Cenvat credit on ISD invoices:
ANOTHER point raised in the same RAC meeting was:
The dept's audit team raises queries and asks for details of nature of services and service invoices for credits availed through ISD invoice by the manufacturing unit. In case of ISD invoices, the manufacturing units are not directly availing services at the manufacturing unit. Credits are availed based on the invoices of service providers; hence they are mere recipients of the credit distributed by Input service distributors. The details of services availed by ISD and service invoices are not available at manufacturing units. This causes unnecessary hardships to assessee at manufacturing unit. Hence, the department should verify the eligibility of such credit only at the end of the Input service distributors, i.e. during the audit of the head offices or any other offices distributing the credit so that manufacturing units do not have to face unnecessary hardships. Some tribunal judgments are also in favour of assessee in such cases.
The Department replied:
The Cenvat credit on the invoices issued by the Input Service Distributor (ISD) in accordance to Rule 4A of Service Tax Rules, 1994 read with Rule 7 of Cenvat credit Rules, 2004 is a valid document for availability of Cenvat credit in terms of Rule 9(1) (g) of Cenvat credit Rules,2004.
Further rule 9 (6) of Cenvat credit Rules, 2004 stipulates that the manufacturer shall maintain proper records for the receipt and consumption of Input Services in which the relevant information regarding the value, Tax paid, Cenvat credit taken and utilized, the person whom the input service has been procured is required to be recorded and the burden of proof regarding admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit.
Also as per Rule 9(10) Input Service Distributor furnishes a half yearly return giving the details of credit received and distributed during that period. The same are also audited.
And as per Rule-14 of CCR,2004 provides that where Cenvat credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11A and 11AA of the Excise Act or Section 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
In view of the above provision of the law, it appears that whenever a manufacturer take credit, they have to maintain their Cenvat Credit Register properly and the burden of proof regarding admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit. And it also appears that the wrong availment of Cenvat credit can be recovered from the manufacturing unit or service provider.
Therefore, the proposed solution that to verify the eligibility of such said credit only at the end of the Input service distributors doesn't seem to be feasible.