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.
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