Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/010

15 September 2009

Case Study

Introduction: -

Under Cenvat Credit Scheme, Cenvat/modvat credit is allowed on the basis of an invoice under Rule 9 of Cenvat credit Rules. Such an invoice is required to contain certain details under Rule 11 of Cenvat credit Rules. The invoice is required to contain the full address of the Buyer and seller, it should be pre-authenticated, time of removal of goods and time of issue of invoice should be mentioned, the full address of the Central Excise Range and division under which the assessee is registered is to be mentioned, the registration number of the assessee should be mentioned, the description of the goods alongwith tariff heading should be mentioned, and so on. However, if any of such detail is missing would it amount to contravention of mandatory provisions and would disentitle the assessee from taking Cenvat credit. In the case under study, the assessee had taken Modvat credit on the basis of invoices which were not pre-authenticated. Would the assessee be entitled to Cenvat credit on the said invoices, was the issue involved in the said case.

Relevant Legal Provisions: -

Rule 57G of the Central Excise Rules, 1944 (Not in force now): -

Procedure to be observed by the manufacturer - (1) Every manufacturer intending to take credit of the duty paid on inputs under rule 57A, shall file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Assistant Collector may require, and obtain a dated acknowledgement of the said declaration.

(2) A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him:

Provided that no credit shall be taken unless the inputs at the time of their receipt in the factory are accompanied by a Gate Pass, an AR-1, a Bill of entry or any other document as may be prescribed by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) in this behalf evidencing the payment of duty on such inputs:

Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory, customs area [as defined in the Customs Act, 1962 (52 of 1962)] or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty :

Provided also that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty as indicated in the documents accompanying the goods, has been paid.

(3) A manufacturer of the final products shall maintain,—

(a) an account in Form R.G. 23A, Parts I and II;

(b) in respect of duty payable on final products, an account-current with adequate balance to cover the duty of excise payable on the final products cleared at any time.

(4) A manufacturer of the final products shall submit a monthly return to the Superintendent of Central Excise indicating the particulars of the inputs received during the month and the amount of duty taken as credit along with extracts of Parts I and II of Form R.G. 23A and shall also make available the documents evidencing the payment of duty on the inputs on demand by the proper officer.

Rule 57GG of the Central Excise Rules, 1944 (Not in force now)

“57GG. Accounting procedure for the persons issuing invoices under rule 57G or rule 57T. - (1) Every person, who issues invoice or invoices under rule 57G or, as the case may be, under Rule 57T shall get registered under rule 174.

(2) He shall maintain a stock account in the form RG 23D.

(3) The registered person shall maintain the RG 23D register at the end of the day of receipt and issue of excisable goods, and he shall –

(a) at the time of making any entry, insert the date when the entry is made;

(b) correctly keep such book, account or register in the manner required, under these rules and shall not cancel, obliterate, or alter any entry therein, except for correction of any errors;

(c) keep the book, account or register at all times ready for the inspection by the officers, and shall permit any officer to inspect it and make any such minute therein or any extract therefrom, as such officer thinks fit.

(d) at any time, if demanded by the officer, send the records, referred to in clause (c), to the proper officer.

(4) The registered person shall issue an invoice containing the details as prescribed by the Central Board of Excise and Customs or as the case may be Collector of Central Excise;

(5) Each invoice shall bear a printed serial number running for the whole year beginning on the 1st January of each year. Only one invoice book of each type shall be used by the registered person for removal of excisable goods at any one time unless otherwise specially permitted by the Collector in writing.

(6) Each foil of the invoice book shall be authenticated by the owner or the working partners or the Managing Director or the Company Secretary, as the case may be, before being brought into use by the registered person. The serial number of the invoice, before being brought into use, shall be intimated to the Assistant Collector of Central Excise and a dated acknowledgment of receipt of such intimation shall be retained by the registered person. When the invoice is generated through computer the serial number likely to be used in the forthcoming quarter shall be intimated to the Assistant Collector of Central Excise and as soon as the same is exhausted a revised intimation may be sent. Records and invoice generated through computer are also recognised. Such registered dealers shall send details of the software used including the format for information of the Assistant Collector of Central Excise.”

Commissioner of Central Excise, Jaipur-II v/s Uma Polymers Limited

[2000 (118) ELT 442 (Tribunal)]

Brief Facts of the Matter: -

- Assessee (M/s Uma Polymers Ltd) took Modvat credit on the strength of invoices issued by a registered dealer. The said invoices were not pre-authenticated by the owner or his authorised agent as required under Rule 57GG of the Central Excise Rules, 1944.

- The Department issued show cause notice asking as to why Modvat credit availed wrongly should not be recovered from them under Rule 57-I read with Section 11A of the Central Excise and Salt Act, 1944. It was contended that the assessee had violated the mandatory provision of Rule 57G.

- The Adjudicating Authority in its order held that the pre-authentication of invoices is only a procedural requirement and that on account of procedural infraction substantive benefit conferred under the Rules cannot be denied. The Adjudicating Authority allowed the Modvat Credit to the assessee.

- Aggrieved by this order, Revenue filed an appeal before the Commissioner (A) challenging the same.

- Assessee filed cross objection stating that the requirement of registered dealer had come into effect by Notification No. 32/94-CE dated 20.07.94. The procedure was quite new for the dealers and, therefore, they forgot to get their invoices pre-authenticated. The assessee relied upon the decision of the Commissioner (A) in the case of M/s Kattu Kulan Engineers (P) Ltd [1996 (83) ELT 239] wherein in a similar placed situation, the decision was given in the favour of the assessee.

- The Commissioner (A) held that the decision relied upon by the assessee was distinguishable as the permission was sought and given by the Commissioner for pre-authentication of first and last copy of the invoice, but in the assessee’s case no such permissions was obtained. Accordingly, it was held that the condition of pre-authentication was a mandatory provision and violation of the same would, therefore, disentitle the assessee from taking modvat credit. Accordingly, appeal of the Revenue was allowed and the order of the Adjudicating Authority was set aside.

- In further appeal to the Tribunal, reliance was placed on the judgments given in the case of Jenny Plywood Inds. Ltd [1997 (96) ELT 606] and in case of Ramgarh Chini Mills [1998 (26) RLT (169)] in which it was held that modvat credit can be taken on the strength of invoices which were not pre-authenticated. Following the ratio given in these cases, The Tribunal held that modvat was admissible to the assessee and allowed their appeal.

- Thereafter, the Commissioner filed a reference to the Tribunal on the said issue which was admitted for consideration by the Tribunal.

Question for Consideration: -

The question of law referred to the Tribunal was as under: -

“Can an invoice issued by a registered dealer which is not authenticated as per requirement of Rule 57GG be considered as valid document for taking Modvat credit under Rule 57G.”

Judgment of Tribunal: -

The Tribunal held that authentication of invoice was a curable defect. More so, when an invoice issued in the name of the customer an invoice cannot be endorsed thus, the pre-authentication of an invoice was a curable defect more so when it was issued not by the customer (who takes Modvat credit) but by the supplier. Therefore, if there was a defect, the defect should be rectified only by the supplier. It was held that pre-authentication was a curable defect and could be rectified.

Conclusion: -

The Tribunal rightly held that authentication of invoice was a curable defect. From the above study, it is clear that mere procedural defects or errors which can be cured should not be allowed to interfere with the availing of a statutory right. If it is allowed, the assessee would be prevented from availing statutory benefit which he is rightfully entitled to.

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PJ/CASE STUDY/2009-10/010
15 September 2009

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