Input Service Distribution - A welcome clarification
In the midst of all those Budget Notifications and laws, both the CBEC and CBDT have come out with some important Circulars.
Input service distribution under CENVAT credit Rules 2004 has always been a confusing issue. The latest amendment to Rule 7 was made vide Notification No 5/2014 CE(NT) dated 24.02.2014 substituting clause (d) as under:
"(d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.";
But still some doubts remained as to whether the credit can be distributed among all the units even if service is not used in one of the units .
Now, this issue has been clarified with clear illustration that there is no such bar and the credit can be distributed among all the units even if the service is not used in one of the units. The following illustration given in Circular No. 178/4/2014-ST dated 11.07.2014 (why the Circular should be dated 11.07.2014?) will make the things clear:
Illustration:
An ISD has a common input service credit of Rs. 12000 pertaining to more than one unit. The ISD has 4 units namely ‘A', ‘B', ‘C' and ‘D' which are operational in the current year.
Unit | Turnover in the previous year (in Rs.) |
|---|---|
A (Manufacturing excisable goods) | 25,00,000 |
B (Manufacturing excisable and exempted goods) | 30,00,000 |
C (providing exclusively exempted service) | 15,00,000 |
D (providing taxable and exempted service) | 30,00,000 |
Total | 1,00,00,000 |
The common input service relates to units ‘A', ‘B' and ‘C', the distribution will be as under:
(i) Distribution to ‘A' = 12000 * 2500000/10000000 = 3000
(ii) Distribution to ‘B' = 12000 * 3000000/10000000 = 3600
(iii) Distribution to ‘C' = 12000 * 1500000/10000000 = 1800
(iv) Distribution to ‘D' = 12000 * 3000000/10000000 = 3600
The distribution for the purpose of rule 7(d), will be done in this ratio in all cases, irrespective of whether such common input services were used in all the units or in some of the units.
There is another interesting development in this issue as clarified by the Circular. The Unit "C" is mentioned as "providing exclusively exempted service" and as per the mathematical formula prescribed, the CENVAT credit that is distributed to this unit is Rs.1800/-.
But what will the Unit "C" do with this credit?
And is such distribution valid in the face of rule 7(b) which says –
"(b) credit of service tax attributable to service used by one or more units exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;"
Today's Circular Yesterday? This Circular is dated 11th July - How was it issued yesterday? The Board can travel back and forth in Time!
CBEC Circular No. 178/4/2014-ST, Dated: July 11, 2014