New Input Service Distribution Mechanism, Service Tax

[joydeep majumder]

We have one of our factory located in Jammu & Kashmir (Non Taxable Territory) operating under an excise notification No. 56/2002 with other factories located in Taxable Territory.

The finished goods manufactured at these factories are stock transferred to several depots spread across the country (Taxable territory) wherefrom these goods are sold. These Depots including Headoffice are registered under Service Tax as Input Service Distributor. There are certain common input services which are purchased by Depots / HO,  pertains to all the factories including Jammu Factory. Example of common services are Advertising of products which are manufactured by all the factories including Jammu factory.

My queries are as below:-

1. Whethe we are allowed to avail the cenvat credit of Input Services attributable to Jammu Factory (Non Taxable Territory)

2. If yes, whether the input servcies attributable to Jammu factory can be allocated to other factories located in taxable territory on prorata basis (Turnover Ratio).

Posts / Replies

[JAMES PG]

If there is duty payment under Not 56/02, Input services can be distributed. The turnover for distribution should be as per the turnover prescribed under Rule 5 of Cenvat Credit Rules

[joydeep majumder]

Dear Sir,

The exemption Notification 56/2002 has been effected in such a manner that the factory in J&K that thefactory has to first pay excise duty through PLA after availment of available Cenvat balance at the end of  each month and then the duty paid through PLA is refunded by way of suo moto credit in account current.

In such case can we avail Cenvat credit of service tax attributable to Jammu factory for adjustment with Excise duty liability.

[JAMES PG]

As per the conditions of CCR, input service credit is available for the payment of duty on finished goods or for discharging Service Tax for the provision of service. As per Not 56/02, whatever duty paid through PLA is refunded and it provides utilisation by Cenvat also. Hence there appears to be no infirmity in availing Cenvat credit through ISD

[Pradeep Khatri]

Yes, you can distribute the CENVAT credit to the Units established at J&K even under the Notification 56/2002- CE as amended by Notification No. 19/2008-C.E.

Further, you would have to comply with the conditions as mentioned in the Rule 7 and Rule 7A of the Cenvat Credit Rule, 2004, as amended time to time.