SEPTEMBER 28, 2012

By P G James

AS per Rule 4(7) of the CENVAT Credit Rules, 2004, CENVAT credit in respect of input service shall be allowed on or after the day on which the Invoice, bill or challan as the case may be referred to in Rule 9 is received.

The second proviso to the above Rule clarifies that in case the payment of the value of input service and service tax paid or payable as indicated in the Invoice is not made within three months from the date of invoice, the manufacturer or service provider who has taken credit shall pay an amount equal to CENVAT credit on such input service.

The provisions contained in the erstwhile Rule 9(3) of CENVAT Credit Rules saddled an added responsibility on the person availing CENVAT Creditinasmuch as he had to take all reasonable steps to ensure that the duty had been paid by the consignor/service provider. Probably due to the unreasonable burden cast, this clause came to be omitted by notification 10/2007-CE(N.T) dated 01.03.2007.

Let us take a look at the said sub-rule 9(3) when it occupied a place in the CCR, 2004. It read-

Rule 9 (3): The manufacturer or producer of excisable goods or provider of output service taking CENVAT credit on input or capital goods or input service, or the input service distributor distributing CENVAT credit on input service shall take all reasonable steps to ensure that the input or capital goods or input service in respect of which he has taken the CENVAT credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid.

Explanation.- The manufacturer or producer of excisable goods or provider of output service taking CENVAT credit on input or capital goods or input service or the input service distributor distributing CENVAT credit on input service on the basis of, invoice, bill or, as the case may be, challan received by him for distribution of input service credit shall be deemed to have taken reasonable steps if he satisfies himself about the identity and address of the manufacturer or supplier or provider of input service, as the case may be, issuing the documents specified in sub-rule (1), evidencing the payment of excise duty or the additional duty of customs or Service Tax, as the case may be, either-

(a) from his personal knowledge; or

(b) on the basis of a certificate given by a person with whose handwriting or signature he is familiar; or

(c) on the basis of a certificate issued to the manufacturer or the supplier or, as the case may be, the provider of input service by the Superintendent of Central Excise within whose jurisdiction such manufacturer has his factory or such supplier or provider of output service has his place of business or where the provider of input service has paid the Service Tax,

and where the identity and address of the manufacturer or the supplier or the provider of input service is satisfied on the basis of a certificate, the manufacturer or producer or provider of output service taking the CENVAT credit or input service distributor distributing CENVAT credit shall retain such certificate for production before the Central Excise Officer on demand.

Even though the above sub-rule to Rule 9 has been deleted from CENVAT Credit Rules, the Chandigarh Commissionerate has issued a Trade Notice No. 10/2012, dated 13-7-2012 (reproduced below) and advised the Trade to take reasonable steps to ensure that Service Tax has been paid by the input service provider before the final product manufacturer/service provider utilizes the CENVAT Credit.

It is brought to the notice of all the members of Trade and Industry that large scale evasion of Service Tax by service providers providing Security Agency Service and Manpower Supply Agency Service have come to light in this Commissionerate where the Service Providers have collected Service Tax from the Service Recipients but they have not deposited the service taxinto the account of the Central Government as required under sub-section (1) of section 73A of Chapter V of the Finance Act, 1994 read as :

73A. Service Tax collected from any person to be deposited with Central Government. -(1) xxx.

As per proviso sub-rule (6) of Rule 9 of CENVAT Credit Rules, 2004, read as under:

(6) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of outputservice taking such credit.

All the trade associations/chambers of commerce and the members of the RAC (Regional Advisory Committee)/PGRC (Public Grievance Redressal Committee) and fieldformations are advised to take reasonable steps to ensure that Service Tax has been paid bythe input service provider before final manufacturer/service provider utilizes the CENVAT Credit.

It is clear that the subject Trade Notice is issued in total neglect of the clear cut provisions in CENVAT Credit Rules regarding credit availment/utilization. Enforcement of the provisions at the receiving end either by way of reverse charge mechanism, partial & jointliability andthe so called reasonable steps will only tend to further aggravate the woes and worries of the assessees.

It has been clarified in CBEC Circular No. 766/82/2003-CX dated 15th December, 2003 that in the case of default of duty payment by the Consignor, no action should be taken against the consignee so long as the transaction is bonafide.

The Hon'ble Gujarat High Court in Vimal Enterprise VsUOI (2005-TIOL-235-HC-GUJ-CX) [relied by the CESTAT in Bhuwalka Steel Industries Vs Commissioner of Central Excise, Bangalore-I. (2008-TIOL-1343-CESTAT-BANG) hasheld that - It would be travesty of justice if the assessee is denied benefit, to which it is otherwise entitled to, for no fault of the assessee.

Board should, therefore, rein the authorities at Chandigarh for issuing the aforesaid Trade Notice that creates an additional burden on the manufacturer/service provider which is not prescribed in the CENVAT Credit Rules, 2004 and also ensure that no other Commissionerate in the country followsin the footsteps of the Chandigarh Commissionerate.