TMI BlogDISTRIBUTION OF CREDIT BY INPUT SERVICE DISTRIBUTOR- (PART-1)X X X X Extracts X X X X X X X X Extracts X X X X ..... DISTRIBUTION OF CREDIT BY INPUT SERVICE DISTRIBUTOR- (PART-1) - By: - Dr. Sanjiv Agarwal - Service Tax - Dated:- 21-7-2015 - - Distribution of Credit by Input Service Distributor (Rule 7) The facility of registering as an input service distributor exists to allow businesses to operate at their convenience and allow centralized procurement of services and the distribution of credit to units where such services are used. The provisions have been amended by Finance Act, 2012 to align the practice with the intent stated above. Credit of only input services can be distributed. Hence a service procured needs to be assessed whether it is an input service at any of the units of the ISD. Only if it qualifies as an input service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be distributed. Further the credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services cannot be distributed. While the status of the service as input service s ascertained, the units where it is used is also ascertained. The credit of a service used exclusively in one unit can be distributed only to that unit. If it is used in more than one unit, the credit can be distributed proportionate to the turnover of the units. The total turnover shall be determined in the same manner as determined under rule 5 and shall be determined for the month previous to the month during which the Cenvat credit is distributed. In case if any of its unit pays ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x or duty on quarterly basis as provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed. The turnover so calculated would be ex-duty i.e, not inclusive of the taxes and duties on the goods and services supplied. In case of an assessee who does not have any total turnover in the said period as in the case of a new company, the ISD shall distribute any credit only after the end of such relevant period wherein the total turnover of its units are available. In case of a new unit wherein any credit is exclusively used, the credit can be distributed in total to such unit. For example, a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany manufactures fans in 2 units and other appliances in 2 other units. Advertisement services for fans would qualify as an input service for the units manufacturing fans and hence could be distributed to such units based on the turnover of the previous month of the 2 units. Credit so distributed is availed on the strength of a challan issued by the ISD. It shall be subject to rule 6 of Cenvat Credit Rules 2004 and depending upon the option exercised under the rule 6 due reversals will be required to be effected by the unit to which the credit has been distributed. W.e.f. 01.04.2012, Rule 7 for input service distributors was amended to provide that credit of service tax attributable to service used wholly in a unit shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributed only to that unit and that the credit of service tax attributable to service used in more than one unit shall be distributed pro data on the basis of the turnover to the concerned unit to the sum total of the turnover of all the units to which the service relates. For example, in case of services by way of advertisement (i) If the advertisement is for a product or service provided from only one unit, the said credit shall be distributed only to that unit; and if two units, the said credit shall be distributed only to those two units, in proportion to the respective turnovers; (ii) If the advertisement is for the company as such, the said credit shall be distributed only to the extent of the turnover of units registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and entitled to avail Cenvat Credit to the total turnover of the company including unregister units. W.e.f. 1.7.2012, vide Notification No. 28/2012-CE (NT) dated 20.06.2012 in case of input service distributor, credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period. Cenvat Credit (Third Amendment) Rules, 2014 as notified vide Notification No. 5/2014-CE (NT) dated 24.02.2014 w.e.f. 1.4.2014 has amended Rule 7 of CCR in respect of manner of distribution of credit by Input Service Distributor (ISD). The explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on defining relevant period has also been substituted. Accordingly, Service Tax credit attributable to service used by one or more units exclusively engaged in manufacture of exempted goods or rendition of exempted service shall be barred from distribution of credit. Further, credit of services used wholly by a unit shall be distributed only to that unit. Pro-rata distribution of Service Tax credit shall be based on turnover of units using said service during relevant period to total turnover of all its units operational in current year, during said relevant period. Assessee shall have to ascertain the turnover of all such units to distribute credit. The definition of relevant period has been changed which shall now mean as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : If the assessee has turnover in the financial year preceding to the year during which credit is to be distributed for month or quarter, as the case may be, the said financial year; or If the assessee does not have turnover for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed. . Thus, the ratio of distribution of cenvat credit to concerned unit for say the example, financial year 2014-15 would be turnover of a concerned unit for the financial year 2013-14, as divided by turnover of all the related units for the financial year 2013-14. Effectively, services used by m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than one unit exclusively engaged in exempted goods or exempted services shall not be distributed. Further, credit pertaining to or used only and wholly by a unit shall be distributed to that unit only. Since the provisions relating to distribution of credit from Input Service Distributor were further amended vide Notification No. 5/2014 dated 24.02.14 and there was confusion as to whether credit pertaining to more than one unit is to be distributed amongst only those units to which the service pertains or to all the units. This has been clarified by CBEC vide Circular No. 334/15/2014-TRU dated 10.07.14 wherein it has been explained that credit is to be distributed to all the units if any service pertains to more than one unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (To be continued ) - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
