Input Service distributor- Distribution

[Guest]

Dear Sir,

Our Head office is registered as Input Service distributor having different address and we has many depots and factories having different address, So if the Input service bill is received to us under our depot or factory address. So we as a head office can distribute Input service tax credit to our relevant Factories, If yes please explain, pls give any references regarding this,thanks and regards.

[YAGAY andSUN]

Dear Sandesh,

Please check Rule 7 and 7A of the CENVAT credit Rules, 2004 as amended from time to time in this regard.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

Rule 7 of CENVAT Credit Rules, 2004 states that-

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.

Explanation 3.- For the purposes of this rule, the ‘relevant period’ shall be,-

(a) 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

(b) 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.

The above rule is self explanatory and it will help you to distribute the service tax credit earned by your Head Office.

In your query, in the opening sentence you have mentioned "our Head office is registered as input service distributor having different address. This is not possible. Your Head office can have only one address. This is not clear. If the Input service bill is received by you under your depot or factory address then the credit can be availed by the factory or depot concerned. It cannot be distributed to your other factories /depots.

[Mahir S]

Yes, the head office can distribute the Input service credit to its various factories.

But the procedure needs to be understood properly before such distribution.

AI Summary

Input service credit distribution: pro rata turnover allocation governs who may receive and use distributed credits. Input service tax credit held by an Input Service Distributor may be distributed to manufacturing or output-service units but subject to limits: distribution not to exceed tax on the supporting document; no distribution of credit attributable to services used exclusively for exempted activities; single-unit use credit goes only to that unit; multi-unit use credit must be apportioned pro rata by turnover of operational units for the relevant period. 'Unit' includes premises of a provider of output service and manufacturer, and the relevant period is the preceding financial year or, if unavailable, the last quarter with complete turnover details. Credits billed to a specific depot or factory can be availed by that site and are not freely distributable by the head office.