INPUT SERVICE DISTRIBUTOR - A DEALER?

[Mr. M. GOVINDARAJAN]

Input Service Distributor:

            Rule 2(m) of CENVAT Credit Rules, 2004 defines the terms 'input service distributor' as an office of the manufacturer or producer of final products or provider of input 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.

Documents:

            Rule 4A (2) of Service Tax Rules, 1994 provides that input service distributor distributing credit of taxable services shall, in respect of credit distributed, issue an invoice or, as the case may be, a challan signed by such person or a person authorized by him, for each of the receipt of the credit distributed, and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely:-

  >> the name, address and registration number of the person providing input services and the serial number and date of invoice, bill, or as the case may be, challan issued under sub-Rule (1);

  >> the name and address of the said input service distributor;

  >> the name and address of the recipient of the credit distributed;

  >> the amount of the credit distributed.

Where the input service distributor is an office of a banking company or a financial institution including a non banking financial company, or any body corporate or any other person, providing service to any person, in relation to banking and other financial services, an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered but containing other information in such documents as required under this sub-rule.

Conditions:

            According to Rule 7 of CENVAT Credit Rules, an input service distributor, while distributing CENVAT Credit to its units shall adhere to the following conditions, namely:-

  >> the credit distributed against a bill/invoice etc., should not exceed the amount of service tax paid thereon;

  >> credit of service tax should not be so distributed if it is attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing exempted services.

Filing Return:

The input service distributor is to submit a half yearly return in Form ST-3 giving details of credit received and distributed during the said half year to the jurisdictional Superintendent of Central Excise within the last day of the month following the half year. An input service distributor has an option to file revised return to correct a mistake or omission within sixty days from the submission of the original return.

Input service distributor - status:

                        The status of the input service distributor is decided in 'Commissioner of Service Tax V. Godfrey Philips India Ltd.,' - [2009 -TMI - 32912 - CESTAT, AHMEDABAD]. In this case the assessee registered under the category of 'input service distributor'. The Department found on verification of the returns filed by the assessee that the assessee was not eligible for credit of service tax incurred in respect of tour, travel, hotel and other services in view of the fact that they cannot be related to the goods manufactured by the assessee. The Original Adjudicating Authority dropped the proceedings. The Commissioner (Appeals) on the appeal field by the Department held those services of event management, tour, travel agent, hotel, courier and other categories like AMC of air conditioner, recruitment agency etc., are eligible for credit. Against the said order the Department filed appeal before the Appellate Tribunal.

Submission of the Department:

            The Department submitted the following before the Appellate Tribunal:

  >> the services on which credit has been allowed by the Commissioner (Appeals) have nothing to do with the manufacture of goods;

  >> the input credits were not covered under the definition of 'input service' since no correlation between the input services in relation to the manufacturing activity was observed.

Submission of the assessee:

The assessee submitted the following before the Appellate Tribunal:

  >> there is no jurisdiction for the authorities to issue show cause notice against a branch;

  >> the branch office was only passing of the credit and therefore can be compared to a first stage dealer or a second stage dealer who simply passed on the credit;

  >> being an input service distributor does not utilize any credit but only passes it on;

  >> the admissibility of credit or otherwise and whether it relates to any manufacturing activity directly or indirectly is required to be examined only at the place where the service tax credit is taken and utilized for the purpose of payment of excise duty or output service;

Analysis of Tribunal:

            The contention of the assessee that the input service distributor stands on the same footing as a dealer and what he is doing basically only passing on the credit. The definition of input service distributor clearly says that he is not merely a dealer. He has to be a office of the manufacturer or producer of final products or provider of output service who will distribute the credit to his manufacturing units or service providing units as the case may be. The dealer buys the manufactured goods on which duties have been paid and passes on the actual duty paid by issue of an invoice. The dealer does not take any responsibility as regards eligibility of Cenvat credit by his buyers. He may not even be aware as to whether buyer avails the Cenvat credit or not. He does not produce any input services which he is required to distribute among others.

            The Input service distributor independently receives invoice and in fact he could be compared to a buyer of goods or service from the manufacturer or an output service provider. The concept of input service includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal. The definition shows that many of services could be performed in places other than where the manufacturer or receiver of the service might have been located and quite often a single manufacturer may be having several branches and services can be received in several places.

            The document issued by the input service distributor does not contain the nature of service provided and details of services. It contains the service provider's details, distributor's details and the amount. The eligibility or otherwise of service tax credit has to be examined at the end of input service distributor only. The service tax assessees are under the regime of self assessment and it is the assessee himself who has to specify that the credit availed by him is admissible. Therefore the input service distributor cannot say that he is not required to prove the eligibility or otherwise of the service tax credit since at the receiver's end which could be a branch or a factory of the distributor, no details would be available regarding the nature of service. Considering the above the tribunal rejected the objection raised by the assessee and held that jurisdictional officer with whom the input service distributor has registered to decide the dispute regarding the eligibility or otherwise of the service tax credit that the input service distributor has taken and proposes to pass on to others.

            The lower authorities have not discussed the same and therefore it is necessary for them to examine the nature of service received under each invoice, the eligibility of the credit or otherwise in terms of the definition. The tribunal remanded the matter for fresh decision.