Manas S. Joshi
“CENVAT credit on input service can be availed on the basis on Debit Note raised by the service provider” ……… can you believe this………..? If I make this sentence without referring to any supporting reference then probably I would be wrong. But thanks to the Delhi Bench of the Hon’ble Tribunal which has allowed CENVAT credit of input service on the basis of Debit Note raised by the service provider. This is one of the rarest judgments which I recently came across and therefore, I wish to bring this judgment to the notice of the readers to understand the intention of the law makers more clearly.
All of us are well aware that CENVAT credit of input services can be availed only on the basis of “certain valid documents”. List of such “valid” documents is given in Rule 9 of the Cenvat Credit Rules, 2004. The relevant text of Rule 9 is reproduced below for your ready reference:
RULE 9. Documents and accounts. —(1) 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 :-
(a) an invoice issued by –
(i) a manufacturer for clearance of –
(I) inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;
(II) inputs or capital goods as such;
(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods ……………………………
Explanation. – ……………………… or
(bb) a supplementary invoice, ……………..; or
(c) a bill of entry; or
(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or
(e) a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or]
(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of September, 2004; or
(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994:
Provided that ……………………..
(2) No CENVAT credit under sub-rule (1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may be, are contained in the said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, Central Excise or Service tax registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of output service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.
If you read the underlined text of Rule 9, it can be clearly understood that CENVAT credit can be availed only on the basis of documents which are specifically prescribed in sub-Rule (1) of Rule 9. Moreover, such documents should contain certain information in order to make such document as “valid” document for availing CENVAT credit. However, it is clarified that if all the required information is not contained in such a document but contain basic information and the Assistant / Deputy Commissioner satisfied that services mentioned in such a document is actually received and accounted for in the books of accounts, then in that case, CENVAT credit may be allowed. (which means this benefit will depend upon the discretion of the Assistant / Deputy Commissioner and therefore, such situation would definitely call for litigation).
Considering the above aspects, it was advisable to raise an invoice or a supplementary invoice against provision of any service. (means just to mention “Invoice” or “Supplementary Invoice” on the top of the document rather than mentioning “Debit Note”).
Further, the issue of raising Debit Note will raise in a situation where manufactured goods were removed at certain rate and subsequently such rate gets enhanced due to negotiations or in a situation where service provider raised an invoice and subsequently came to know that he actually raised an invoice for lesser amount and therefore, now he needs to raise an invoice for the remaining amount. In both the cases, I have observed that manufacturer or service provider prefers to raise a Debit Note to give the effect of the balance amount. However, as per Rule 9(1) of Cenvat Credit Rules, 2004, “Debit Note” is not specifically prescribed as a “valid” document, it was advisable to raise a separate invoice or a supplementary invoice so that the receiver of the goods or services can take CENVAT credit.
Furthermore, I have also observed that during the audit or any investigation, the department officers have asked the assessee to reverse CENVAT credit which was availed on the basis of Debit Note and when the assessee started making argument with the officer, the assessee had no option but to reverse CENVAT credit simply because the word “Debit Note” does not appear in Rule 9 of Cenvat Credit Rules, 2004 which made the assessee’s case more weak.
Now at least we have got some support from the Hon’ble Tribunal in this regard. I was going through various judgments and fortunately I came across a judgment of the Delhi Bench of the Hon’ble Tribunal in the case of Shree Cement Ltd. v/s CCE, Jaipur-II reported in 2013 (29) STR 77 (Tri. Del.) wherein the Hon’ble Tribunal heard similar matter and held that substance is more important than a format and mainly based on this ground, CENVAT credit was allowed on the basis of Debit Note.
While allowing CENVAT credit on Debit Note, the Hon’ble 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 Hon’ble 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.
While concluding the judgment, the Hon’ble Tribunal mentioned that at the interest of Revenue, the adjudicating authority may send copy of Debit Notes relied by the assessee to the concerned jurisdictional officer for verifying whether service tax collected by such Debit Notes is actually deposited into the Government treasury and if it is found that service tax is not deposited into the Government treasury, then in such a case, benefit of CENVAT credit may be denied.
Word of Caution
Though the Hon’ble Tribunal has allowed the benefit of CENVAT credit on the basis of Debit Note, it is always advisable to avail CENVAT credit on the basis of “valid documents” mentioned in Rule 9 until the word “Debit Note” does not appear in Rule 9 of Cenvat Credit Rules, 2004. Assessee may request the service provider to raise an invoice or a supplementary invoice rather than issuing Debit Note in order to avoid unnecessary litigation.
(Manas Joshi, Excise & Service Tax Consultant, Mobile: 9890016800, E-mail: firstname.lastname@example.org)