2008 (12) TMI 90 - AT - Service Tax

Input service distributor definition u/r 2(m) of CCR - relation to manufacturing activity - submission that input service distributor is a dealer and what he is doing basically only passing on the credit, not acceptable - held that Central Excise officer have jurisdiction over office of input service distributor to decide the dispute regarding eligibility of input service for credit - lower authorities should examine the nature of service received under each invoice matter remanded

Issues: Eligibility of service tax credit for input service distributor

Analysis:
1. The dispute revolved around the eligibility of credit of service tax incurred in various services for an input service distributor. The Original Adjudicating Authority dropped proceedings, but the Commissioner (Appeals) allowed the appeal filed by the Revenue, asserting that services like tour/travel, hotel, courier, and others are eligible for credit, contrary to the contention that they cannot be related to the goods manufactured by the distributor.

2. The main argument presented was whether the services for which credit was allowed had any connection with the manufacturing activity. The Departmental Representative argued that the services did not relate to the manufacturing of goods and, therefore, were not covered under the definition of input services. On the other hand, the advocate for the distributor contended that as an input service distributor, their role was akin to a dealer passing on credit, and the eligibility assessment should be done at the recipient's end where the credit is utilized.

3. The definition of an input service distributor was crucial in determining the distributor's role. The definition clarified that the distributor is not merely a dealer but an entity that receives invoices for input services and distributes the credit to manufacturing or service providing units. The distinction between a dealer and an input service distributor lies in the distributor's active role in distributing services among units.

4. The analysis of Rule 4A(2) of the Service Tax Rules, 1994 highlighted the details required to be indicated by an input service distributor while distributing credit. It emphasized that the distributor's responsibility includes providing specific details in the documents issued for passing on the credit, indicating that the eligibility assessment should be conducted at the distributor's end.

5. The judgment concluded that the responsibility of determining the eligibility of service tax credit lies with the jurisdictional officer where the input service distributor is registered. It rejected the argument that the distributor is not required to prove the eligibility of the credit, emphasizing that self-assessment regimes place the onus on the assessee to ensure the admissibility of credits.

6. Ultimately, the matter was remanded back to the Original Adjudicating Authority for a fresh decision. The lower authorities were directed to examine the nature of services received under each invoice, assess the eligibility of the credit, and request the distributor to provide invoice-wise details and rationale for the credit's eligibility in relation to the manufactured product or output service. The decision was to be made after obtaining necessary details from the distributor.

Conclusion:
The judgment highlighted the nuanced role of an input service distributor and the importance of assessing the eligibility of service tax credit at the distributor's end. It emphasized the distributor's responsibility in providing necessary details for passing on credit and clarified that the jurisdictional officer is tasked with resolving disputes regarding credit eligibility. The remand to the Original Adjudicating Authority underscored the need for a detailed examination of services and rationale for credit eligibility, ensuring a thorough decision-making process.

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