Excel for
Circular No. 178/4/2014-ST
F.No.334/15/2014-TRU
North Block, New Delhi
To, 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 24 th 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 prorata 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’
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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 asdetermining 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 amendedrule 7(d) seeks to allow distribution of input service credit to all units inthe 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:
X = Turnover of unit‘A’ during the relevant period Y = Total turnoverof 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 inputservice 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.
The common input servicerelates to units ‘A’, ‘B’ and ‘C’, the distribution will be as under:
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 madeto Sh. G. D. Lohani, Director (TRU) in case of any further doubt. Trade Notice/PublicNotice may be issued to the field formations and tax payers. Please acknowledge receipt of this Circular. 6. Hindi version to follow
Yours sincerely, |