Input Service Distributor (ISD) under service tax

By | November 25, 2013

Input Service Distributor (ISD) under service tax

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.

Credit of which services can be distributed

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 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.

How to calculate the credit to be distributed?

While the status of the service as “input service” is ascertained, the unit 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 total turnover shall be determined in the same manner as determined under rule 5 and shall be determined for the month previous to the month during which the CENVAT credit is distributed. In case if any of its unit pays tax or duty on quarterly basis as provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed. 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 fans in 2 units and other appliances in 2 other units. Advertisement services for fans would qualify as an input service for the units manufacturing fans and hence could be distributed to such units based on the turnover of the previous month of the 2 units.

How to distribute credit in a new unit when there is no turnover?

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 which is distributed need to be reversed on account of any exempted turnover

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.

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