JULY 20, 2015

By P G James

"DIGITAL India" program launched by Govt of India lays emphasis on transforming India into a digitally empowered society and knowledge economy by providing digital infrastructure as a utility to every citizen. While delivering the speech during US visit in Sept, 15, Hon PM made an ironic contrast of computer mouse with snakes and said: "Our ancestors used to play with snakes; We play with mouses".

In the present era of e-business and e-commerce, ensuring statutory compliance by adherence to manual signing by the designated signatories of the innumerable Invoices generated for Central Excise and Service Tax is rendered complex and cumbersome. Many of the Companies already started issuing Invoices either with digital signature, facsimile signature or with the remark on the Invoice as 'Computer generated Invoice. No signature required'.

As per Rule 4A of Service Tax Rules, Invoice has to be 'signed' by the registered person or authorised signatory of the registered person. The word 'signed', used in the said Rule with its grammatical variations and cognate expressions, shall, with reference to a registered person, legally mean affixing of the hand written signature.

In view of the complexities involved, trade and industry were urging the Govt to extend the facility of digital signature in Central Excise and Service Tax Invoicing.

FICCI, ICAI among others, in its Pre-Budget Memorandum of 2015-16 represented to Govt to amend the relevant Rules for allowing generation of Invoices with digital signature and acceptance of digitally signed Invoices for availing Cenvat credit.

CBDT, long back issued Circular No. 2/2007, dated 21-5-2007 under Sec 119 of Income Tax Act, 1961 permitting the certification of TDS certificates by way of digital signature.

Finally CBEC also acceded to the requests and accepted recommendations of trade organisations and in the Budget 2015, Notification No 5/2015-ST dated 01.03.2015 was issued to bring about the necessary change in Service Tax Rules.

"Rule 4C. Authentication by digital signature- (1) Any invoice, bill or challan issued under rule 4A or consignment note issued under rule 4B may be authenticated by means of a digital signature".

Similarly, Central Excise Notification No 8/2015-CE(NT) dated 1.03.15 was also issued to amend Central Excise Rules as follows:

 "(8) An invoice issued under this rule by a manufacturer may be authenticated by means of a digital signature".

In both the above cases, it was specified in unequivocal terms that -

(ii) The expression "digital signature" shall have the meaning as defined in the Information Technology Act, 2000 (21 of 2000) and the expression "digitally signed" shall be construed accordingly

Digital Signature is defined in Sec 2 (c) of the Information Technology Act, 2000 (IT Act) as-

"affixing digital signature", with its grammatical variations and cognate expressions means adoption of any methodology or procedure by a person for the purpose of authenticating an electronic record by means of digital signature;

It has been specifically said in the IT Act that 'digital signature affixed in such manner as may be prescribed by the Central Government' and hence it is implied that any signature affixed in a manner not prescribed by the Central Govt is legally invalid.

There is widespread mis-conception that all electronic signatures, i.e., e-signatures as for instance, facsimile signature and digital signature are one and the same. E-Signature is any signature that is in electronic form as opposed to paper-based ink signatures. But Digital Signature is an encrypted record of metadata that provides highest level of security and has universal acceptance.

With the amendment in Central Excise /Service Tax Rules effective from 1.03.15, out of ignorance, many assessees started the practice of affixing electronic signatures in their invoices especially in Service Tax. Examples of electronic signatures are scanned image of the person's ink signature, a mouse squiggle on a screen or a hand-signature created on a tablet using one's finger or stylus, a biometric hand-signature signed on a specialist signing hardware device etc. Commonly used method of signature is facsimile signature which is a reproduction of one's manual signature saved electronically or by engraving, imprinting or stamping. It is just like a affixing a rubber stamp with engraved signature and is vulnerable to copying in countless documents and also capable of being tampered, edited and forged.

A digital signature can also be considered an  e-signature, but the reverse is not true i.e., not all e-signatures offer the same security services as digital signatures which are based on superior technology, guarantees signer identity and intent, data integrity, and the non-repudiation of signed documents.

It was a welcome step from CBEC to issue Notification No 18/2015-CE (NT) dated 6th July, 15 specifying the various conditions, safeguards and procedures for issue of invoices, preserving records in electronic form and authentication of records and invoices by digital signatures. In order to have further clarity, another Board Instruction F. No. 224/44/2014-CX.6  was also issued on 6th July 2015 enlisting the detailed procedure for usage, verification and controls for the usage of digital signatures.

But many companies including MNC's and some of the Big 4's abstain from signing the Invoices by resorting to facsimile signature or by simply printing "Computer generated invoice- No Signature required" as a measure of simplicity and flexibility and sometimes even by merely writing the name of the Company or firm by hand in the form of a signature presumably to avoid risk to a person. This has become a practice and now prevailed as a custom which are forcefully thrusted on the recipients of service and are accepted by many for the purpose of Cenvat credit availment either without anticipating the risk involved or on the bonafide belief that Companies of higher repute will not err. Invoices without being signed by the authorised signatory of the registered person as provided in Rule 4A of Service Tax Rules are not legally valid.

As per tradition, at the time of collection and payment of taxes, these supporting Invoices are accepted by Department without any hesitation but after the Cenvat credit is taken by the recipient, the same is denied along with interest and penalty by invoking various penal provisions of Cenvat Credit Rules, Service Tax Rules, Central Excise Act, Finance Act etc and of course with the usual prerogative allegation of fraud, collusion, willful mis-statement, suppression etc. with intent to evade payment of duty.

This inevitably led to unwanted litigation as Department either disallowed Cenvat credit or rejected the claim of refund of the assessees. In the Regional Advisory Council (RAC) Meeting of Mumbai Central Excise Zone-I held during June 2014, the issue regarding denial of export refund of Service Tax owing to the lack of manual signature on Invoices was raised. It was clarified that in view of the provisions of Rule 4A of Service Tax Rules which mandates that provider of service shall issue an Invoice duly signed by the service provider or his authorised agent, acceptance of e bills which do not contain signature cannot be acceded to.

In the case of Dewshree Network Pvt Ltd Vs CCE, Surat - 2014-TIOL-246-CESTAT-AHM, Hon Tribunal ordered pre-deposit of Rs 20 lacs with regard to the dispute regarding the credit availed on computer generated invoices which was denied in adjudication on the ground that conditions of Rule 9 of the Cenvat Credit Rules, 2004 were violated.

Hon High Court of Delhi in the case of Kusum Durga Kand Vs Karla Papers P Ltd (RFA No.16/2004 dated 16th Feb, 2012) filed under Sec 96 of CPC took Bills as a corroborative evidence to arrive at the conclusion that the disputed goods are not supplied since the bills under dispute do not bear the signatures or the initials of any of the employees of the respondent/plaintiff.

'Ignorantia juris quod quisque scire tenetur non excusat' - Ignorance of the law, which everybody is supposed to know, does not constitute an excuse. Hence it is the bounden responsibility of the Dept to enforce the law by insisting the manual signature or digital signature on Invoices rather than penalizing the persons who had rightfully availed the credit of tax paid based on such Invoices. Section 77 (1) e & (2) of the Finance Act bestows powers on Dept to impose penalty upto Rs 10,000 for non-issuance of Invoice in accordance with the provisions or any contraventions contained in the Act and Rules.

At this juncture, it is pertinent to note that recently Ministry of Finance has issued a clarification by way of Press Note dated 14th Jul, 15 on a trivial issue of service charges collected by hotel and restaurants even though higher level of intelligence is not required to understand that service charge is not a tax payable to Govt. The Press Note states: "It is clarified that these 'service charges' collected by the restaurants/hotels/eateries are retained by the restaurants/hotels/eateries and are not 'service tax' imposed by the Government".

Further, though it was clearly mentioned in the Budget Circular F. No. 334/5/2015-TRU dated 28th Feb, 2015 that the new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015, Circular No 183/02/2015-ST, dated April 10, 2015 was issued to clarify that new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015 and this date will be notified in due course after the enactment. Commissioner of Central Excise, Nagpur, also issued a clarification in this regard - Refer DDT 2568. These positive customer oriented measures are heartily welcomed especially when CBEC   is celebrating 2015 as the Year of Taxpayer Services but at the same time it is highly essential to make the trade aware of the legal requirements in invoicing and to publicise the punitive measures contained in the Act and Rules for adopting wrong and easy methods of other forms of signature which are insecure and tamperable.

It is highly unfair on the part of Department to deny Cenvat credit at the receiving end by adopting the 'sit-and-wait' strategy just like a kingfisher waiting for its prey rather than punishing the persons who really made the breach in law.

To conclude - the legal maxim 'sublato fundamento cadit opus'- meaning if initial action is not in consonance with law, subsequent proceedings would not sanctify the same.

Let us hope that CBEC disseminates and updates information proactively on procedural compliance in the form of FAQ, Education Guide etc. as has been done in the past.