2018 (3) TMI 749 - AT - Central Excise

CENVAT credit - recovery of courier charges from the supplier of goods that were returned for non-compliance with supply schedule - Held that - The inclusion of courier service charges in the said debit note does not in any way detract from the provision of service by the courier to the vendor of the goods. The appellant is not the recipient of courier service referred to in the debit note and has not taken the credit of any tax paid on the provision of said service to the vendor of the goods in question - In absence of eligibility to take such credit and, in absence of any evidence that the ineligible credit was availed in the first instance, reversal of credit will not arise - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of recovery of courier charges under CENVAT Credit Rules, 2004.

Analysis:
The appellant, M/s General Motors India Pvt Ltd, challenged the order confirming a demand of ?27,62,926 attributed to the recovery of courier charges from the supplier of goods returned due to non-compliance with the supply schedule. The recovery was made through debit notes covering the period from October 2008 to November 2012. The confirmation of demand was based on the third proviso in sub-rule 7 of rule 4 of CENVAT Credit Rules, 2004. This proviso states that if a payment made towards an input service is refunded or a credit note is received, the manufacturer or service provider must pay an amount equal to the CENVAT credit availed. However, the lower authorities incorrectly applied this rule to cover a debit note issued to the recipient by the supplier of goods. The tribunal noted that the proviso is limited to 'input service,' whereas the dispute concerned a debit note related to goods not complying with the agreed-upon supply terms. The inclusion of courier service charges in the debit note does not change the fact that the courier service was provided to the vendor, not the appellant. As the appellant did not receive the courier service or take any tax credit on it, there was no basis for reversing the credit. Therefore, the tribunal allowed the appeal and set aside the impugned order.

This judgment clarifies the application of the CENVAT Credit Rules, 2004 concerning the eligibility of credit in cases of refund or credit notes related to input services. It highlights the importance of correctly interpreting the provisions and ensuring that the credit reversal is justified based on the actual transactions and credits availed by the taxpayer. The tribunal's analysis focused on the specific nature of the debit note issued for non-compliant goods and emphasized that such notes do not fall under the category of 'input service' as defined in the rules. By emphasizing the distinction between input services and contractual liabilities for goods, the tribunal provided a clear interpretation of the rule and upheld the appellant's position based on the lack of eligibility for credit reversal in this case.