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Is CENVAT credit on transit sale allowed only if made through Registered dealer?

APRIL 14, 2015

By Chirayu Kothi, Advocate

THE Budget notification 8/2015-CE(NT) dated 01.03.2015, inter alia, inserted the following third proviso in sub-rule 2 of rule 11 of CER, 2002.

Provided also that if the goods are directly sent to any person on the direction of the registered dealer, the invoice shall also contain the details of the registered dealer as the buyer and the person as the consignee, and that person shall take CENVAT credit on the basis of the registered dealer's invoice:

This proviso is giving many sleepless nights to manufacturers and dealers alike. The question troubling them is as to how this proviso is to be interpreted while reading the same with the CENVAT Credit Rules, 2004, rule 9 in particular.

Consider this - The manufacturers procure their raw materials from various sources - directly from the suppliers' factory or through a dealer, registered or otherwise, or any other person engaged in trading of the such goods.

Earlier, in case of a transaction entered with an unregistered dealer, the unregistered dealer issued only a commercial invoice and CENVAT credit was availed on the strength of manufacturers' invoice.

Due to the proviso, reproduced above, added in Rule 11 CER 2002 w.e.f01/03/2015, it seems that if the manufacturer procures raw materials through an unregistered dealer, they will not be entitled to avail CENVAT credit on inputs.

Nonetheless, the fact of the matter is that taking of Cenvat Credit is on basis of manufacturer's invoice and which is a prescribed document mentioned in rule 9(1) of Cenvat Credit Rules 2004 itself.

It seems that the amendment made in the third  proviso  to Rule 11(2) of Central Excise Rules 2002 was only for the purpose of allowing a facility to registered dealer to reduce transport/freight costs, as earlier he was required to bring the goods in his depot/godown before effecting a sale.

But an unintentional interpretation seems to have emerged by this amendment. Inasmuch as the jurisdictional authorities are threatening to deny CENVAT credit availed on the basis of supplier manufacturers' invoices when these goods are directly sent to the assessee manufacturer on the direction of the ‘dealer' on the ground that the said dealer who places such an order is not a "REGISTERED dealer".

It is obvious that in an effort to go along with the ‘Ease of doing business' concept, the Central Government made an amendment to rule 11(2) but what is actually being translated by the field formations is exactly the opposite.

It would be in the fitness of things that the CBEC comes out with a clarificatory Circular at the earliest before SCNs start flying in all directions and makes a mockery of the National Litigation Policy which aims at reducing litigation.

( DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)

 


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Good one

Good analysis and a important relevant point is raised. Keep it up.

Posted by Pritam Mahure
 
Sub: Dealer invoice - registration for all

Thanks for highlighting the live burning issue

We have become expert in doubting law makers’ intention to give relief. May be due to our past experience where intention has not been properly worded in rules, notifications etc.

My view is as under

1.It is a beneficial provision given to First Stage & Second Stage Dealers who have to receive goods physically for issuance of CENVATTABLE invoice as of 28.02.2015

2.Rule 9 of CCR speaks about eligible documents for CENVAT credit. In sub-rule (2) of the said rule it has been made mandatory that the document should contain all the particulars as per CER. If we go to Rule 11(2) of CER one can find that ‘consignee’ as mentioned in the eligible document can take credit

3.In addition to the consignee, Government wanted to allow ‘buyer’ also to take credit by sending materials directly to job worker. Hence the newly added second proviso to Rule 11(2) of CER

4.In the same line relaxation has been provided for ‘Registered dealers’ also by incorporating third proviso to Rule 11(2) of CER

5.It is not restricting manufacturers' invoice ineligible for credit or requiring all unregistered dealers to go for registration

I invite learned readers to share their view points

Posted by
G. Mani

Posted by govindan_mani govindan_mani
 
Sub: Ultra vires to the main provision

Hi,

It seems that the last line of insertion (I.e Cenvat Credit to be taken on the basis of such registered dealer invoice) made in Rule 11 is ultra vires to the main Rule.

Rule 11 talks about goods to be removed on the basis of invoice. Sub-Rule (2) prescribes the details to be mentioned in the invoice.

Accordingly, the aforesaid amendment in relation to the basis of taking cenvat credit in Rule 11(2) would be Ultra vires to the main Rule 11(2). The correct place where the said amendment was supposed to be incorporated should be Rule 9 of Cenvat Rules.

Regards,
Satish Bhanushali

Posted by PricewaterHouse Coopers
 
Sub: No registration required for unregistered dealers

My view is that the above amendment has been made so as to tap the irregularities at the hands of first/second stage dealers. That is if the actual customer purchases goods through a registered dealer from a manufacturer then as per the earlier provision, the actual customer could avail credit on the manufacturer's invoice and thereafter the registered dealer could have issued invoice to some other manufacturer for the purpose of passing on fake cenvat credit.

Thus, to avoid passing on of fake cenvat credit, this amendment has been made. And since, the credit cannot be passed on by any unregistered dealer, therefore, the above amendment is not applicable to unregistered dealer.



Posted by Rakshit Verma
 
Sub: 'Bill to Ship to' would continue

Hello,

My view is that the amendment is more clarificatory and beneficial in nature. Post this amendment, the registered dealer would need to issue invoice to enable buyer to avail CENVAT credit.

However, the Bill to Ship to ('BTST') model would continue wherein the consignee (i.e. Ship to party) would be eligible to avail CENVAT credit on the basis of excise invoice issued by the supplier and the intermidiate buyer (i.e. Bill to party) would not be issuing any excise invoice as it is non-registered dealer.

Regards
Amit Jaiswal

Posted by PricewaterHouse Coopers
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