(2) of the present Cenvat Credit Rules, 2004. Therefore, the impugned show cause notice imposing penalty under Rule 15 of the Cenvat Credit Rules, 2004 is not at all sustainable and is liable to be dropped.

11. Moreover, mere stating the Rule is not sufficient and rather, the specific clause along with proper reasoning is required to be given in the show cause notice so as to impose penalty on the assessee. In this regard, reliance is placed on the recent judgment of Hon’ble Madras High Court, wherein the appeal filed by the Revenue for imposition of penalty under section 11AC was dismissed on account of the fact that there was no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AC of Central Excise Act 1944. The citation and the synopsis are reproduced as follows for the sake of convenient reference:

·        CCE vs M/s Crocodile India Pvt Ltd. [2013-TIOL-518-HC-MAD-CX]:

CE - Reversal of CENVAT Credit before issue of Show Cause Notice - SCN does not detail grounds for imposing penalty application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section - No penalty : A cursory reading of the notice shows that except for mere reference to the proposal to levy penalty under Section 13(1) of CENVAT Credit Rules, 2002, there is no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AB of Central Excise Act 1944. The Apex Court pointed out that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. In so holding, the Apex Court held that in every case of non payment or short payment of duty, penal provisions cannot be automatically invoked; in other words, the conduct of the assessee in each of the case, before imposing penalty, has to be looked at on the bona fides of the assessee as regards his claim which otherwise would not be sustained in law. - Revenue Appeal Dismissed : MADRAS HIGH COURT.

In the present case also, mere reference has been made to the provisions of Rule 15 without even specifying the clause under which penalty is imposable on them. As such, no penalty is imposable on them under Rule 15 and the impugned show cause notice should be quashed.

12. In continuation to the above, they further submit that even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY VERSUS GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

In the present case, their act of availment of credit of service tax paid on services availed by CHA on their behalf is backed by the decision given by the Delhi Tribunal. The analysis of above decision makes it clear that since they have acted under bonafide, no penalty can be imposed on them. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to them and the whole proceedings should be dropped.

13. It is also submitted that when there is no malafide intention to evade duty or to suppress facts from the department, penalty is not imposable in view of Supreme Court judgment given in the case of Hindustan Steel Vs. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. In view of Supreme Court judgment, since intention to evade payment of duty is not there, penal provisions cannot be invoked. The show cause notice is thus liable to be dropped.

Reasoning of the Adjudicating Authority:-

It is found that the issues to be decided in the present case is whether the Noticee is eligible to avail Cenvat credit on invoices issued by the various service provider, which are in the name of Customs House Agent/ Shipping Agent and name of the Noticee were shown as Consignee.

On verification of the import documents along with the invoices and debit notes issued by the Customs House Agent/ Shipping Agent enclosing Original invoices issued by the various service provider, it is found that the Noticee have availed the services of CHA with respect to import of Brass scrap, their raw material and for each case of import the said CHA has issued an invoice to the Noticee for agency charges and has issued one debit note which contains details of the reimbursement of the various expenses incurred by them in behalf of the Noticee enclosing Original copies of invoices issued by various service providers. The service providers issued invoices for the services rendered in the name of CHA and CHA paid the amount of the said invoices to the service providers and therefore, the CHA issued debit notes to reimburse the said amounts from the Noticee.

It is found that on certain services availed by the CHA, service tax was also paid by CHA on the Noticee account which was ultimately required to be reimbursed from the Noticee. As the CHA availed services on their behalf, the service providers issued invoices for the services rendered in the name of CHA showing all the details along with service tax amount and thereafter, the CHA issued debit notes to reimburse the said amounts of invoices from the Noticee, which includes service tax amount. The Noticee availed the Cenvat credit on the amount of service tax shown in the said invoices of various service providers, which are in dispute in the present case.

It is also found that the main contention of the Noticee in their defence is that merely due to the procedural lapse of non-mention of their name and address as the service recipient, the credit of service tax paid on various services availed by them through CHA cannot be denied to them.

To better appreciate the case, Additional Commissioner reproduces the relevant portion of Rule 9(1) & (2) of the Cenvat Credit Rules, 2004 and Rule 4A of Service Tax Rules,1994, which are read as under:

“Rule 9(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…….
(b) ………..
(f) an invoice, bill or challan issued by a provider of input service on or after the 10^th day of September, 2004; or
      (g)An invoice, bill or Challan issued by an input service distributor under rule 4 A of the Service Tax Rules, 1994.
……………”

“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 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 output 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 accounts of the receiver, he may allow the cenvat credit.”

“Rule4A. Taxable service to be provided or credit to bee distributed on invoice, bill or challan-(1) Every person providing taxable service shall, not later than thirty days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorised by him in respect of taxable service provided or agreed to be provided and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely:-

(i)   The name, address and the registration number of such person;
(ii) The name and address of the person receiving taxable service;
(iii)Description and value of taxable service provided or agreed to be provided; and
(iv)The service tax payable thereon.”

As per Rule 9(1)(f) of the Cenvat Credit Rules, 2004 the invoice issued by a provider of input service is eligible documents for availing the cenvat credit. In the present case, it is found that the Noticee had availed Cenvat credit on the invoices, which were issued by the provider of input service.

As per Rule 9(2) of the Cenvat Credit Rules, 2004 cenvat credit cannot be availed 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. Rule 4A of the Service Tax Rules, 1994 prescribed the particulars which are required to be contained in an Invoice issued by the provider of input service. As per which the main four elements are required to be shown on the invoices viz. (i) the name, address and the registration number of such person; (ii) the name and address of the person receiving taxable service; (iii) description and value of taxable service provided or agreed to be provided; and (iv) the service tax payable thereon required to be shown in an invoice.

In the present case, it is find that all the invoices on which the Cenvat credit taken / availed by the Noticee contained all the particulars, however, the name and address of the person receiving taxable service were shown as name of Custom House Agent/ Shipping Agent and name of the Noticee were shown as “Consignee”.

Additional Commissioner finds that on perusal of the proviso to Rule 9(2) of the Cenvat Credit Rules, 2004, it is clear that there are situations wherein there may be cases where all the particulars as prescribed may not be available on the invoice, but if the Deputy/ Assistant Commissioner of Central Excise is satisfied that the goods or services covered by the said document have been received and accounted for in the books of accounts of the receiver, the cenvat credit is required to be allowed to an assessee. As discussed in para supra the invoices in disputes in the name of Customs House Agent/ Shipping Agent, however, from the detail worksheet provided by the Noticee during the course of personal hearing, it transpired that other evidence viz. B/E No., Container No., B/L No. established that all the input services were in relation to clearance of imported goods of the Noticee. It is also found that there is no allegation in the show cause notice that such input services are not used for the goods imported by the Noticee or the payment of such input services are not made by the Noticee. Thus, it is not disputed that services covered by the said invoices have been received and accounted for in the books of accounts of the Noticee, in such a case the other lapse is condonable as per proviso of Rule 9(2) of the Cenvat Credit Rules, 2004.

In view of the above, Additional Commissioner found that though the name of the Noticee is not shown in the Invoices as service recipient all the other details matched with the import documents, which shows that the input services provided by various service provider were availed by the CHA on behalf of the Noticee and CHA acted as intermediary, benefit of credit of service tax paid by such various service provider cannot be denied to the Noticee. In this regard, Additional Commissioner relies on the observation made by the Delhi Tribunal in the case of Chandra Engineers Vs. CCE, Delhi reported at [2013 (30) STR 699 (Tri.-Del), wherein it was held as under:

“Demand-Cenvat credit of Service Tax-Credit denied on Invoices in the name of CHA or sub-contractor engaging services of other agencies for clearance of imported raw material paying charges on behalf of assessee- If Bills of such agencies linked to import documents of assessee , even though through CHA acting as intermediary, benefit of credit of Service Tax paid by such other agencies available to assessee-Matter remanded to original Adjudicating Authority to examine facts and if such linkage proved, allow credit to assessee- Rule 3 and 14 Cenvat Credit Rules, 2004.”

In view of the discussion made in para supra, Additional Commissioner held that denial of cenvat credit merely on the ground that the invoices issued by the service provider do not contain the name and address of the Noticee as service receiver is not correct when the other factors viz. receipt and use of said service in relation to manufacture of final products by the Noticee, the service tax paid by the Noticee is not in dispute. Therefore Additional Commissioner found that the impugned show cause notice proposing to deny Cenvat credit to the Noticee is not tenable and required to be dropped.

With regard the second allegation in the notice that the Noticee had availed Cenvat Credit on the photocopies of the invoices and original invoices were not shown during the course of audit, the said invoices are also not valid documents to avail the cenvat credit in terms of Rule 9(1) of the Cenvat Credit Rules, 2004, Additional Commissioner found that the Noticee in their defence reply categorically stated that they have availed cenvat credit on the strength of original invoices issued by the service providers and the allegation is not correct and they are ready to produce original invoices on the basis of which they have availed the said credit during the course of personal hearing. As stated by the Noticee in their defence reply, they produced all the Original copies of invoices for verification during the course of personal hearing. After shown the said Original copies of invoices, it is found that the allegation made in the show cause notice is not correct and the Noticee have all the Original copies of invoices and both the show cause notices are not sustainable on this ground too.

In light of the above factual position of law, the show cause notice is not sustainable in the eyes of law. Since demand itself is not sustainable, the question of interest and imposition of penalties under Rule 14 & 15 of the Cenvat Credit Rules, 2004 do not sustain at all.

Decision:-The proceedings initiated vide the show cause notice were dropped.

Conclusion:- The substance of the case is that substantial benefit of cenvat credit availment should not be denied for procedural lapses. There is no hard and fast necessity that the credit is admissible only if all the requirements as contained in the Service Tax Rules, 1994 are mandatorily present. Exception has been provided in Rule 9(2) itself by way of proviso where there is no necessity to mention the name of service receiver if the document contains certain particulars. In this case all the particulars required under this proviso were present and the adjudicating authority was also satisfied with regard to the receipt of said services and its use by the assessee in manufacturing activities. Accordingly, after verification of the invoices and relevant supporting documents produced by the assessee to the adjudicating authority, the proceedings for recovery of credit initiated vide the impugned show cause notice were dropped.

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PJ/Case Study/2015-16/107
27 June 2015

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PJ/Case Study/2015-16/107 27 June 2015

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PJ/Case Study/2015-16/107
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