CENVAT - Debit Note Disputed. Raise Invoice Instead

---------- Forwarded message ----------
From: Rebecca Andrews <rebecca.andrews88@yahoo.in>
Date: Thu, Jan 20, 2011 at 6:10 AM
Subject: Message from EGroup of SolapurCAs CENVAT - Debit Note Disputed. Raise Invoice Instead
To:

 

Availing credit on debit notes needs govt's clarity  Mr. Monish Bhalla, Founder, www.servicetaxonline.com in his article has highlighted  the difficulties faced by the assessees at the hands of the Department when they refuse to accept Debit Notes as the prescribed document for availing CENVAT credit. His solution is simple : Raise an invoice instead. He has also cited two contrary CESTAT judgements. One allows and the second disallows debit note as the document on which CENVAT can be availed : "Revenue pressures usually start showing in the fag end of the financial years. Like every private or public organisation, government departments too seem to be under revenue collection and target pressures. Government appears to be using two ways of projecting higher revenues. One obviously higher collection and another denying Cenvat credits, very often, the department tries to deny the credit available on grounds which have little importance in legal parlance. Under Cenvat Credit Rules, 2004, Rule 9 states that credit for service tax paid on input service can be availed based on an invoice, a bill or challan issued by a provider of input service. Now, when a person who is providing taxable service, issues the document which has all the particulars as required by statute, but terms it as 'debit note' instead of 'invoice' is not having slightest idea that what repercussions will be there when his client wants to take credit of the same. The scheme of allowing credit of input service tax was introduced to remove the cascading effect of the tax. In 2004, department relaxed many procedural hurdles and promoted self-assessment based on private documents instead of statutory documents. However, it seems that this has not diluted the litigious approach of the department. Recently, there are many cases reported on the issue of denial of legitimate service tax credit availed on the bases of debit notes. The department has taken a stand that debit notes are not a prescribed document for the purpose of availing credit of service tax. For the companies availing credit on the bases of debit notes, this departmental stand has come as a harsh blow as they are compelled to do away with the legitimate credits. Over and above the same, they are supposed to shell out additional service tax from their cash reserves. Many such issues have travelled to the tribunals. Interestingly, divergent views have been taken on this issue of credit on debit notes. Delhi Tribunal in case of Godrej Consumer Products Ltd. (STO 2010 CESTAT 660) held that Rule 9(1) of Cenvat Credit Rules, 2004 deals that which documents are required to avail Cenvat credit and those documents are invoice, challans, supplementary invoice and bills of entry. No other document is permissible to avail Cenvat credit. Hence, denial of Cenvat credit is correct. An opposite and contrast view has been taken by the Ahmedabad bench in the case of Pharmalab Process Equipments Pvt Ltd (STO 2009 CESTAT 1708). Here, the tribunal has taken a liberal view. It was held that as the debit notes issued by the service provider contained the details of service tax payable, description of the taxable service, value of the taxable service, registration no. of the service provider, name and address of the service provider, it meets with all the requirement of the Cenvat credit rules. These are the details which are required as per Rule 9(2) of Cenvat Credit Rules, 2004; thus debit notes are eligible to take credit. This view was supported by South Zonal bench of tribunal in case of Pallipalayam Spinners Pvt. Ltd. (STO 2010 CESTAT 194). As there are decisions, both in favour and against availing credits on debit notes, the ministry should intervene to clarify the issue. To avoid future litigations, assessee should convert their 'debit notes' into 'invoice' to avoid litigations. At the same time, department should take a lenient view. They need to exercise their common sense, too. No law is beyond common sense." Kind regards, Rebecca Andrews