1.Introduction; ‘Input Service
Distributor’ is the beautiful and utilitarian concept introduced by the CENVAT
Credit Rules, 2004. In this article we shall discuss the provisions relating to
‘Input Service Distributor’ including amendment carried out bin 2008 and recent
case laws.
2.Definition: Rule 2(m) of CENVAT Credit
Rules, 2004 defines ‘Input Service Distributor’ as under:
“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.”
3.Ingredient of Input Service Provider:
Important ingredients of Input Service Provider are:
i.
It an office of the manufacturer or
producer of final products or provider of output service. In other words an
office of manufacturer of excisable goods or taxable service provider can be
registered as Input Service Distributor..
ii.
It has to receive invoices towards
purchase of services. The services might have been received by one of the unit
manufacturing goods or premises providing services or other offices.
iii.
It can issue invoice or bill or
challan for the purposes of distributing the credit of service tax paid on the
services to the manufacturing unit or service providing unit.
It is to be noted that the Input Service Provider can be Head
Office, Registered Office, Branch, Depot, Regional Office, Zonal Office etc.
Regional marketing office was registered as Input Service
Distributor and credit was distributed to manufacturing units. It was held by
the Tribunal in its prima facie view, the distribution was in order. Japee
Rewa Plant Vs. CCE (2007) 218 ELT 576 (Tri.)
It is possible that one company may have many Input service
distributor.
4.Example: ABC Ltd. has three
manufacturing units. Its’ Head Office has taken Fire Insurance Policy covering
the manufacturing units and paid insurance premium and service tax of
Rs.10300. Head office can distribute
the service tax paid by it to the manufacturing units and manufacturing units
can take the credit on receipt of Invoice from the Head Office and utilise this
amount like any other CENVAT Credit.
5.Conditions: Rule 7of CENVAT Credit
Rules, 2004 deals with distribution of credit by Input Service Distributor. The
Input Service Provider can distribute the service tax paid by it subject to the
following conditions:
i.
The credit distributed shall not
exceed the amount of service tax paid by it. (Is it possible to distribute more
than the credit availed?)
ii.
The credit of service tax attributable
to service used in a unit exclusively engaged in manufacture of exempted goods
or providing of exempted services shall not be distributed.
It is important to note
that there is no requirement to distribute the credit proportionately. The
Input Service Distributor can distribute to various units as the circumstances
warrants. There is no rule regarding periodicity of distribution and it is
advisable to distribute monthly.
6.Registration: Input Service
Distributors have to obtain registration from the Service Tax Authorities. They
have to apply in Form ST
–1 and have to obtain Registration Certificate in Form ST-2.
7.Maintenance of Records: Rule 9 of
CENVAT Credit Rules, 2004 deals with maintenance of records by the Input
Service Distributor. The records maintained by the Input service distributor
must contain the following:
i.
serial number and date of the document
on which the CENVAT credit is availed.
ii.
Service Tax registration Number and
name of input service provider.
iii.
Description and value of input
service.
iv.
Service tax credit availed.
v.
Basis of allocation/apportionment of
credit amount.
vi.
Service tax utilised for distributing
the credit.
vii.
Balance credit available for
distribution.
8.Issue of Invoice: After making the
payment of service charges and Service tax, Input service distributor can avail
the credit provided service received is input service and distribute it to
various manufacturing units or service providing units.
Rule 4A(2) of the Service Tax Rules, 1994 deals with the issue of
Invoice by the Input service distributor. The Invoice shall be serially
numbered and contain the following particulars;
i.
the name, address and registration
number of the person providing input services and the serial number and date of
invoice;
ii.
the name and address of the Input
service distributor;
iii.
the name and address of the recipient
of the credit distributed;
iv.
the amount of the credit distributed.
If the Input distributor is a banking company or a financial
institution, the invoice need not be serially numbered.
9.Submission of Half Yearly Return: Rule
9(10) CENVAT Credit Rule, 2004 deals with the submission of Half Yearly Return.
The Input Service Distributor shall submit Half Yearly Return to the Range
Superintendent within one month from the close of half year period. The Input
Service Distributor has to file the half yearly return in form ST-3.
10.CST, Ahmedabad Vs, Godfrey Philips India Ltd. (CESTAT-Ahd) (2009): In this case the Tribunal has explained the concept very clearly
in the following words:
4.2. the definition of the input service distributor clearly says
that he is not merely a dealer. The input service distributor has to be a
office of the manufacturer or producer of final products or provider of output
service who will distribute the credit to his manufacturing units or service
providing units as the case may be. The dealer buys the manufactured goods on
which duties have been paid and passes on the actual duty paid by issue of an
invoice. He does not take any responsibility as regards eligibility of CENVAT
credit by his buyers. He may not even be aware as to whether buyer avails the
CENVAT Credit or not. He does not produce any input services which he is
required to distribute among others. Whereas an input service distributor
independently receives invoice and in fact he could be compared to a buyer of
goods or service from the manufacturer or a output service provider. The
concept of input service distributor has been introduced in view of the fact
that definition of input service includes “includes services used in relation
to setting up, modernisation, renovation or repairs of a factory, premises of
provider of output service or an office relating to such factory or premises,
advertisement or sales promotion, market research, storage up to the place of
removal, procurement of inputs, activities relating to business, such as
accounting, auditing, financing, recruitment and quality control, coaching and
training, computer networking, credit rating, share registry, and security,
inward transportation of inputs or capital goods and outward transportation up
to the place of removal.” The definition shows that many of services could be
performed in places other than where the manufacturer or receiver of the
service might have been located and quite often a single manufacturer may be
having several branches and services can be received in several places.”
The Tribunal held that it is the responsibility of the
jurisdictional officer with whom Input Service Distributor has registered to
decide the dispute regarding eligibility or otherwise of the Service tax credit
that the input service distributor has taken and proposes to pass on to others.
It provided the following reasons to come to this conclusion: ”When we look at
the functions of the input service distributor and the documents to be issued
by him for passing on the credit, it becomes quite clear that the document
issued by him for passing on the credit does not contain the nature of service
provided and the details of services. It contains the service provider’s
details, distributors details and the amount. Obviously the eligibility or
otherwise of the Service tax credit has to e examined at the end of input
service distributor only. This is further supported by the fact that both
Central excise assesses and Service tax assesses are under the regime of
self-assessment and therefore it is the assessee himself who has to specify
that the credit availed by him is admissible. Therefore the input service
distributor cannot say that he is not required to prove the eligibility or
otherwise of the Service tax credit since at the receiver’s end which could be
a branch or a factory of the distributor, no details would be available
regarding the nature of service.”
11.Option Under Rule 6(3) Not Applicable: Rule 6(3) deals with utilisation of CENVAT credit by a service
provider who provides taxable and exempted service. The Board vide Circular No.
868/2008-CX dated 9-5-2008 has clarified that the Input Service Distributor
does not provide any service and he is like a trader, therefore, the question
of availing either of the options provided under rule 6(3) would not arise.
12.Insertion of Rule 7A in 2008: By the
CENVAT Credit (Amendment) Rules, 2008 Rule 7A has been inserted with effect
from 1-4-2008 vide Notification No.10/2008-CE (NT) dated 1-3-2008. Rule 7A
reads as under:
7A. Distribution of
credit on inputs by the office or any other premises of output service
provider:
1)
A provider of output service shall be
allowed to take credit on inputs and capital goods received, on the basis of an
invoice or a bill or a challan issued by an office or premises of the said
provider of output service, which receives invoices, issued in terms of the
provisions of the Central Excise Rules, 2002, towards the purchase of inputs
and capital goods.
2)
The provisions of these rules or any
other rules made under the Central Excise Act, 1944, as made applicable to a
first stage dealer or a second stage dealer, shall mutates mutandis apply to
such office or premises of the provider of output service.
13.Distribution of Excise Duty Paid:
Rule 7A enables the service provider to transfer the Excise duty paid on the
capital goods and inputs. As discussed in the previous paragraphs, the offices
of manufactures and service providers can obtain Input Service Distributor
registration and can transfer the credit for service tax paid to their
manufacturing units and/or service providing units. However only the service
provider can transfer the credit for Excise duty on capital goods and inputs.
If the office of the Service provider has received invoice for
capital goods or inputs, which is delivered to the service providing unit i.e.
premises from which service is provided, it can issue invoice for transferring
the credit the service providing units
like Input Service Distributor. However Rule 7A(2) provides that rules
applicable to a first stage dealer or a second stage dealer shall apply to the
office or premises of the provider of output service when he transfer the
Wxcise duty paid on inputs or capital goods. The Department has not issued any
clarification in this regard till date. Circular D.O.F.no.334/1/2008-TRU, dated
29-2-2008 states the objective of the insertion of Rule7A in the following
words:
“A new Rule 7A is being inserted to prescribe a procedure to enable
the provider of output services to take credit on inputs and capital goods on
the basis of invoice/bill/challan issued by its other office. This change shall
come into effect from 1st April, 2008.”
Courtesy: Taxmann
