Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/005

08 August 2009

CASE STUDY

INTRODUCTION

An assessee can take Cenvat credit of inputs procured by him or input services availed by him on the basis of an invoice or bill or challan issued by a service provider or a manufacturer as per provisions of Cenvat Credit Rules, 2004 and of the Service Tax Rules, 1994. Such a bill/invoice is required to contain certain details which have been prescribed by the afore-said Rules. However, not all the parties can issue invoices containing all the details like the banking & financial institutions. Therefore, can Cenvat credit be denied due to improper invoices issued by them even when the tax has been paid to the Government? The case which we have undertaken to study is based on this issue.

RELEVANT PROVISIONS

Rule 4A of the Service Tax Rules, 2004 :- Taxable service to be provided or credit to be distributed on invoice, bill or challan.- (1) Every person providing taxable service shall issue, not later than fourteen 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, an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him in respect of such taxable service provided or 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, classification and value of taxable service provided or to be provided; and

(iv) the service tax payable thereon.

Provided that in case the provider of taxable service is a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person, providing service to any person, in relation to banking and other financial services, an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered, and whether or not containing address of the person receiving taxable service but containing other information in such documents as required under this sub-rule.

Provided further that in case the provider of taxable service is a goods transport agency, providing service to any person, in relation to transport of goods by road in a goods carriage, an invoice, a bill or, as the case may be, a challan shall include any document, by whatever name called, which shall contain the details of the consignment note number and date, gross weight of the consignment and also contain other information as required under this sub-rule.

Provided also that where any payment towards the value of taxable service is not received and such taxable service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, an invoice, a bill, or as the case may be, a challan shall be issued by a person providing such taxable service, not later than fourteen days from the last day of the said period.

(2) Every input service distributor distributing credit of taxable services shall, in respect of credit distributed, issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him, for each of the recipient of the credit distributed, 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 registration number of the person providing input services and the serial number and date of invoice, bill, or as the case may be, challan issued under sub-rule (1);

(ii) the name, address and the registration number of the said input service distributor;

(iii) the name and address of the recipient of the credit distributed;

(iv) the amount of the credit distributed.

Provided that in case the input service distributor is an office of a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person, providing service to any person, in relation to banking and other financial services, an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered but containing other information in such documents as required under this sub-rule.

CCE, Jodhpur v/s M/s Alcobex Metals Ltd

BRIEF FACTS OF THE CASE

- The assessee is a manufacturer of Non-Ferrous Metal Rods, Pipe, Tube & Sections etc falling under sub-heading 7407. They were availing various services from Banking & Financial Institutions.

- The said banking institutions were charging certain amounts from the assessee for the services provided by them which was inclusive of Service Tax which was deposited with the Government by them.

- The banks were issuing debit advice to the assessee. The assessee has taken Cenvat credit of service tax paid to the banks on the basis of debit advice for the period September 07 to March 08.

- The Department issued a show cause notice for disallowing the Cenvat credit taken by the assessee on the basis of said improper documents in contravention of the provisions of Rule 3 & 9 of the Cenvat Credit Rules, 2004 read with Rule 4 (A) of the Service Tax Rules, 1994. The Department also proposed to recover interest as well as penalty for contravening the provisions of the Cenvat Credit Rules and Service Tax Rules.

QUESTION FOR CONSIDERATION

The question for consideration before the Adjudicating Authority was whether the debit advice issued by the bank is an improper document for availing Cenvat credit. Whether there was contravention of the provisions of Rule 3 & 9 of the Cenvat Credit Rules, 2004 read with Rule 4 (A) of the Service Tax Rules, 1994?

CONTENTION OF THE DEPARTMENT

- The Department contended that the said debit advices issued by the bank were improper documents for availing Cenvat credit.

- They have contended that the proper document for availing Cenvat credit is a bill/invoice or challan which contained all the details as prescribed by the provisions of Rule 4 (A) of the Service Tax Rules, 1994 read with Rule 9 (1) (f) of the Cenvat Credit Rules, 2004. The debit advices on which the assessee has taken credit do not contain the details prescribed in the afore-mentioned Rules.

- The assessee appears to have wrongfully availed Cenvat Credit for the relevant period and which is recoverable from them.

CONTENTION OF THE ASSESSEE

- The assessee in its reply to the show cause notice, quoted Rule 4A of the Service Tax Rules, 1994 and have contended that the proviso to sub-rule (1) of Rule 4A gives relaxation for the Banking & financial institution regarding the prescribed details to be contained in the Bill/invoice/challan of a service provider.

- The assessee contends that this has been done with a view that banking companies cannot comply with the complete requirements of the Rule. It is not possible for the banks to prescribe the complete details as per Rule 4A on the debit advices.

- It is contended that there is no dispute that service tax was paid by the bank to the Government and recovered from them. Since there is no doubt about payment of Service Tax to the Government, then Cenvat credit should not be denied to the assessee merely because of procedural lapses.

- The assessee has relied upon the case of CCE, Mumbai v/s Manish Engineering Corporation [2003 (162) ELT 670 (T-Mumbai)] in which the Hon’ble Tribunal has held as under: -

“Modvat/Cenvat - Deficiencies in invoice merely of procedural nature and not having adverse effect on duty paying character of goods - Invoice became valid on rectification and defaced by proper officer - Modvat credit availed on proper documents - Rule 57G of erstwhile Central Excise Rules, 1944.”

- Assessee has also relied upon the case of Sewak Pharma v/s CCE, Mumbai-III [2004 (175) ELT 645 (Tri-Mumbai)] in which it was held as under:

“Cenvat/Modvat – Benefit of credit – Procedural lapses or technicalities cannot be resorted to deny substantive benefit of Modvat credit – Rule 57A of erstwhile Central Excise Rules, 1944 – Rule 3 of the Cenvat Credit Rules, 2004.”

- On the basis of these judgments, the assessee has contended that from the said judgments it is clear that when there is no doubt about payment of Service Tax, Cenvat credit cannot be disallowed merely because of procedural lapses in the bills.

- It was also argued that there is no dispute that –

· Banks have charged service tax from them.

· The same does not fall under the definition of “Input services” for the assessee.

· They are eligible for taking credit as we are paying the excise duty on our final product.

The Hon’ble Tribunal in various judgments has held that when all the basic requirements of Cenvat credit should not be disallowed. Following the same analogy, it has been submitted that the credit should be allowed to them.

- The assessee has also submitted certificates from the banks (that they are dealing with) certifying the amount of service tax paid on the bank charges paid by them.

JUDGMENT OF ADJUDICATING AUTHORITY

v The Adjudicating Authority held that on the perusal of the provisions of Rule 4 A of the Service Tax Rules, 1994 it is clear that certain requirements as mentioned therein have been relaxed in the case of Banking & Financial Institutions. There is force in the arguments of the assessee.

v The assessee has produced photocopies of the certificates issued by the concerned banks certifying that they have charged certain amounts from the assessee as a commission for various services rendered by them which is inclusive of Service Tax which has been deposited by them. The month wise details of service tax realised by the banks from the assessee has also been provided.

v The Adjudicating Authority found that there is no dispute about payment of service tax by the Banks or the utilization of the same as input services or admissibility of the same by the assessee.

v The Adjudicating Authority held that in many cases, the Hon’ble Courts/ Tribunals have held that when basic requirements of Cenvat scheme has been fulfilled, then Cenvat credit should not be disallowed for the procedural lapses or technicalities. Some of the cases have been relied upon by the assessee also.

DECISION OF ADJUDICATING AUTHORITY

The Adjudicating Authority held that the assessee have correctly availed the Cenvat credit of service tax paid by them to the various banks. Recovery proceedings initiated vide the impugned show cause notice are dropped.

COMMENTS & CONCLUSION

The Adjudicating Authority have correctly relied upon the provisions as well as the judgments of various Tribunals and concluded that procedural lapses or technicalities cannot come in the way of the right of an assessee to avail Cenvat credit, when it is clear that service tax has been deposited with the Government.

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PJ/CASE STUDY/2009-10/005
08 August 2009

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