FEBRUARY 12 , 2016

By Nirav S Karia & Chaitanya R Bhatt

RULE 9(1) of the Cenvat Credit Rules, 2004 prescribes following documents on the basis of which cenvat credit can be taken by a manufacturer or provider of output service, namely:-

(a) an invoice issued by -

(i)..................

(ii) importer;

(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;

(iv)..................

Rule 9(1)(a)(ii) of the above rule provides that invoice issued by importer, in respect of the imported goods cleared and delivered from the port of import itself, is one of the specified document based on which cenvat credit can be taken. Thus, an invoice of an importer for such imported goods is sufficient for availing cenvat credit by the manufacturer of final product.

Rule 9(1)(a)(iii) of the Cenvat Credit Rules, 2004 provides that invoice issued by importer in respect of the imported goods cleared from the port and brought to his depot or premises of the consignment agent and delivered from there, is one of the specified document based on which cenvat credit can be taken. The above sub-clause stipulates a condition that the depot or premises of the consignment agent of importer should be registered under the Central Excise Law.

For this purpose, the Cenvat Credit Rules, 2004 however does not stipulate that the "importer" mentioned in Rule 9(1)(a)(iii) of the Cenvat Credit Rules, 2004 should also be registered with Central Excise or such importer is required to obtain registration under Central Excise in order to enable the end customer to take the credit of CVD and/or SAD paid on imported goods procured from the depot or premises of the consignment agent of such importer.

The above view is supported by Rule 9(1)(a)(ii) of the Cenvat Credit Rules, 2004 which does not stipulate that an importer mentioned in said sub-clause should get himself registered under Central Excise Act, 1944.

At this stage it is pertinent to refer the Notification No.8/2014-CE(NT) dated 28.2.2014 issued by Central Government in order to amend Sub-rule (1) of Rule 9 of the Central Excise Rules, 2002. The amended Sub-rule (1) of Rule 9 of the Central Excise Rules, 2002 reads as under:-

"Rule 9 - Registration. - (1) Every person, who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods or an importer who issues an invoice on which CENVAT Credit can be taken, shall get registered:"

Post amendment, Rule 9(1) of the Central Excise Rules, 2002 requires that an "importer" who wants to issue a cenvatable invoice for passing the customs duties in order to enable the end customer to take the credit of said customs duties, then, such importer is required to get himself registered under the Central Excise Act.

However, there no such corresponding amendment was carried out in Rule 9(1)(a)(ii) and Rule 9(1)(a)(iii) of the Cenvat Credit Rules, 2004.

A co-joint reading of Rule 9(1)(a)(ii) / Rule 9(1)(a)(iii) of the Cenvat Credit Rules, 2004 and Rule 9(1) of the Central Excise Rules, 2002 clearly establish that if any person is dealing with imported goods and such imported goods are cleared by such person on payment of applicable customs duties, then, such person is required to obtain registration under Central Excise in order to pass on the cenvat credit of such customs duties to another person.

Now the question arises is whether the person who is already dealing with trading of domestic goods and registered under the Central Excise Act (in capacity of 'dealer') is once again required to obtain registration under the Central Excise Act for dealing with imported goods.

As discussed above, the amended Rule 9(1) of the Central Excise Rules, 2002 does not stipulate that a person who is already registered as a 'dealer' under the Central Excise Act should once again obtain separate registration as an 'importer' in order to pass the cenvat credit to the another person in respect of customs duties borne on said imported goods. Even after the amendment, Rule 9(1) only requires that person dealing with imported goods shall obtain registration under the Central Excise Act.

In our view, the amendment is carried out to plug those persons who are dealing with domestic goods through sale in transit and are not registered under the Central Excise Act and now propose to deal with imported goods.

For un-registered dealers dealing with domestic goods through sale in transit, still there is no requirement to obtain registration under the Central Excise Act and issue a cenvatable invoice for passing on the cenvat credit of excise duty paid on inputs cleared by input-manufacturer to the end customer. The reason for the above is that the end customer can take the credit of excise duty paid on inputs on the basis of invoice issued by input-manufacturer mentioning the name of end customer as 'consignee' in the said invoice. Thus, in such type of sales, the intermediate person is not required to obtain registration under the Central Excise Act since he is not required to issue cenvatable invoice for passing on the cenvat credit to the end customer.The above discussion is supported by recent Circular No. 1003/10/2015-CX, dated 5.5.2015 issued by CBEC.  The relevant portion of Circular dated 5.5.2015 reads as under:

"5. Various specific issues referred to by the trade are clarified as follows -

(i) ………

(ii) ……….

(iii) Where a un-registered dealer negotiates sale of an entire consignment from a manufacturer or a registered importer and orders direct transport of goods to the consignee, credit can be availed by the consignee on the basis of invoice issued by the manufacturer or the registered importer. As the dealer is not registered, there is no question of issuing any Cenvatable invoice by him. Such dealers as in the past can continue to be un-registered…"

Now if the aforesaid un-registered dealer apart from dealing with domestic goods through sale in transit also wants to deal in imported goods, in such situation, what will be the document on the basis of which cenvat credit can be obtained by the end customer of customs duties paid by such un-registered dealer????

To answer the above question it is relevant to refer the Clause (c) of Rule 9(1) of the Cenvat Credit Rules, 2004 which prescribes "Bill of Entry" as a valid document for availing Cenvat credit.  

Rule 9 of the Cenvat Credit Rules, 2004, does not provide for endorsement of the bill of entry to avail the Cenvat Credit.  The above view is also supported by   Public Notice No.16/2006 dated 22.3.2006 issued by the Commissioner of Customs (Import), Mumbai which clarified that the practice of endorsement of Bill of Entry that was specifically mentioned earlier has been dispensed with in light of the Cenvat Rules. Further, the Central Excise department is also raising an objection with respect to various assessees and contending that Cenvat credit cannot be availed on the basis of endorsed Bills of Entry. The department is contending that Rule 9(1)(c) of the Cenvat Credit Rules, 2004 does not cover "endorsed bill of entry" under its purview. It is further pertinent to note that there have been various conflicting decisions of the Hon'ble Courts in a number of cases as regards availment of Cenvat credit on the basis of endorsed Bills of Entry. Even though there are many recent decisions which have been decided in favour of the assessee, the department is still raising objection and proposing to deny credit on the basis of endorsed Bill of Entry.

In order to overcome the above decisions and avoid the future litigation, the amendment was carried out in Rule 9 of the Central Excise Rules, 2002. Thus, if person is dealing with imported goods and intends to pass on the credit to the end customer, only in such situation, the said person is required to obtain registration under the Central Excise Act as an 'importer'. Accordingly, a cenvatable invoice to be issued by said registered importer will be valid document on the basis of which cenvat credit of customs duties can be taken by the end customer.

In view of the above discussions, it is clear that any person who is already registered under the Central Excise Act (in capacity of dealer) is once again not required to obtain registration (in capacity of importer) under the Central Excise Act, 1944. The invoice issued by such registered person (even in capacity of dealer) would still be considered as valid document under the Cenvat Credit Rules, 2004 for passing on the cenvat credit of customs duties paid on the imported goods to the end customer.

According to us, there is requirement on part of person dealing with both domestic as well as imported goods to have TWO registrations under the Central Excise Law.

However, solely to avoid litigation with the Central Excise department in hands of end customer for denial of cenvat credit of duties paid on imported goods, the registered already registered under the Central Excise Act can once again opt for another registration for passing of cenvat credit of customs duties to the end customer.

In the wake of the above, it is hoped that the above chaos, confusion and ambiguity on the above issue will be clarified and the same will get settled by way of suitable and reasonable clarification by CBEC.

Hopefully, the Union Budget 2016 may have something for the person having ONE registration and he should not be forced to take another registration if he also starts dealing in imported goods.

[The authors are Principal Associate with Lakshmikumaran & Sridharan, Mumbai and the views expressed are strictly personal]