Input service tax credit distribution to outsourced manufacturing unit

[Kadayam Ganapathy Subramanian]

Dear Experts,

As per amended Rule 7 of Cenvat Credit Rules, 2004, the input service distributor can distribute the service tax credit to the outsourced manufacturing unit and such unit has defined in the aforesaid rule to mean that a job-worker who is required to pay duty on the value determined under the provisions of rule 10A of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of section 4A of the Central Excise Act, 1944.

Since Section 4 is not mentioned in the second part of the above said definition, whether Input Service Distributor can distribute the service tax credit to the outsourced manufacturing unit who manufactures goods for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor where such goods are assessed duty under Section 4 of Central Excise Act, 1944.

Please offer your comments.

Regards,

K.G Subramanian

AI Summary

Input Service Distributor credit distribution may extend to outsourced manufacturers bearing brand name despite valuation reference omission
Whether an Input Service Distributor may distribute service tax credit to an outsourced manufacturing unit despite the rule's omission of the general valuation provision is questioned. Commentators observe that the alternate valuation provision applies only to goods requiring declared retail sale price, that the cited valuation rule does not distinguish between valuation provisions, and that the omission is likely inadvertent; they conclude the cited valuation rule should be read to include manufacturers assessed under the general valuation provision. Practical scenarios are outlined to test whether job workers and various types of contract or independent manufacturers qualify as outsourced manufacturing units.