Input Service distributor

[Asked by Guest]

How an Input Service Distributor pass on Credit of Service tax to its branch or unit..??

[Rajagopalan Ranganathan]

Sir,

Please go through rules 7, 7A and 7B of Cenvat credit rules, 2004 to find out how an input service distributor can pass on credit of service tax to its branch office.

[Himansu Sekhar]

In proportion of the turnover of the individual units. The credit which are common will be only distributed. The credit which are directly relating to any unit, such credit will be given to that unit.

[Himansu Sekhar]

The distributor needs to take regn and will issue invoices to the units

[Ganeshan Kalyani]

The common credit can be transferred to unit on turnover basis. The credit should be an eligible credit. The input service should be common for all units. Any input is availed for specific unit that credit should be distributed to that unit only. ISD has to issue invoice to the receiving unit based on which the receiving unit can claim the credit. The correctness of the credit being distributed is with the input service distributor which distributes the credit. The ISD has to submit return and receiver of the service has also to file return half yearly basis. The receiving unit should have excisable goods. If the unit is manufacturing both excisable and non excisable then the ISD has to work out the credit to the proportion of excisable goods and distribute only the eligible credits. The credit so received by the unit can adjust it against the excise duty payable based on the document issued by the ISD. The ISD should support the invoice with the working showing the inovice details and the basis of working as to how he has arrived at the distributable figure. This will answer the basis doubts in case of audit. If the invoice received by ISD in its address then only the same should be considered for the purpose of distribution. If the invoice is raised in the name of the unit but for the sake of accounting it has been received in the ISD address then such invoices can be straight away sent to unit to avail the credit. In such case turnover ratio is not to be referred to. First of all the service invoices received at ISD should be screened basis on eligibility. The ineligible credit should not be disturbed because it will invite rejection of credit at the time of audit by the auditor. Then obviously interest and even penalty may be asked to pay. Thus it is essential to avail the ISD model facility in a cautious manner. Every business model is different from other so you should be able to determine the working for distribution of credit. Some assessee appoints consultant to seek advise and to formulate the working for distribution of credit keeping the business model in consideration. This helps in keeping audit points at bay. It also helps the assessee to carry ahead the working of ISD in a better way. This benefit is a pro assessee benefit. This has been provided in the law by the Government for the benefit of the assesse. Thus the same should be availed in the way it has been provided in the law. It may be simple for you to work out if you have internal tax team. But it is always advisable to seek advise of practising consultant to move ahead in this way. There are many good and expert consultant in this Forum. You may approach one of them or the one you have already may have engaged. Thanks. Have a good day.

AI Summary

Input Service Distributor credit distribution: eligible common credits apportioned to units with invoices, documentation, and registration requirements.
An Input Service Distributor must be registered, issue invoices to receiving units, and distribute only eligible service tax credit: specific credits go to the related unit while common credits are apportioned-ordinarily by turnover-with adjustments where units have both excisable and non-excisable activity; only credits attributable to excisable goods are distributable. ISD must maintain supporting workings and invoices (preferably received at the ISD address), file returns, and ensure correctness to avoid audit disallowance, interest, and penalties.