Rule 7 of Cenvat Credit Rules, 2004 is being substituted w.e.f 01.04.2012 to suffocate Input Service Distributors
By TIOL
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;
Probably mathematicians rule the roost in the TRU. Almost all the CENVAT rules which extend any benefit to an assessee are to be worked mathematically. Take a look at the new rule 7 of CCR, 2004 concerning "Input Service Distributors".
Notification 18/2012-CE(NT) dated 17.03.2012 substitutes the current rule 7 of the CCR, 2004. The new rule 7 of CCR, 2004 comes into effect from 01.04.2012 and would read thus –
"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:-
++ The credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
++ 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;
++ Credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
++ Credit of service tax attributable to service used in more than one unit shall be distributed pro-rata 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."
The computation of "total turnover" is laid down in the new rule 5 which too has been substituted by the captioned notification 18/2012-CE(NT) and the same is defined thus –
"(E) "Total Turnover" means sum total of the value of –
(a) All excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
(b) Export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
(c) All inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed."
The above amendments could possibly have been influenced on account of the fact that the department was on the verge of losing several cases – at least the future would be secured!
Take a look at some of the CESTAT decisions in this regard where it is held that -
ST - Head Office as Input Service Distributor distributing service tax paid on Input services - there is nothing in law which requires that input Services ought to have been used in factory where credit is taken - Stay granted: CESTAT
+ Tata Steel Ltd. vs. CCE, Mumbai 2011-TIOL-1675-CESTAT-Mum
+ Tata Steel Ltd. vs. CCE, Mumbai 2010-TIOL-1851-CESTAT-Mum
+ Ecof Industries Pvt. Ltd. vs. CCE, Bangalore 2009-TIOL-2109-CESTAT-Bang
Nonetheless, the CESTAT had in the case of Mahindra & Mahindra Ltd. vs. CCE, Pune-I 2011-TIOL-1581-CESTAT-Mum also held thus -
"Purpose of providing input service tax distribution is in context of 'common services' availed by various units of single corporate entity - It is not mechanism for transfer of credit from one unit to another - If the appellant wanted such facility, then they should registered themselves as a Large Tax Payer unit and only when they register as a Large Tax Payer unit, they could transfer credit from one unit to another - Pre-deposit ordered: CESTAT"
Be that as it may, since the definition of "unit" is inclusive in nature, it would include the 'office premises' also and this can lead to unwarranted dispute.
So, after rule 6 of the CCR, 2004, it is time for Rule 7 to see some action in the days to come!
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