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somehow deny refund, without even considering legal options (See 'DDT') Najib Shah gets Addl Charge of CBEC Chairman (See 'Service News' in Pitara) PM to launch programme on digital empowernment of citizens today (See 'Mixed Buzz') Whether developers entering into agreements for sale of constructed apartments or flats prior to or during construction would be covered under term 'works contract' and hence were chargeable to VAT (See '2015-TIOL-1521-HC') New post-2020 climate change targets add up to 60% of global emissions (See 'Mixed Buzz') CBEC grants NFSG benefits to 113 JCs (See 'Promotion' in Pitara) Income tax - Whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land - YES: ITAT (See 'Breaking News') Audit: Frequently Asked Questions (See 'DDT' Column) CBEC promotes 100 officers as JCs + promotes 177 Superintendent of Central Excise + Customs + Jai Prakash transferred from Bhopal to ADG (Inspection), Chennai + CC, Bhubaneswar gets addl charge of Kolkata (See 'Pitara') CX - Erroneous payment of duty on exempted goods does not make them non-exempted - No error in order of Tribunal in allowing exemption under Notification 89/95 to waste and scrap arising in manufacture of such goods: HC (See 'Breaking News') Income Tax e-filing is ready (See 'DDT') Core Sector growth doubles in May (See 'Mixed Buzz') Cus - Brokers Licencing Regulations - Under Regulation 20(1), notice to be issued within 90 days from date of receipt of offence report - SCN issued beyond 90 days is invalid and is quashed: HC (See 'Breaking News') Monitoring of effluents: 920 out of 2800 industries begin 24x7 vigil (See 'Mixed Buzz') Najib Shah - New Chairman of CBEC - Please clarify Education Cess (See 'DDT') Transfer Pricing - CBDT signs first APA in IT/ITes industry MAT on FII - Bombay HC stay on demand to continue as Revenue expresses desire to wait for Apex Court verdict in two pending cases Nagpur Airport Customs seizes 3 kg gold concealed in music system CBEC reduces tariff value across the board, including that of gold and silver (See 'What's New') ACC okays several JS-level Appointments, including that of two IRS officers (See 'Mixed Buzz') CBDT promotes 23 CCITs as Principal CCITs (See 'Promotion' in Pitara) CBDT issues Addl Charge order for CCITs (See 'Service News' in Pitara) Coal Scam: Former MoS(Coal) says all decisions relating to allocation of coal blocks were taken by Dr Manmohan Singh Committee of Secretaries recommends Najib Shah's name for CBEC New Chairman + two names for posts of Members Bombay HC permits Nestle to export Maggi Noodles CX - Availment of fraudulent CENVAT credit of Rs.5.64 crores without receipt of inputs & showing purported clearance of inputs as such - it cannot be said that credit has been reversed as buyers would have taken credit - Pre-deposit ordered of 7.5%: CESTAT (See 'Breaking News') What GST brought to Malaysia(See 'DDT' Column) I-T - Whether if property is sold under duress at lesser value as it was under litigation, provisions of Sec 50C cannot be mechanically applied to tax capital gains - YES: ITAT (See 'Breaking News') Proposed GST scenario for State of Jammu & Kashmir (See 'ST se GST tak' Column) ST - Construction Service - Notification 1/2006 - There is no specific bar in notification to disallow CENVAT credit of tax paid on Input services for previous period - Tax paid on Input services received prior to 01.03.2006 and credit taken on 01.04.2006 is legal and proper: CESTAT (See 'Breaking News') It is unfortunate that law enforcing/implementing agency chooses to ignore the law; somehow deny refund, without even considering legal options (See 'DDT')
 
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How does Input Service Distributor distribute service tax credit?

MAY 18, 2011

By Anuj Bansal, CA  

INPUT Service Distributor means an office of the manufacturer or producer of final products or provider of output service, which receives invoices towards purchases of input services from the provider of input services and further, distribute the Input Tax Credit by issuing invoices, bill or challan to such manufacturer or producer or provider.

Registration of ISD:

ISD shall make an application for registration within a period of thirty days from the commencement of business.

ISD shall issue an Invoice:

Input service distributor shall in respect of credit distributed issue an invoice / bill / challan to each of the recipient of the credit.

Invoice / bill / challan shall have following contents:

++ Serial number.

++ Name, address and registration number of the person providing input services.

++ Serial number and date of invoice of the person providing input services.

++ Name, address and the registration number of the ISD.

++ Name and address of the recipient of the credit distributed.

++ The amount of credit distributed.

++ Signed by the authorized person.

Return:

ISD shall furnish a half yearly return.

Distribution credit by ISD:

As stated above ISD distributes credits to its units providing taxable services or manufacturing excisable goods. The distribution of such credit is subject to the following conditions:

(a) the credit distributed against an eligible document shall not exceed the amount of service tax paid thereon, and

(b) credit of service tax attributable to services used in a unit either exclusively manufacturing exempted goods or exclusively providing exempted services shall not be distributed.

There is no specific method / provision for distribution of credit is prescribed under the law. In the case of Ecof Industries P. Ltd. v. CCE (2010) 17 STR 515 (Tri-Bang.) it has been held that there is no restriction on the distribution of service tax credit. Further, the court observed that in case department wants to place restriction on distribution of service tax credit, the rule is required to be amended. Accordingly, even in case the whole of Input Tax Credit is distributed / transferred to one unit, same shall not be disputed by the department. However, generally the Credit is distributed in accordance to the ratio of turnover of goods / services by each of the unit manufacturing the goods or providing the services. The said method is explained with the help of an example as follows:


Particulars

 

Turnover

Tax

 

 

(Rs.)

(Rs.)

Taxable & Exempted Goods / Services

 

 

 

Factory Unit - Excisable Goods

(a)

20000000

2400000

 

 

 

 

Unit providing Taxable Services

(b)

10000000

1000000

 

 

 

 

Unit providing Exempted Services (including trading)

(c)

10000000

1000000

Input Services :

 

 

 

 

 

 

 

Excise

   

Input Services Directly related to Factory Unit

(d)

200000

20000

ISD in relation to Factory Unit

(e) = (o)

 

50000

Total Input Service Tax Available for set-off

(f) = (d) + (e)

 

70000

 

  

Services

  

Input Services Directly related to Unit providing Taxable Services

(g)

500000

50000

ISD in relation to Unit providing Taxable Services

(h) = (p)

 

25000

Total Input Service Tax Available for set-off

(i) = (j) + (k)

 

75000

 

  

Common Services Input

  

- Advertisement

(l)

500000

50000

- Rent of office

(m)

500000

50000

Total

(n) = (l) + (m)

1000000

100000

 

  

Distribution of Input Tax Credit

  
 

  

ISD in relation to Factory Unit

(o) = (n) X (a) / [(a) + (b) +(c)]

 

50000

 

  

ISD in relation to Unit providing taxable Services

(p) = (n) X (b) / [(a) + (b) +(c)]

 

25000

 

  

ISD in relation to Unit providing Exempted Services

(q) = (n) X (c) / [(a) + (b) +(c)]

 

25000

In the light of above discussion, it is stated that in order to distribute input tax credit for the common services, the input tax credit shall be first debited to a separate account (hereinafter referred as ‘ISD A/c'). Thereafter, the total input tax credit in the ISD A/c. shall be distributed in ratio of turnover of goods manufactured, taxable services provided and exempted services provided. The input tax credit pertaining to Excisable Goods shall be transferred to account of Input tax credit A/c. in regard to Factory Unit (hereinafter referred as ITC (Factory) A/c.) and The input tax credit pertaining to Taxable Services shall be transferred to account of Input tax credit A/c. in regard to Unit providing taxable Services(hereinafter referred as ITC (Service Tax) A/c.). The transfer of input tax credit to both the accounts from the ISD A/c. shall be on the strength of Invoice / challan. The company is also required to pass proper entries in the books of accounts for such transfers. Further, it is also informed that Input Tax Credit pertaining to Exempted Services shall be booked as expense and set-off for the same shall not be available.

In the above example total input tax credit in the ISD A/c. is Rs. 1,00,000/- which is distributed between Factory Unit, Unit Providing taxable services and Unit Providing exempted services. The amount of input tax credit pertaining to Factory Unit is Rs. 50,000/- and the amount of input tax credit pertaining to Taxable Services Unit is Rs. 25,000/-. Said amounts shall be transferred to ITC (Factory) A/c. and ITC (Service Tax) A/c. respectively on the strength of Invoice / challan. Further, amount of input tax credit pertaining to exempted services i.e. Rs. 25,000/- shall be booked as expense in the books of accounts.


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