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Input Service Distributor (ISD): An insight !
16 January, 2013 :
Input Service Distributor (ISD): An insight !

Input Service Distributor (ISD) is a lesser know and used facility. An insight to the same can prove beneficial to many multi - location business houses. The facility of registering as an input service distributor exists to allow businesses to operate at their convenience and allow centralized procurement of services and the distribution of credit to units where such services are used. The provisions have been slightly altered in Budget 2012 to align the practice with the intent stated above. A moot question which needs to be addressed is as to Credit of which services can be distributed? As per these provisions, Credit of only “input services” can be distributed. Hence a service procured needs to be assessed whether it is an “input service” at any of the units of the ISD. Only if it qualifies as an “input service” it can be distributed. Further it has to be borne in mind that, 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.

Many companies face a problem as they are not very sure as to how do I calculate the credit to be distributed? While the status of the service as “input service” is ascertained, the units where it is used is also ascertained. 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. The turnover so calculated would be ex-duty i.e. not inclusive of the taxes and duties on the goods and services supplied. e.g. a company manufactures Air conditioners in 2 units and other appliances in 2 other units. Advertisement services for Air conditioners would qualify as an input service for the units manufacturing AC and hence could be distributed to such units based on the turnover of the previous month of the 2 units. This is bit complex, but law is never straight forward and one needs to master it to take the maximum advantage. In the case of Khaitan Fans (STO 2010 CESTAT 845), the Hon CESTAT Kolkata Held that as the appellants who availed the credit are not recipient of the taxable service and the taxable service is received by the depot and depot is not registered as an input service distributor, therefore the appellants are not entitled for credit at Kolkata unit which was in respect of the service received by the depot at Jaipur. This case clearly indicates that as the rules and procedures were not followed, the said company was unable to avail Cenvat credit of the Input Service Distributor (ISD).

Further the companies who wish to avail this facility and distribute credit in a new unit when there is no turnover, the board has issued a clarification in the taxation education guide. In case of an assessee who does not have any total turnover in the said period as in the case of a new company, the ISD shall distribute any credit only after the end of such relevant period wherein the total turnover of its units are available. In case of a new unit wherein any credit is exclusively used, the credit can be distributed in total to such unit. Credit so distributed is availed on the strength of a challan issued by the ISD. It shall be subject to rule 6 of CENVAT Credit Rules 2004 and depending upon the option exercised under the rule 6 due reversals will be required to be effected by the unit to which the credit has been distributed. Thus a proper understanding of these rules is a must in order to avail the facility of Cenvat under Input Service Distributor (ISD) which will result into effective cost cutting and plug unnecessary leakage of revenue.

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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