Increase in time limit for availing Cenvat credit on Input services and Inputs – Whether applicable on invoices issued prior to March 1, 2015?

Till September 1, 2014, there was no time limit prescribed under the Credit Rules for availment of Cenvat credit. Various Courts have held that in the absence of any time limit prescribed under the Credit Rules, Cenvat credit can be taken at any time even in some cases, Assessees have been allowed to avail Cenvat credit even after year(s).

However, effective from September 1, 2014, the said liberty in respect of availment of Cenvat credit has been withdrawn. The Central Board of Excise and Customs (the CBEC or the Board) vide Notification No. 21/2014-CE (NT) dated 11.07.2014  (Applicable w.e.f September 1, 2014), amended Rule 4(1) [for Inputs] and Rule 4(7) [for Input services] of the Credit Rules in order to fix a time limit of 6 months from the date of issue of any of the documents specified in Rule 9(1) thereof, for availment of the Cenvat credit.

In this regard, following are the eligible documents specified under Rule 9(1) of the Credit Rules:

• Invoice issued by a manufacturer, importer, first stage dealer;
• Supplementary invoice by supplier-manufacturer or service provider, except where such payment was on account of fraud, suppression of facts etc.
• Bill of entry;
• A certificate issued by an appraiser of customs in respect of goods imported through a Foreign post office;
• A challan evidencing payment of Service tax, by the service recipient as the person liable to pay Service tax;
• An invoice, a bill or challan issued by a provider of input service on or after the September 10, 2004;
• An invoice, bill or challan issued by an Input Service Distributor under Rule 4A of the Service Tax Rules.

After the said insertion under Rule 4(1) and Rule 4(7) of the Credit Rules, the same became a debatable issue in the Trade, raising concerns about applicability of time frame of 6 months in various situations such as:

• Taking re-credit in terms of the Credit Rules;
• Invoices issued prior to September 1, 2014;
• Payment of Service tax paid by service recipient under partial reverse charge etc.

Thereafter, on November 19, 2014, the CBEC vide Circular No. 990/14/2014-CX-8 dated November 19, 2014 (“the Circular”) has clarified that the purpose of the amendment made by Notification No. 21 is to ensure that after the issuance of a document under Rule 9(1) of the Credit Rules, Cenvat credit is taken for the first time within 6 months of the issue of the document. Once this condition is met, the limitation has no further application.

Although the Circular on one hand clarifies that purpose of the amendment made by Notification No. 21 is to ensure that after the issuance of a document under Rule 9(1) of the Credit Rules, Cenvat credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application.

However, it is pertinent to note that the Circular in later part further provides that “It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5)(a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document”

Thus, even though the CBEC has clarified non-applicability of six months’ time limit while availing re-credit in terms of the Credit Rules but, there are certain other issues still existing in this regard, which were left unexplained by the Board.

Now, with extension of time limit for availment of Cenvat credit from 6 months to 1 year (supra) w.e.f 1^st March, 2015, the same issue may still crop up again as to whether the Assessee would be eligible avail Cenvat credit on Invoices issued prior to March 1, 2015 for which time period of 6 months expired but 1 year period is open on March 1, 2015.

Conclusion: The Board is required to clarify the matter at the earliest keeping in mind the very purpose of introduction of the Cenvat credit scheme i.e. not to collect duty on duty and avoid cascading effect.

 (Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)