Input credit Distribution by Service receiver(Service tax Paid under reverse charge) to Mfg Units

[A Wilson]

Dear Experts,

We are a Trading Company having Centralized Service tax Registration at One Place for various premises located across the Country and paying service tax on Freight Payment under GTA. And We have two manufacturing units which are also included in the service tax centralized registration.

I wanted to clarify

1. Whether we are eligible to take credit of service tax on freight(inward freight pertaining to Mfg Units) paid under reverse charge?
2. If the service tax credit is eligible for Utilization for Payment of excise duty liability for the Mfg Units,
   1. then can we opt for Input service distributor to distribute the credit {of service tax on freight paid under RCM} to the Mfg Units under distribution Invoice or challan?​

Please give your Inputs on the above.

Thanks and Regards,

A.Wilson

[Rajagopalan Ranganathan]

Sir,

                  You can  opt for service tax registration  as Input service distributor to distribute the credit {of service tax on freight paid under RCM} to the Mfg Units under your  Invoice or challan as distributor of Service tax.  The conditions for distribution of service tax credit is enumerated in Rule 7 of Cenvat Credit rules, 2004 which reproduced hereunder for ease of reference: -

RULE 7. 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 conditions, namely : -

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

(b)        credit of service tax attributable to service [used by one or more units] exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;

(c)        credit of service tax attributable to service [used wholly by a unit] shall be distributed only to that unit; and

[(d)   credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.]

Explanation 1.- For the purposes of this rule, “unit” includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise.

Explanation 2.- For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.

[A Wilson]

Dear Sir,

Thanks for your reply. I wanted to clarify

Whether the service receiver liable to pay service tax can opt input service distributor for the purpose of distributing the ST Credit to other Mfg Units from the Centralized Registration within in the meaning of

(m) "input service distributor" means 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 purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;

In the definition of  "input service distributor" meaning - They have stated only " Provider of Output Service"............

We are paying service tax on freight under reverse charge as a Service Receiver.....

Is it permissible to distribute the st credit as service receiver?

Pls check and give your valuable inputs.

Thanks & Regards,

A.Wilson

[phaniraju konidena]

My dear Wilson,

A manufacturer or service provider may have head office/regional office at different place/s. The services may be received at head office/regional office, but ultimately, these will be indirectly used for manufacture or providing output service. Provision has been made to avail Cenvat Credit of services received and paid for at head office/regional office.Such head office/regional office can be registered with the department as 'Input Service Distributor'.

[A Wilson]

Dear Sir,

Thanks for your response.

We are a Service receiver liable to pay service tax ( not service provider) and having centralized registration with service tax. In this case, whether we can opt for input service distributor??

For your reference definition as follows: Pls check and give your inputs

(m) "input service distributor" means 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 purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;

In the definition of  "input service distributor" meaning - They have stated only " Provider of Output Service"............

We are paying service tax on freight under reverse charge as a Service Receiver.....

 

Thanks & Regards,

A.Wilson

[phaniraju konidena]

(m) "input service distributor" means 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 purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;

It means that an office of the manufacturer or producer - here, the office may be head office or regional office of the manufacturer or producer and not only for provider of output services. 

[YAGAY andSUN]

Dear Mr. Wilson,

Please check your PM for our replies.

Regards

Team YAGAY & SUN

(Management & Indirect Tax Consultants)

[A Wilson]

Dear Sirs,

Thanks a lot for your inputs.

A.Wilson

[Rajagopalan Ranganathan]

Sir,

       the definition of 'input service distributor does not bar distribution of service tax credit if the service tax is paid under reverse charge mechanism.  If service tax is paid on reverse charge by the head office/corporate office on GTA service availed by its various manufacturing units since the said office has entered into a contract with GTA service provider then such head office/ corporate office can distribute the service tax paid by the said office on reverse charge basis.  Payment of service tax on reverse charge is a fiction created by rule 2 (d) (B) of Service Tax rules, 1994.  Therefore, in my opinion, you can distribute the credit.

AI Summary

Cenvat credit on reverse-charge freight can be distributed via input service distributor to manufacturing units for excise utilisation. The document explains that service tax paid under reverse charge on inward freight used by manufacturing units can be taken as CENVAT credit and, subject to Rule 7 conditions, utilized for excise liability and distributed by an office registered as an Input Service Distributor; the ISD concept covers head or regional offices of manufacturers receiving invoices under rule 4A and issuing invoices/challans to allocate credit, and payment under reverse charge does not preclude distribution.