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CX - Debit note, arising from contractual liability, cannot be considered to be credit note relating to rendering of service u/r 4(7) of CCR, 2004: CESTAT

By TIOL News Service

MUMBAI, MAR 19, 2018: THE Commissioner (Appeals)upheld the order of the adjudicating authority confirming demand of Rs.27,62,926/- attributed to recovery of courier charges from the supplier of goods that were returned for non-compliance with supply schedule fixed with the vendor.

The recovery was effected through debit notes and pertains to the period from October 2008 through November 2012.

The confirmation of demand relies on the third proviso in sub-rule 7 of rule 4 of CCR, 2004 which reads -

(7) The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:

x x x

Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:

The assessee is before the CESTAT.

The Bench adverted to rule 4(7) of the CCR, 2004 and observed -

+ It would appear that the credit note referred to in the said proviso is the one received by the manufacturer or service provider who has taken credit of the tax paid on the input service but has been extended by the lower authorities to cover debit note issued to the recipient by supplier of goods.

+ It is clear that the said rule has been incorrectly applied inasmuch as the proviso is limited to 'input service' whereas the present dispute pertains to debit note raised in connection with goods that were not in compliance with the agreed upon terms of supply.

+ By no stretch of imagination can a debit note, arising from contractual liability, be considered to be a credit note relating to rendering of a service. The inclusion of courier service charges in the said debit note does not in any way detract from the provision of service by the courier to the vendor of the goods.

+ The appellant is not the recipient of courier service referred to in the debit note and has not taken the credit of any tax paid on the provision of said service to the vendor of the goods in question.

+ In absence of eligibility to take such credit and, in absence of any evidence that the ineligible credit was availed in the first instance, reversal of credit will not arise.

The impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-862-CESTAT-MUM)


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