Input service distributors

[jitendra Gupta]

Registered office having three units. One unit started from December 2007. Registered office was registered as Input service distributors prior to December 2007 and distributed service tax credit prior to December 2007 to unit started from December 2007. Whether registered office can distribute service tax credit (period prior to December 2007)to unit started from December 2007?

[Surender Gupta]

The provisions are salient on this issue. Even there is no clear circular address this situation. On the other side, there is no restriction on transfer of credit to a new unit. But, to avoid unnecessary harassment from the service tax department, you should not transfer the credit for the prior period to a new unit. This suggestion is only to avoid the difficulty, but if you are ready for litigation, you may transfer such credit.

AI Summary

Input service distributor may transfer prior service tax credit to a new unit, but faces risk of departmental challenge. No express legal prohibition prevents an Input Service Distributor from allocating service tax credits accrued before December 2007 to a unit started in December 2007; however, absence of clarifying administrative guidance means such transfers are vulnerable to departmental challenge, and transferring prior credits to a new unit is prudentially discouraged unless the taxpayer is prepared to litigate.