Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise& Customs
Tax Research Unit
Circular No. 178/4/2014-ST
North Block, New Delhi
11th July, 2014
To,
Chief Commissioners of Central Excise and Service Tax (All),
Director General (Service Tax), Director General (Audit),
Director General (Central Excise Intelligence),
Commissioners of Service Tax (All),
Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Subject: 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.
Yours sincerely,
[Dr. Abhishek Chandra Gupta]
Technical Officer, TRU
Tel. no.: 011-23093075
F.No.334/15/2014-TRU