CENVAT CREDIT ON DEBIT NOTE

[Mr. M. GOVINDARAJAN]

CENVAT Credit Rules, 2004 allowed the manufacturer of final products or provider of output services to take credit on the duty paid on inputs or capital goods and service tax paid on input services that are used for the manufacture of final goods/providing output service.  The credit taken may be utilized for the payment of excise duty/service tax by the manufacturer of final products/provider of output service.   The taking of CENVAT credit is subject to the conditions enumerated in the Rules.   Rule 9 provides that 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 :-

• Invoice;
• Supplementary invoice, bill or challan;
• Bill of entry;
• a certificate issued by an appraiser of custom;
• a challan evidencing payment of service tax;
• an invoice, a bill or challan issued by a provider of input service;
• an invoice, bill or challan issued by an input service distributor.

The issue to be discussed in this article whether the debit note is entitled for taking CENVAT credit since the same has not been mentioned in Rule 9, with reference to decided case laws.

In ‘VSL Steels Limited V. Commissioner of Central Excise, Bangalore’ – 2013 (12) TMI 1182 - CESTAT BANGALORE the Tribunal found that the only ground on which the credit was denied is that the appellant availed the benefits on the strength of ‘debit note’ issued by M/s Container Corporation of India and similar service providers.   The Tribunal examined the records and considered the submissions made by both sides.   The debit note discloses all the essential particulars required of a statutory invoice.   One should not look at the title of the document but should rather see the contents thereof to determine its status.

In ‘Shree Cement Limited V. Commissioner of Central Excise, Jaipur – II’ – 2013 (3) TMI 79 - CESTAT NEW DELHI  the CENVAT credit on debit note was denied.   The Tribunal analyzed the provisions of Rule 9 of CENVAT Credit Rules, 2004.  The Tribunal observed that while enacting Rule 9(1)(f) of CENVAT Credit Rules, 2004, legislature intended a “bill” issued shall also serve the purpose of claiming CENVAT credit. A “bill” means a document which gives right to an actionable claim. A party raising a bill communicates its intention to the recipient of service making him aware of his contractual obligation and value involved to provide such service. That may be a substitute of invoice because of phraseology used in Rule 9(1)(f) of CENVAT Credit Rules, 2004. The Tribunal further held that benefit of CENVAT credit cannot be denied if service tax amount mentioned in the Debit Note is actually deposited to the Government treasury.

In ‘Bharat Sanchar Nigam Limited V. Commissioner of Central Excise, Salem’ – 2013 (12) TMI 742 - CESTAT CHENNAI  the appellant is engaged in the business of providing telephone services.  They had a system of procuring capital goods necessary for providing the telephone services centrally by a Designated Authority, viz., Controller of Telecom Stores Depot at Madurai  for all its units.  The Designated authority, after procuring the goods and making payments, delivered the equipments at the respective units along with Advice of Transfer Debit (ATD).  The respective unit based on such debit supported by zerox copies of original vouchers under which the goods were received by Controller of Stores.

Revenue placed an objection that ATD is not a specified document under Rule 9 of CENVAT Credit Rules, 2004 against which CENVAT credit could be taken.   Show cause notice was issued to the appellant and confirmed the demand with interest and also imposed penalty under Rule 15(1) and 15(2).  The Commissioner (Appeals) also confirmed the order of the lower  authority denying the credit.  Against this appeal the appellant filed appeal before the Tribunal.

The appellant submitted the following before the Tribunal-

• The appellant was having very many units named as Secondary Switching Area (SSA);
• Procurement was done centrally to get competitive bids and also for arranging logistics efficiently;
• Such an operational approach had tobe followed and cannot be faulted as a method to take any unauthorized credit;
• The only procedural lapse was that procuring office did not get registered as dealer as per Rule 9 of Central Excise Rules, which is made applicable for CENVAT Credit Rules;
• Necessary documentation has been done inasmuch as all the invoices against which procurements were made are available and also Transfer Advice has been communicated to the concerned office where credits were taken;
• The company took registration and started following proper procedures;
• The fact of procurement of capital goods is not disputed and the duty paid thereon also is not disputed and the use of capital goods in providing taxable service is also not disputed by the Department;
• The Deputy Commissioner is having powers vested on him to condone the procedural lapse by exercising his power under Rule 9 of CENVAT Credit Rules, 2004

Therefore the appellant prayed that the credit may be allowed and penalty imposed may be set aside.

The Revenue submitting the following:

• Transfer Advice is not a document specified under Rule 9(1) of CENVAT Credit Rules, 2004 against which credit could have been taken;
• Transfer advice was backed only by photocopy of invoice and not actual invoice;
• These invoices were addressed to the Divisional Engineer, Central Stores, Madurai but credits were taken at other locations;
• For the verification conducted by the Department, this irregularity would not have come to the notice of the Department and therefore penalty should be imposed

The Tribunal considered the submissions of both the parties. The Tribunal held that the assessee has not complied with provisions of CENVAT Credit Rules, 2004 read with Central Excise Rules strictly.  The Tribunal found the existence of original invoices and the genuineness is not disputed by the Revenue.   The documents were produced before lower authorities.   Therefore the duty involved has been paid and there is no dispute that the equipment in question has been used at sites where credits were taken.  The Tribunal considered the commercial practice adopted by the appellants and considered it necessary for efficient procuring the equipments in question.  Therefore the Tribunal held this procedural lapse cannot be a ground to deny the CENVAT credit involved.  The Tribunal set aside the penalty imposed on the appellant.                 

The above case laws clearly state that CENVAT credit may be taken on debit notes.