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INPUT SERVICE DISTRIBUTOR – Process Note on ISD Credit Distribution
Definition of ‘Input Service Distributor’:
Rule 2(m) of CCR, 2004 defines “Input Service Distributor” thus –
“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;
Rules governing ‘Input Service Distributor’:
Old Rule 7 of CCR, 2004: [Prior to 01/04/2012]
Rule 7. Manner of distribution of credit by input service distributor – The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely:
(a) The credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or
(b) Credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.
Analysis:
Provision of the above rules was simple and did not restrict transfer of entire Cenvat Credit to a single unit.
This made it easier for Regional office / Head office registered under ISD to transfer the credit under a single Invoice to a particular unit.
The said rules have now been amended, putting strictures on the manner of Transfer of Cenvat Credit by an Input service Distributor which are clarified below.
Input Service Distributor’s choice taken away
Changes in Rule 7 by Budget, 2012:
For Rule 7 of the said rules, the following rule is substituted:
‘7. Manner of distribution of credit by input service distributor – The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:
(a) The credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
(b) 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;
(c) Credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
(d) Credit of service tax attributable to service used in more than one unit shall be distributed prorata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates.
Explanation 1 – For the purposes of this rule, – “unit” includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise.
Explanation 2 – For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5’ which reads as under:
2. “Total turnover” means the sum total of the value of,-
(a) all output services and exempted services provided, including value of services exported;
(b) all excisable and non excisable goods cleared, including the value of goods exported;
(c) The value of bought out goods sold, during the given period.
Analysis:
If regional office is availing services specifically to cater to a specific unit, then the credit shall be distributed only to that unit; and
In case the service is commonly utilized in 2 or 3 units [e.g. AD I/II], then the credit is to be distributed on the basis of turnover of the concerned unit compared to the sum total of the turnover of all the units to which the service relates.
This means that the distribution of Cenvat credit is linked to the turnover of the units in case of common service utilized in two or more units. This concept was not there before.
Earlier no criteria were fixed but now, the regional office registered as input service distributor has to ascertain the turnover of various units to which it caters and then distribute the credit to only those units (for which service was/is utilized).
Methodology to calculate Eligible Cenvat Credit by Regional Office /HO
Taxable Turnover
——————— = Eligible %
Total Turnover
Taxable Turnover [Excluding Traded Sales]
| Details | Remarks |
| Sales of Dutiable Goods- Domestic | Assessable Value |
| Stock Transfer of Dutiable Goods | Assessable Value |
| Sale of Dutiable Goods – Exports | Assessable Value |
| Sale of MRP valued Dutiable Goods | Value would be Net of abatement |
| Service Income | Taxable Services Provided |
| Sale of Dutiable Scarp | Assessable Value |
Total Turnover [Includes Traded Margin]
| Sales of Dutiable Goods- Domestic | Assessable Value |
| Stock Transfer of Dutiable Goods | Assessable Value |
| Sale of Dutiable Goods – Exports | Assessable Value |
| Sale of MRP valued Dutiable Goods | Value would be Net of abatement |
| Service Income | Taxable Services Provided |
| Sale of Dutiable Scarp | Assessable Value |
| Sale of Misc Non Dutiable Scrap | Taxable Value- before Vat/CST |
| Sale of Asset | Value contributing to Profit on sale of Asset |
| Margin of Traded Goods | 10% of COGS or trading profit whichever is higher |
*****All the above values will be net of taxes and duties
***For Head office the Turnover details of entire Group to be applied
***For Regional Office the turnover details of the Region to be applied
The total Eligible Cenvat Credit will be
Cenvat Credit Availed X Eligible %
Distribution of Cenvat Credit by Regional offices / HO
Distribution of Specific Services
Where services have been availed which is division specific then the same has to be transferred to that division to which the unit belongs.
Example (1)
Technical services have been availed in relation to goods manufactured by HD, therefore credit for that service has to be transferred to HD only.
Example (2)
Advertisement has been placed for product manufactured by AD. Cenvat credit of service tax on such advertisement services availed will need to be transferred to AD only.
Example (3)
Commission paid to an agency by HO in relation to export of goods manufactured by AD, then credit for that services has to be transferred by HO to AD only.
Distribution of Cenvat related to Common Services
Common services such as:
- security services
- Rent paid for Regional office
- Telephone Services
- Auditing Fees
The Credit is to be distributed prorata on the basis of the turnover of the concerned units.
Unit/Division wise Transfer
As an example
We have AD Division which comprises of following Units
- Unit -I, III,IV V& Spares
- Unit II
When effecting transfer to AD, it would be based on Unit wise turnover determined.[to be cross checked with units]
Reason being every unit has a separate Central Excise Registration
Similarly for HD division which comprise of following units
- HD I
- HD II
- HD IV
CA certificate should be obtained for determining the Cenvat ratio and transfer ratio from service tax audit perspective.
- Example for transfer of credit to AD
Excisable Turnover of Domestic sales =350000
Excisable Stock Transfer = 35000
Export of own goods = 50000
Taxable Services Provided = 15000
Traded Turnover =100000
COGS of traded goods = 73000
Profit on traded goods = 27000 [i.e 37%]
10% of COGS of traded goods = 7300
Total Cenvat Credit Availed = Basic 15000 +Ed. Cess 300 +SHE Cess 150
450000
= ________________ = 94%
450000+27000
Cenvat Eligible for Availing and Transfer = 15450*94%= 14523
[10% of COGS or Margins whichever is higher has to be considered hence 27000 considered]
It is the responsibility of the Regional Office / HO to ascertain the eligibility and transfer the credit using the above method so that the unit receives credit which need not be attributed further.
Distribution Methodology for Common Input services
Taxable turnover of the Region 450000
For HD- Unit wise distribution to be done in line with example of AD
Invoice format for distribution of credit to units
{LOGO }
Original (for registered person)
Duplicate (for taking credit)
Triplicate (for Office Use)
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___________________NameManager Accounts |
INVOICE FOR DISTRIBUTION(Challan for distribution of input services from registered office under Rule 7 of CENVAT Credit Rules, 2004)
M/s Abc Limited (Input Service Distributor)
Deep Mandir,
A Marathe Marg,
Prabhadevi, Mumbai – 400 025
Service Tax Regn. No. ABCDE1234MST001 |
|
| RANGE – Service Tax Cell |
| DIVISION – III |
| Commissionerate : Service Tax I MumbaiSUPDT.GROUP NO – VIII |
| INVOICE NO : 01/2012-2013 |
| DATE : June 5, 2012 |
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Name & Address of locationwhere credit is transferred :M/s Abc Limited,AD- Unit-I,MIDC Industrial Area, Allahabad – 430 212.
Transferee’s STC NO.- ABCDE1234MST012 | Range : TOWN RANGE II, ALLAHABAD DIVISION ICommissionerate: ALLAHABAD |
| Name and Address of person providing input services &Regn No. | As per Annexure – A attached. |
| Sr. No and date of input service provider’s invoice | ————– do ———— |
| Description of input services | ————– do ———— |
| Rate of Duty: Service Tax: …………. Education Cess……….. H & S Cess……………………. | ————– do ———— |
| Amount of Service Tax: Education Cess……… H & S Cess…………… | ————– do ———— |
| Amount of service tax paid on input services | Rs. 2,115.00 (Service Tax)Rs. 42.00 (Education Cess)Rs. 21.00 (Higher & Secondary Education Cess) Net Rs.2,178.00
Amount in words: Two Thousand One Hundred Seventy Eight only. |
| Date of payment of value of input services including service tax | As per Annexure – A attached. |
| Certified that the credit of service tax transferred under this challan has not been transferred earlier and shall not be transferred to any other unit / location in future. | (_____________________) NameManager Accounts |
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Note: The above credit represents __15___% credit availability for the unit
It would be ideal for Regional office to seek a certificate from a CA for certifying the eligible % of Cenvat Credit as per format below:
——————————————-
CERTIFICATE
We have verified Books of Accounts and other relevant records of M/s. ABC Limited having its office at (Address) for the year ended 31-3-2012. On the basis of our examinations, clarifications and explanations given to us, we certify hereunder the calculation for proportionate credit attributable to the Taxable and exempt goods / services arrived under rule 6(3A)(c) of the Cenvat Credit Rules 2004:
Detailed working as per Annexure ‘A’ for the financial year 2011-2012
For XYZ
Chartered Accountants
Membership No. XXXXXXX
Date : _ _/_ _/2012
Place : Mumbai
————————————————-
Annexure ‘A’
| Period 2011-12 |
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| Excisable Sales working | Rs. |
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| Gross sales & service | 550,000.00 |
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| Gross Sales | 550,000.00 |
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| Less: Excise duty |
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| Less: COGS of Traded Goods | 73000.00 |
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| Net sales | 477,000.00 |
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| Unit Wise | Mfgd | Traded | Service income |
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| AD I-III-IV-V-Spares | 202500.00 |
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| DD | 87000.00 |
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| CD | 0.00 | 100000.00 |
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| DD | 195750.00 |
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| ED | 43500.00 | 0.00 |
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| SRO | 0.00 |
| 15000.00 |
| LEU II |
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| 0.00 |
| 435000.00 | 100000.00 | 15000.00 |
| Mfgd Non-excisable sales |
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| 0.00 |
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| 0.00 |
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| 0.00 |
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| 0.00 |
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| Total | 0.00 |
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| Mfgd Excisable sales |
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| Of Unit & Taxable service income | 450000.00 |
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| Total | 450000.00 |
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| % to excisable to total sales | 94.% |
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| Note: |
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| If gross amount considered then Less Excise Duty |
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| If net considered Then Excise Duty =0 |
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Author
Dayal R Kundani
dayalkundani@gmail.com
