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Home Articles Cenvat Credit Mr.M. GOVINDARAJAN
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November 3, 2008
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                        Input Credit Distribution was there in the Credit Rules.   The said concept was introduced in the CENVAT Credit Rules, 2004 ('Rules' for short).   There may be some units which may not directly involve in the manufacture of goods or providing output service.  But they may be ancillary to such manufacturing process or providing output service.   For example corporate office is not involving any manufacturing process or providing output service directly.   Such Offices may also pay service tax for the input services received by them. Whether credit may be availed for such service tax?  The concept of input service distribution answers positively to this question.   The Corporate office may distribute the credit to the various units which in turn avail the credit.

                        Rule (m) defines the term 'input service distributor' as an office of the manufacturer or producer of final products or provider of output service which receives invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purpose of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be.

                        Rule 3 of Service Tax (Registration of Special Category of Persons) Rules, 2005 provides for the registration of input service distributor.   The input service distributor shall make an application to the jurisdictional superintendent of Central Excise in Form - 1.   The provisions of Sub Rule (2) to (8) of Rule 4 of Service Tax Rules, 1994 shall be applicable to the persons or class of persons, who make an application for registration under the provisions of these rules with such modifications and alterations as may be prescribed by the Board.   

                        Without registration the input service distributor could not distribute the credit.  In 'Ballarpur Industries Limited V. Commissioner of Customs & Central Excise, Nagpur' - 2008 -TMI - 30019 - CESTAT, MUMBAI the demand has been confirmed by disallowing credit taken on the strength of the allocation chart issued by input service distributor, on the grounds that the input service distributor had not got registered before credit was taken and also for the reason that valid duty paying documents prescribed not include allocation chart, on the strength of which credit was taken.   The tribunal upheld the decision and also held that the allocation chart is not the prescribed document for the availment of credit.                       

                        In 'Jaypee Rewa Plant V. Commissioner of Central Excise, Bhopal' - 2008 -TMI - 31060 - CESTAT NEW DELHI the demand is confirmed after denying credit in respect of input service.   The credit is availed by the Regional Marketing Office as input service distributor, which was distributed to the manufacturing units.   The contention is that the Regional marketing office activity of marketing of goods is in relation to the manufactured goods.   The tribunal held as the service tax is paid by the Regional Marketing Office and Regional Marketing Office is doing an activity of making of final product, the appellant have a strong case in their favor.

The registration shall be granted by the Commissioner of Central Excise, in whose jurisdiction the premises or offices, from where centralized billing or accounting is done, are located.  If more than one taxable service is provided the input service distributor may make a single application mentioning therein all the taxable services provided.   The Superintendent of Central Excise after due verification of the application grant a certificate of registration within 7 days from the date of receipt of the application.  If the registration certificate is not granted within the said period, the registration applied for shall be deemed to have been granted.

                        In case of transfer of business the transferee shall obtain a fresh certificate of registration.   If the service for which it is registered is ceased the certificate shall be surrendered immediately to the Superintendent of Central Excise. 

                        Rule 4A (2) provides that every input service distributor distributing the credit of taxable service in respect of credit distributed, issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him, for each of the recipient of the credit distributed, and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely:

  The name, address and Registration Number of the person providing input services and the serial number and date of invoice, bill or as the case may be, challan issued;

  The name and address of the said input service distributor;

  The name and address of the recipient of the credit distributed;

  The amount of credit distributed.

In case the input service distributor is an office of a banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, providing service to any person, in relation to banking and other financial services, an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered but containing other information in such documents as required. 

                        Rule 5(3) provides that all records shall be preserved for a period of five years immediately after the financial year to which such records pertain. 

                        Rule 7 provides the manner of distribution of credit by input service distributor.  The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely-

(a) The credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon; or

(b) Credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.

Rule 4 of Service Tax (Registration of Special Category of Persons) Rules, 2005 provides that the input service distributor shall furnish a return to the jurisdictional Superintendent of Central Excise in such form and at such frequency as prescribed under Rule 9(10) CENVAT Credit Rules, 2004.   Rule 9(10) provides that the input service distributor shall furnish a half yearly return in such form as may be prescribed, by notification, by the Board giving the details of credit received and distributed during the said half year to the jurisdictional Superintendent of Central Excise not later than the last day of the month following the half year i.e., 31st October for the period from April to September; and 30th April for the period from October to March.

                        Rule 9(11) provides that the input service distributor may submit a revised return to correct a mistake or omission within a period of sixty days from the date of submission of the return. 

                        Form No. ST-3 is prescribed form of return to be filed by the input service distributor.    Item No. 6 of the return provides for input service distributor to furnish information for each month.  6(1) deal with the details of CENVAT credit of Service Tax and Central Excise duty and 6(2) deals with the CENVAT credit of Education cess and secondary higher education cess.  The following information for each month of the particular half year shall be furnished: 

Opening Balance:

Credit taken (for distribution) on input service:

Credit distributed:

Credit not eligible for distribution (Rule 7(b) of CENVAT Credit Rules, 2004:

Closing Balance.

                        The penal provisions for non filing of return or non registration are also applicable to input service distributor.


By: Mr.M. GOVINDARAJAN - November 3, 2008


Discussions to this article


the distribution of credit to manufacturing unit or units are clearly referred in the Rules. Presently corporates are facing with flood of show casue notices on the following subject : "Manner of Distribution of credit of Input Service Distributors under Rule 7 - ISDN to distribute equally to all units"

Dated: 05/11/2008

i have a doubt as to whether the following office can act as input service distributor and can distribute the cenvat credit to the other office and if yes to what extent a) It is a branch office receving services and selling the goods manufactured by the head office or some other branch office and it charges VAT or CST to the goods it sells b) It also pays service tax on GTA after claiming the abatement of 75 per cent

By: Srinath
Dated: 25/11/2008

dear sir we want to clarification the our only single manufactuing unit but our accountig office at in big city location and the service provided in manufacturing unit but invoice charges at out city office loacation now we ask to we shell be direcly credit take to out manufacturing unit? or go to way of ISD?

By: prakash
Dated: 30/05/2009

R PARTHASARATHY Dated: November 5, 2008 question, in which manner credit should be distributed among the units was not clearly focus in the rules. Whethere service tax credit of common expenditure is not to be equally distributed among the all units? Can Corporate office or registered office distribute credit to only one unit who is paying duty to Government?

By: jitendra Gupta
Dated: 29/08/2010


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