Transit Sale – Dealer Registration is not mandatory

Transit Sale – Dealer Registration is not mandatory

THE Central Government has issued Notification No. 08/2015-CE(NT) dated 01-03-

2015, which is effective from the date of issue, has inter alia, inserted the following 3rd

proviso in Rule 11(2) of Central Excise Rules, 2002 (CER, 2002) 

“Provided also that if the goods are directly sent to any person on the direction of the registered 

dealer, the invoice shall also contain the details of the registered dealer as the buyer and the 

person as the consignee, and that person shall take CENVAT credit on the basis of the registered 

dealer's invoice” 

It has created a lot of confusion and worry in the minds of those manufacturers and 

dealers who receive goods directly, as consignee, from manufacturer through 

unregistered dealer (as buyer) and avail cenvat credit on the strength of invoice of 

supplier manufacturer. The proviso has also perplexed a large number of unregistered 

dealers who are being advised/ instructed by their customers and others to obtain 

central excise Dealer Registration if they wish to validly pass on the cenvat credit to 

customers. They are wondering why they are being forced to take mandatory 

registration when the same would become redundant very soon after the 

implementation of GST, which the Government has committed to bring from 01-04-

2016. 

In my view, the amendment has been made to facilitate trade and industry in view of 

the new policy of ‘Ease of doing Business’ as announced by our Prime Minister Shri 

Narendra Modi. Earlier, many registered dealers used to bring the goods in their 

registered premises simply for issuing cenvatable invoice in case of transit sale. The 

amendment has facilitated such registered dealers, who need not physically bring the 

goods at their godown/depot and can directly dispatch the same from the 

factory/depot of the supplier manufacturer. This facility, which seems to be given to 

the registered dealers to reduce unnecessary transportation cost, cannot be 

interpreted to mean that purchase through unregistered dealer is not permitted. Also, 

the manufacturer or provider of output service receiving goods directly as consignee 

from supplier manufacturer though unregistered dealer can continue to avail cenvat 

credit on inputs as earlier. The reasons for my said view are as below: 

1. The amendment is a beneficial provision given to First Stage Dealer and Second 

Stage Dealer. Rule 9(1) of Cenvat Credit Rules, 2004 (CCR) prescribes the 

eligible documents on the basis of which cenvat credit can be availed by 

manufacturer or provider of output service. One of the many eligible documents 

is the invoice issued by manufacturer. Rule 9(2) ibid provides that the document 

(i.e. invoice in our case) should contain all the particulars as per CER, 2002. 

2. Rule 11(1) of CER, 2002 provides that no excisable goods shall be removed from a 

factory or a warehouse except under an invoice signed by the owner of the 

factory or his authorized agent. Rule 11(2) ibid specifies the particulars that 

must be contained in any cenvatable invoice. The relevant portion is extracted 

below: 

“(2) The invoice shall be serially numbered and shall contain the registration number, address of 

the concerned Central Excise, name of the consignee, description, classification, time and date of 

removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of 

goods and the duty payable thereon... 

. 

Provided also that if the goods are directly sent to any person on the direction of the registered 

dealer, the invoice shall also contain the details of the registered dealer as the buyer and the 

person as the consignee, and that person shall take CENVAT credit on the basis of the registered 

dealer’s invoice”...

3. It is clear from plain reading that the name of the consignee must be mentioned 

in the cenvatable invoice and so the consignee is the person entitled to avail 

cenvat credit and not the ‘buyer of goods’. To provide an exemption to this rule, 

the 3rd proviso has been inserted to provide that in case of transit sale, the 

details of ‘registered dealer’ as ‘buyer’ should also be mentioned in the 

cenvatable invoice. 

4. The proviso is very specific and has limited application only for ‘registered 

dealers’. If an unregistered dealer is doing transit sale, he can continue to issue 

commercial invoice as earlier, as the proviso is applicable only when the goods are 

sent to any person on the direction of the registered dealer, which he is not. 

5. In case of transit sale/E1 sale where the buyer is an unregistered dealer, the 

customer/end user can continue to avail cenvat credit on the basis of supplier 

manufacturer’s invoice, as earlier, if the invoice contains it’s name as consignee 

as provided in the sub rule 2. The manufacturers invoice showing recipient name 

as consignee is also a valid document for Cenvat as has been clarified in Circular 

No 96/7/95-CX dated 13-02-1995. The earlier procedure and law is still valid. 


6. In addition to the ‘consignee’, the Central Government intended to allow ‘buyer’ 

to take credit by sending materials directly to consignee. Hence the newly 

inserted 3rd proviso to Rule 11(2) of CER, 2002 has provided an additional method 

for availing cenvat credit to BUYER, who should be a REGISTERED DEALER. 

The Hon’ble Rajasthan High Court had ruled that merely providing an alternative 

method or additional method for availing Cenvat Credit does not take away the 

entitlement to avail Cenvat credit on the basis of original document and the 

judgement has also been recently followed by Hon’ble Gujarat High Court. 

Further, in my view, the last line in the 3rd proviso, which says “and that person shall 

take CENVAT credit on the basis of the registered dealer’s invoice” seems to be ultra 

vires the Central Excise Act, 1944 or the rules thereunder and if challenged, may be 

struck down by the judiciary. In my view, if any trader, whether registered dealer or 

not, instruct his supplier to directly dispatch the excisable goods to the consignee, 

without first physically bringing the goods in his godown/depot, then such trader cannot 

issue valid cenvatable invoice even when he is a registered dealer. In view of the various 

issues involved, the Central Government should immediately issue necessary amendment 

or clarification to bring certainty and peace of mind to the trade and industry. 

*** 

Author : Manoj Agarwal 

Address : Opp. Mandir, Lal Building Road, Rourkela – 769012, ODISHA 

Contact : +91-9937041788 

E:mail : ServiceTaxExpert@yahoo.com

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