Cenvat credit on payment of rent/security agency in relation to sales office

a) Whether manufacturer may take credit of service tax paid on payment of rent/security agency in relation to sales office under the definition of input service and

b) Whether services like rent on immovable property/security agency consumed in sales office [situated at different locations] are CENVATable to the manufacturer as input service.

c) In such situation whether sales office requires registration and work as input service distributor.

In this regard, we are of the view that the sales offices of a manufacturer which receives invoices for taxable services (like rent or security agency as in the instant case) are regarded as an 'input service distributor' in terms of Rules 2(m) of the CENVAT Credit Rules, 2004 (hereinafter referred to as 'CCR') read with Rule 4A (2) of Service Tax Rules, 1994 (hereinafter referred to as 'STR') for procuring/purchasing input services.

However, the sales offices will have to obtain registration from the jurisdictional authorities in terms of Service Tax (Registration of Special Category of Persons) Rules, 2005 (hereinafter referred to as 'SRPR'). Further, in terms of Rule 9(10) of CCR read with Rule 4 of SRPR, as 'input service distributors' they have to file half yearly returns with their jurisdictional authorities.

Further, the input service distributor shall be able to distribute the input credits received by them in the manner provided in Rules 7 and 9(1) of the CCR read with Rule 4A(2) of STR and the invoice issued by an input service distributor is a valid document for the purpose of availing CENVAT credit by the manufacturer if the said document is issued in terms of Rule 9(1)(g) of CCR.

As regards eligibility of CENVAT credit on taxable services procured by the sales offices of the manufacturer viz., renting of immovable property and security agency service, we are of the view that these taxable services would get covered in the inclusive definition of 'input service as defined in Rule 2(l) of CCR under the phrase 'activities relating to business'. As these sales offices perform a crucial role in selling the products manufactured by the manufacturer, they are regarded as an important and integral part of the business of a manufacturer.

In view of the above, the taxable services procured by sales offices of manufacturers, in the instant case, taxable services like renting of immovable property and security agency service are 'input services' and hence, service tax paid thereon is eligible as CENVAT credit for the manufacturer. However, to avail the benefit of CENVAT credit by the manufacturer, the sales offices have to get registered with the jurisdictional authorities and follow the requisite procedures as stated above.

Judiciary decisions-

Ecof Industries (P.) Ltd. Versus Commissioner of Central Excise, Bangalore2010 -TMI - 75868 - CESTAT, BANGALORE, held that-

Cenvat Credit-Distribution- The assessee had distributed credit of service tax in respect of its unit at 'M' even though service tax had been paid in respect of services used by its unit at 'C'. The revenue denied the distribution of service tax credit on the ground that the service tax credit relating to one unit should not be distributed to another unit. The adjudicating authority approves such distribution. However the Commissioner (Appeals) also confirms this. Held that- there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of service tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules, As such, restricting the distribution of service tax credit in a manner as has been done by the impugned order of the lower appellate authority cannot be upheld, allow the appeals.