Input Service Distributor

[RAMACHANDRA K M]

We have two manufacturing units in different states. One unit houses HO also. Accounts are centralised at HO and service tax credit of common bills like professional charges, rent, etc., is taken at HO and used in respect of Unit which houses HO. Is it mandatory to seek service tax registration as Input Service Distributor for HO and distribute the credit between two units proportionately? I feel, it is only optional as the relevant Rule uses the word 'may' and service tax guide /FAQ  of CBEC uses the word at the convenience of the business entity. The experts can kindly comment on this.

[YAGAY andSUN]

Yes, it is not mandatory to obtain ISD registration certificate.  It is a facility to the assessee who receives the taxable services at their HO but the services are attributable to their units.  It is a mechanism to reduce to cost of services to the extent of transferring the CENVAT credit to the Unit.

Rule 7 and Rule 7A of the CENVAT credit Rules are the relevant provisions in this regard. (as amended by the Budget 2012 for distribution of CENVAT credit to the units paying the CENVAT i.e. Central Excise Duty on final goods. Distribution would be on the respective unit if the services can be fully attributed to that respective unit or to the extent of their turnover. No distribution is allowed to a unit which is manufacturing exempted goods).

AI Summary

Input Service Distributor optional registration allows centralised Cenvat credit distribution to units based on attribution or turnover. Registration as an Input Service Distributor is a non mandatory facility allowing a head office that centrally receives taxable services to transfer Cenvat credit to manufacturing units. Under Rule 7 and Rule 7A of the CENVAT Credit Rules (as amended), distribution is to the unit that pays central excise on final goods when services are fully attributable, or otherwise apportioned based on turnover, and credits cannot be distributed to units manufacturing exempted goods.