Circular No. 178/4/2014-ST, F.No.334/15/2014-TRU,
dated 11th July, 2014
Manner
of distribution of common input service credit under rule 7(d) of the Cenvat
Credit Rules, 2004 -- regarding.
Doubts
have been raised regarding the manner and extent of the distribution of common
input service credit in terms of amended rule 7 [especially rule 7(d)] of the
Cenvat Credit Rules, 2004 (CCR). Rule 7 provides for the mechanism of
distribution of common input service credit by the Input Service Distributor to
its manufacturing units or to units providing output services. An amendment was
carried out vide Notification no. 05/2014-CE (N.T.) dated 24th February, 2014,
amending inter-alia rule 7(d) providing for distribution of common input
service credit among all units in their turnover ratio of the relevant period.
Rule 7(d), after the amendment, reads as under:
‘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’
2. These doubts have
arisen with respect to the meaning of the words ‘such unit’ used in rule 7(d).
It has been stated in the representations that due to the use of the term ‘such
unit’, the distribution of the credit would be restricted to only those units
where the services are used. It has been interpreted by the trade that in view
of the amended rule 7(d) of the CCR, the credit available for distribution
would get reduced by the proportion of the turnover of those units where the
services are not used.
3. Rule 7 was amended to simplify
the method of distribution. Prior to this amendment there were a few issues
raised by the trade regarding distribution of credit under rule 7 such as
determining the turnover of each unit for each month and distributing by
following the nexus of the input services with the units to which such services
relate. The amendment in the said rule was carried out to address these issues.
The amended rule 7(d) seeks to allow distribution of input service credit to
all units in the ratio of their turnover of the previous year. To make the
intent of the amended rule clear, illustration of the method of distribution to
be followed is given below.
4. An Input
Service Distributor (ISD) has a total of 4 units namely ‘A’, “B’, ‘C’ and ‘D’,
which are operational in the current year. The credit of input service
pertaining to more than one unit shall be distributed as follows:
Distribution
to ‘A’ =
|
X
|
*
Z
|
Y
|
X
= Turnover of unit ‘A’ during the relevant period
Y
= Total turnover of all its unit i.e. ‘A’+’B’+’C’+’D’ during the relevant
period
Z
= Total credit of service tax attributable to services used by more than one
unit
Similarly
the credit shall be distributed to the other units ‘B’, ‘C’ and ‘D’.
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.
5. Reference may be made to Sh. G.
D. Lohani, Director (TRU) in case of any further doubt. Trade Notice/Public
Notice may be issued to the field formations and tax payers. Please acknowledge
receipt of this Circular.
6. Hindi version
to follow.
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