THE Central Government has issued Notification No. 08/2015-CE(NT) dated 01-03-2015, which is effective from the date of issue, has inter alia, inserted the following 3rd proviso in Rule 11(2) of Central Excise Rules, 2002 (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”
It has created a lot of confusion and worry in the minds of those manufacturers and dealers who receive goods directly, as consignee, from manufacturer through unregistered dealer (as buyer) and avail cenvat credit on the strength of invoice of supplier manufacturer. The proviso has also perplexed a large number of unregistered dealers who are being advised! instructed by their customers and others to obtain central excise dealer Registration if they wish to validly pass on the cenvat credit to customers. They are wondering why they are being forced to take mandatory registration when the same would become redundant very soon after the implementation of GST, which the Government has committed to bring from 01-04-2016.
In my view, the amendment has been made to facilitate trade and industry in view of the new policy of ‘Ease of doing Business’ as announced by our Prime Minister Shri Narendra Modi. Earlier, many registered dealers used to bring the goods in their registered premises simply for issuing Cenvatable invoice in case of transit sale. The amendment has facilitated such registered dealers, who need not physically bring the goods at their godown/depot and can directly dispatch the same from the factory/depot of the supplier manufacturer. This facility, which seems to be given to the registered dealers to reduce unnecessary transportation cost, cannot be interpreted to mean that purchase through unregistered dealer is not permitted. Also, the manufacturer or provider of output service receiving goods directly as consignee from supplier manufacturer though unregistered dealer can continue to avail cenvat credit on inputs as earlier. The reasons for my said view are as below:
1. The amendment is a beneficial provision given to First Stage dealer and Second Stage dealer. Rule 9(1) of Cenvat Credit Rules, 2004 (CCR) prescribes the eligible documents on the basis of which cenvat credit can be availed by manufacturer or provider of output service. One of the many eligible documents the invoice issued by manufacturer. Rule 9(2) ibid provides that the document (i.e. invoice in our case) should contain all the particulars as per CER, 2002.
2. Rule 11(1) of CER, 2002 provides that no excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent. Rule 11(2) ibid specifies the particulars that must be contained in any cenvatable invoice. The relevant portion is extracted below:
” (2) The invoice shall be serially numbered and shall contain the registration number, address of the concerned Central Excise, name ofthe consignee, description, classification, time and date of removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of goods andthe duty payable thereon….
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 ‘…
3. It is clear from plain reading that the name of the consignee must be mentioned in the cenvatable invoice and so the consignee is the person entitled to avail cenvat credit and not the ‘buyer of goods’. To provide an exemption to this rule, the 3rd proviso has been inserted to provide that in case of transit sale, the details of ‘registered dealer’ as ‘buyer’ should also be mentioned in the cenvatable invoice.
4. The proviso is very specific and has limited application only for ‘registered dealers’. If an unregistered dealer is doing transit sale, he can continue to issue commercial invoice as earlier, as the proviso is applicable only when the goods are sent to any person on the direction of the registered dealer, which he is not.
5. In case of transit sale/E1 sale where the buyer is an unregistered dealer, the customer/end user can continue to avail cenvat credit on the basis of supplier manufacturer’s invoice, as earlier, if the invoice contains it’s name as consignee as provided in the sub rule 2. The manufacturers invoice showing recipient name as consignee is also a valid document for Cenvat as has been clarified in Circular No 96/7/95-CX dated 13-02-1995. The earlier procedure and law is still valid.
6. In addition to the ‘consignee’, the Central Government intended to allow ‘buyer’ to take credit by sending materials directly to consignee. Hence the newly inserted 3rd proviso to Rule 11(2) of CER, 2002 has provided an additional method for availing cenvat credit to BUYER, who should be a REGISTERED DEALER. The Hon’ble Rajasthan High Court had ruled that merely providing an alternative method or additional method for availing Cenvat Credit does not take away the entitlement to avail Cenvat credit on the basis of original document and the judgement has also been recently followed by Hon’ble Gujarat High Court.
Further, in my view, the last line in the 3rd proviso, which says “and that person shall take CENVAT credit on the basis of the registered dealer’s invoice” seems to be ultra vires the Central Excise Act, 1944 or the rules thereunder and if challenged, may be struck down by the judiciary. In my view, if any trader, whether registered dealer or not, instruct his supplier to directly dispatch the excisable goods to the consignee, without first physically bringing the goods in his godown/depot, then such trader cannot issue valid cenvatable invoice even when he is a registered dealer. In view of the various issues involved, the Central Government should immediately issue necessary amendment or clarification to bring certainty and peace of mind to the trade and industry.
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