CENVAT Credit on Running Account Bills: CESTAT Delhi Rules in Favour of Rajasthan Housing Board

Background of the Dispute

Rajasthan Housing Board approached the Delhi Bench of the CESTAT challenging orders passed by the Commissioner (Appeals) that had confirmed denial of CENVAT credit on the ground that the assessee allegedly availed credit without valid documents under Rule 9(1) of the Cenvat Credit Rules, 2004 (CCR, 2004).

The assessee was registered under service tax and was both providing and receiving a wide range of taxable services, including:

Construction services (other than residential complexes) such as commercial/industrial buildings and civil structures
Transport of goods by road
Renting of immovable property service
Construction of residential complex service
Legal consultancy service
Various other taxable services (excluding the 119 specifically listed services)

During an audit, the Department concluded that CENVAT credit was wrongly availed as it was based on running account (RA) bills and measurement records, and not on documents strictly recognised under Rule 9(1) of the CCR, 2004.

Two show cause notices were issued:

Dated 18.07.2019 for the period 01.10.2013 to 31.03.2014 proposing recovery of CENVAT credit of ₹55,57,792
Dated 04.08.2019 for the period 01.04.2014 to 30.06.2017 proposing recovery of CENVAT credit of ₹55,93,529

The adjudicating authority confirmed the demands, ordered recovery along with interest and imposed penalty under Rule 15 of the CCR, 2004. The Commissioner (Appeals) upheld this decision. Rajasthan Housing Board then filed appeals before the CESTAT Delhi.

Department’s Core Allegations

Basis of Denial of Credit

The Department primarily contended that:

The assessee took CENVAT credit on the strength of running account bills that recorded:
- Measurement of work executed
- Amounts payable to contractors
These running account bills and measurement books allegedly:
- Were prepared by the assessee’s engineers
- Did not contain all mandatory particulars prescribed in Rule 9(1) and Rule 9(2) of the CCR, 2004 read with Rule 4A of the Service Tax Rules, 1994 (STR, 1994)
The Department further alleged that the assessee:
- Declared nil CENVAT credit in its ST-3 return for April 2013 to September 2013
- In the next return period (October 2013 to March 2014), reported:
  - An opening CENVAT credit balance of ₹10,14,321
  - Fresh availment of CENVAT credit of ₹45,43,471, which was also utilized
- Failed to substantiate this credit with supporting documents when asked during audit

On this basis, the Department argued that:

The running account bills/measurement books were not among the documents specified under Rule 9(1) of the CCR, 2004
These documents did not contain all prescribed particulars under Rule 9(2) read with Rule 4A of STR, 1994
Consequently, CENVAT credit was inadmissible.

Assessee’s Defence Before the Tribunal

Nature of Documents and Reverse Charge

The assessee submitted the following key points:

Preparation and Verification of Bills
- The running account bills were raised by the contractors, not by the assessee’s engineers.
- Designated officials of Rajasthan Housing Board verified these contractor bills with reference to the measurement books.
Payment of Service Tax and Reverse Charge
- The assessee had discharged service tax liability under reverse charge mechanism (RCM) wherever applicable.
- CENVAT credit was availed only after payment of service tax, either:
  - Paid by the contractors and charged in the bills, or
  - Paid directly by the assessee under reverse charge in terms of Notification No. 30/2012.
Compliance with Documentation Requirements
- The contractor bills, read together with payment records, contained all the essential details required under:
  - Rule 4A of the Service Tax Rules, 1994
  - Rule 9(1) and Rule 9(2) of the Cenvat Credit Rules, 2004
- Therefore, these documents were valid bases for availing CENVAT credit.

CESTAT Delhi: CENVAT Credit Valid Even When Based on Running Account Bills, If Core Details Are Present