Manner of distribution of common input service credit under rule 7(d) of the Cenvat Credit Rules, 2004

Circular No. 178/4/2014-ST

F.No.334/15/2014-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise& Customs

Tax Research Unit

North Block, New Delhi

11th July, 2014

To,

Chief Commissioners of Central Excise and Service Tax (All),

Director General (Service Tax), Director General (Audit),

Director General (Central Excise Intelligence),

Commissioners of Service Tax (All),

Commissioners of Central Excise and Service Tax (All).

Madam/Sir,

Subject: Manner of distribution of common input service credit under rule 7(d) of the Cenvat Credit Rules, 2004 -- regarding.

 Doubts have been raised regarding the manner and extent of the distribution of common input service credit in terms of amended rule 7 [especially rule 7(d)] of the Cenvat Credit Rules, 2004 (CCR). Rule 7 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. An amendment was carried out vide Notification no. 05/2014-CE (N.T.) dated 24th February, 2014, amending inter-alia rule 7(d) providing for distribution of common input service credit among all units in their turnover ratio of the relevant period. Rule 7(d), after the amendment, reads as under:

‘credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period’

2. These doubts have arisen with respect to the meaning of the words ‘such unit’ used in rule 7(d). It has been stated in the representations that due to the use of the term ‘such unit’, the distribution of the credit would be restricted to only those units where the services are used. It has been interpreted by the trade that in view of the amended rule 7(d) of the CCR, the credit available for distribution would get reduced by the proportion of the turnover of those units where the services are not used.

For full notification please check the attached file