CREDIT OF SERVICE TAX

[vishal sharma]

Hello All, My client who is manufacturer of Raw Jute, Hessian Cloth etc. has two units, located in two different states, namely A and B. Raw Jute, Hessian Cloth etc. which are subject to NIL rate of excise duty. Unit A is paying lease rent for its factory premises on which it is paying service tax. And Unit B have some surplus land/premises, this surplus land is being let out and rental income is earned there from on which service tax is collected. My query is : (1) Whether service tax paid for Unit A can be distributed by it as INPUT SERVICE DISTRIBUTOR to its unit B in the instant case of manufacturing of excise exempt product? (2)Whether service tax paid for Unit A can be distributed by it as INPUT SERVICE DISTRIBUTOR to its unit B in case Unit A starts manufacturing excisable product or starts providing taxable service in addition to manufacturing of Raw Jute, Hessian cloth etc.which is an excise exempt product? (2) And whether service tax so distributed can be utilised as CENVAT CREDIT by Unit B against Service Tax collected on rental income? Awaiting for reply at the earliest Thanks Vishal Sharma

[CA Rachit Agarwal]

To avail such Cenvat Credit in our opinion it could be little dangerous.

Please refer Rule 6 of Cenvat Credit Rules, 2004.

The officer may contend that input service is being utilized for the purpose of exempted goods.

[Snehal Kulkarni]

(1)   Whether service tax paid for Unit A can be distributed by it as INPUT SERVICE DISTRIBUTOR to its unit B in the instant case of manufacturing of excise exempt product?

(2)   Whether service tax paid for Unit A can be distributed by it as INPUT SERVICE DISTRIBUTOR to its unit B in case Unit A starts manufacturing excisable product or starts providing taxable service in addition to manufacturing of Raw Jute, Hessian cloth etc.which is an excise exempt product?

Input Service Distribution is a mechanism to transfer input services credit to the premises where output services (taxable services) are provided.

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.

Since your Plant A is not providing any output service, Plant A can't be registered as ISD and hence cann't pass on the Credit and vice a versa.

(3)   And whether service tax so distributed can be utilised as CENVAT CREDIT by Unit B against Service Tax collected on rental income?

Since Renting of Immoveable Property from the Premises of Plant B doesn't in relation with the Manufacturing of the Final Product, the Cenvat Credit of the Service Tax is not eligible hence cannt be utilize.

But since the Plant B is providing the Out Put Service i.e. Renting of Immoveable Property, the Cenvat Credit of Input Service related to the Output service can be taken and utilized towards the payment of Service Tax on Output Service.

AI Summary

Input service distributor: credit cannot be transferred where sender lacks output service, limiting cenvat use on exempted goods. An office cannot act as an input service distributor where it does not provide any output service, and therefore cannot distribute service tax credit to another unit. Cenvat credit for services used in the manufacture of excise-exempt goods may be disallowed. Service tax paid for renting immovable property unrelated to manufacturing cannot be utilised against rental service tax, though a unit that provides renting as an output service may claim input service credit for inputs directly related to that renting activity.