INPUT SERVICE DISTRIBUTOR – MEANING & SCOPE

[Dr. Sanjiv Agarwal]

Input Service Distributor has been defined in Rule 2(m) of Cenvat Credit Rules, 2004. The main objective of Input Service Distributor (ISD) is to receive and distribute the Cenvat Credit to the eligible offices / departments / branches / units of the service provider or manufacturer.

Input Service Distributor [Rule 2(m)]

Input Service Distributor is an intermediary or an office which manages the business of manufacturer or producer of final products or output service provider and undertakes to perform or performs the following –-

1. receives invoice issued under Service Tax Rules toward purchase of input services.
2. Issues invoice / bill /challan for the purpose of distributing the credit of service tax paid on such services to manufacturer/producer or service provider.

CBEC had vide Circular No. 97 dated 23.8.2007 clarified that input service distributor is an office or premises of the manufacturer or taxable service provider which receives bills/invoices etc., of input services. The input service distributor can distribute the eligible credit to any unit of the manufacturer or any premises/office of taxable service provider.

Input service distributor is the office of the manufacturer of final products or the provider of taxable services. The residence of any employee of manufacturer or service provider or its guest house can not be called input service distributor (ISD). Any ISD can distribute only the service tax credit and not the central excise or customs credit.

Following are the key criteria for any input service distributor (ISD) -

(i) It has an office as the manufacturer or producer of final products or provider of output service. Any office of manufacturer of excisable goods or taxable service provider can be registered as input services distributor.

(ii) It should receive invoice towards purchase of service. The services might have been received by one of the units manufacturing goods or premises providing services or other offices.

(iii) It should issue invoice or bill or challan for the purpose of distributing the credit of service tax paid on the service to the manufacturing unit or service providing unit.

An ISD could be any head office, registered office, corporate office, administrative office, branch office, regional/divisional/zonal office, depot, plant etc. Also, a service provider can have more than one ISD registrations.

In Ecof Industries Pvt. Ltd. v. CCE, Bangalore 2009 (10) TMI 171 - CESTAT, BANGALORE, it was held that the availability of credit is related to manufacturer of goods or provider of output services as a whole and is not restricted to any particular unit or manufacturer or service provider. Where assessee distribute credit of service tax in respect of its one unit even though service tax had been paid in respect of services used by its another unit and lower appellate authority denied distribute of service tax credit on the ground that service tax credit relating to one unit should not be distribute to other unit, it was held that restricting distribution of service tax credit cannot be upheld.

In CCE, Bangalore-I v. Ecof Industries Pvt. Ltd  2011 (4) TMI 560 - KARNATAKA HIGH COURT, where Service Tax paid by head office pertaining to advertisement of product manufactured by unit ‘A’ was distributed to ‘B’. it was held that such distribution of credit was permissible under rule 7 of CENVAT Credit Rules. Rule 7 does not mandate that the assessee is entitled to take credit only in unit where the product is manufactured.

In ITC Ltd. v. CCE, Bangalore (2014 (1) TMI 612 - CESTAT BANGALORE, where assessee’s division/branch was engaged in threshing of tobacco leaves as well as storage/transport/supply thereof to various factories, it was held that such division could, as Input Service Distributor, pass on credit of post-threshing input services availed by it.

In CCE, Vadodara-II v. Plastichemix Industries 2011 (7) TMI 456 - CESTAT, AHMEDABAD, where assessee had availed Cenvat credit on the basis of invoices issued by head office as Input Service Distributor, it was held that legal requirement for getting Head Office registered as Input Service Distributor came into force in June, 2005 whereas assessee availed Cenvat credit on the same in March, 2005, therefore, Revenue’s objection was unsustainable and credit was to be allowed to the assessee.

In Sunbell Alloys Co of India Ltd v. CCE & C, Belapur 2014 (2) TMI 297 - CESTAT MUMBAI, wherein Cenvat credit was availed by job worker on invoices issued by alleged input service distributor not being manufacture himself, it was held that definition of ‘input service distributor’ also implies office of manufacture of final product and office of alleged distributor was different from office of job workers which were separate and independent legal entities not belonging to importer or distributor. Therefore, they were not entitled to availment of Cenvat credit distributed by another legal entity as per provisions of Rule 2(m) read with Rule 7 of Cenvat Credit Rules, 2004.

In Punjab National Bank v. CCE, Meerut-I 2014 (10) TMI 29 - CESTAT NEW DELHI, since for all practical purposes, assessee was functioning as input service distributor (ISD) and availment and distribution of Cenvat was reflected in ST-3 Returns , it was held that assessee was to be treated as ISD and was eligible to take and distribute Cenvat credit by issuing invoices to branches .

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Discussions to this article

[MUNIRAJ SRINIVASAN]

Dear Sir,

Can a service provider registered with Service Tax also register as ISD? This is in a scenario where there are lots of input service credit availed in HO. HO mainly renders export of services. This HO has manufacturing units in other places. Instead of the HO opting to avail Refund of Input Service Credit against export, can it distribute to its other manufacturing units registering itself as ISD? Can you further support your response with any case law,circular etc.

Thanks.

[Dr. Sanjiv Agarwal]

Dear Muniraj ji ,

Yes, a service provider who is registered with Service Tax may also register as Input Service Distributor (ISD). The ISD can distribute the eligible credit to any unit of the manufacturer or any premises / office of taxable service provider. Rule 7 of Cenvat Credit Rules, 2004 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. The credit of a service used exclusively in one unit can be distributed only to that unit. If it is used in more than one unit, the credit can be distributed proportionate to the turnover of the units. Further the credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services cannot be distributed. You may refer to Rule 7 and Rule 7A of Cenvat Credit Rules, 2004. However, you need to look into the objective of transferring credit to the units.

Thanks & Regards ,

CA Neha Somani

[Swetha Srinivasan]

Dear Sir,

In case of an Input Service Distributor, does he have to file a return even if he has neither taken any credit nor distributed any credit. Also, will he have to pay late filing fees as per Sec77 in this case?