Opinion for availment of Cenvat Credit on invoices provided by CHA against service received for Export and Import.

[PRANAB PANDA]

Dear Sir,

We the manufacturer of Stainless Steel products are engaged in import of various inputs, raw materials and capital goods from abroad for manufacture of aforesaid products. We are also exporting our final products to various overseas countries. For executing the Import and export activities we engaged various service providers. In the process they are also availing the services from service provider engaged by them.

We have insisted the service providers to avail CENVAT Credit of the service tax charged by the sub-service providers engaged by them and issue service-reimbursement invoice by charging applicable service tax on us. As per the explanation (a)(iii) to section 67 of Finance Act,1994,we feel there is no issue for availing CENVAT Credit on such reimbursement claims by the service providers i.e. M/s DHL Logistics in the instant case.

In addition to the above, we have received some of the invoices issued by the Shipping Liner on M/s DHL Logistics for detention charges of the export containers. The said invoices of shipping liners are on M/s DHL i.e. the CHA Service providers, but the payment has been directly made by us to shipping liner.

Our specific query is about the legal position for availing CENVAT Credit by us as the manufacturer on the following factual position and your valued guidance in this regard.

1. Invoice of Shipper Liner raised on M/s DHL, instead of us.

1. Invoice of shipper liner is containing the reference of Bill of Lading number against which the export was made. Therefore, having nexus of the service provided by Shipper Liner Company for the export of transaction of us.

1. Payment to Shipper Liner Company i.e. the service provider has been made directly by us against the invoices issued on M/s DHL.

1. Invoice of Shipper Liner Company for the liner service was on M/s DHL and the same modality has been followed for the above mentioned invoice for detention service also.

1. Payment for the liner service was routed through M/s DHL, but payment for detention services has been made directly by us.

Your valued opinions are solicited for deciding on availing CENVAT Credit on the invoices of Shipper Liner Company.

[PRANAB PANDA]

Please read as explanation (a) (ii) to Section 67 of Finance Act, 1994instead of (a) (iii) to Section 67 of Finance Act, 1994

Inconvenience is regretted

[KASTURI SETHI]

Sh.Panda Ji,

Suppose a manufacturer is 'A', DHL is 'B' and Shipping co. is 'C' C has provided taxable service to A through B. Ultimate service consumer is 'A'. ST has been borne by A. DHL is only channel. B should have addressed the invoice to A instead B. It is technical/procedural lapse. What I visualise in this situation is that two basic conditions for availment of cenvat credit facility stand fulfilled/qualified. Service Tax has been paid and utilised (inputs used) in or in relation to the manufacture of dutiabe final product. Exported goods are to treated as duty-paid goods. All other conditions are procedural/technical formalities.

Hence input service credit is admissible in both counts. There is a plethora of judgments to the effect that substantive right cannot be denied on ground of technical infraction.

[PRANAB PANDA]

Thanks Sh.Kasturi Sir for your advice.

The real position we had contract for the provision of CHA services at the port for import of input materials and export of dutiable goods. As per terms of contract charges for other ancillary services such as Liner Charges, Terminal Handling Charges and ware house charges which are arranges by the M/s DHL with his service providers(XYZ).

As per service tax rules Cenvat credit on service tax can be availed if the following conditions are fulfilled.

1. There must be a contract between service provider and service receiver,
2. Invoice/bill/ challan should be raised in favour of service receiver,
3. Bills of service provider are accounted in the books of Account of service receiver.

In the instant case all of the conditions are not fulfilled as

• We have no contract with Mr. XYZ
• Invoice/bill/ challan are not raised in our name by XYZ
• Payment was made to Mr.XYZ through M/s DHL, hence name of XYZ is not reflected in our books of Account

As per your advice if we avail the Cenvat credit on such invoices, whether it is needed to intimate the Department in order to escape from interest and penalty if dispute arises in future.

[KASTURI SETHI]

Procedural lapse is there. It is correct that you do not fulfill ALL the conditions but you qualify the basic conditions. ST has been paid and used (or to be used) in or in relation to the manufacture of final dutiable product. Nobody can challenge it.In this case Service Provider and Service Receiver are present. You are, in real terms, Service Receiver. Books of accounts are documentary evidence in support of fulfillment of above two basic conditions. These are proof of making payment to C. You can co-relate all the facts/evidence in support of the above.

You have not fulfilled technical and procedural conditions. Substantive right cannot be denied. Therefore, you must intimate your jurisdictional Range Officer. Thus no suppression can be invoked. You will save interest and penalty. You must get dated acknowledgement with stamp of the office.

The remote possibility of litigation cannot be ruled out. At the same time if you do not fight the legal battle, you will get nothing. You are defeated before the legal fight begins. I am hopeful the merits of the issue are in your favour.

Rest decision is yours. I have made you aware of the aspects of the issue.

[Ganeshan Kalyani]

Sir, nicely explained by Sri Kasturi Sir. Additionally I would like to state that you should request the shipping liner to raise invoice in your company name. Though the dealing is being done by CHA and the shipping liner and your are not in the picture at that point of time. However it is a fact that CHA has availed the service only for and on behalf of you. He acted for and on behalf of you. The shopping liner would raise invoice on CHA but on that invoice , the shipping liner should mention- service recipient as CHA and "On account " your Company name. This will help you to take the credit. Have a word with your shopping liner he will definitely do as per your request. This is my view. Thanks.

[KASTURI SETHI]

I agree 100% with Sh.Ganeshan Kalyani, Sir. This advice is for rectification in future so that availment of cenvat credit should be smooth and hurdle-free.

[Ganeshan Kalyani]

Thanks Sir.

AI Summary

Manufacturer Seeks CENVAT Credit for Service Tax on Shipping Invoices Issued to Customs Agent; Procedural Lapses Discussed A manufacturer of stainless steel products is seeking advice on availing CENVAT Credit for service tax paid on invoices issued by a shipping liner to a customs house agent (CHA), M/s DHL Logistics, instead of directly to them. The manufacturer, who directly paid the shipping liner, questions if they can claim credit despite not meeting all procedural requirements, such as having invoices in their name. Respondents suggest that while procedural lapses exist, the substantive right to credit should not be denied as the service tax was paid and used in manufacturing. They recommend notifying authorities to avoid penalties and suggest future invoice adjustments to facilitate credit claims.