Circular No. 178/4/2014 - ST F.No.3 34 / 15 /201 4 - TRU Government of India Ministry of Finance Department of Revenue Central Board of Excise& Customs Tax Research Unit North Block, New Delhi 11 th 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 I nput S ervice D istributor to its manufacturing units or to units providing output services. A n amendment was carried out vide Notification no. 05/2014 - CE (N.T.) dated 24 th February, 2014, amending inter - alia rule 7 (d) providing for distribution of common input service credit among all units in the ir 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, w hich 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 w ould get reduced by the proportion of the turnover of those units where the services are not used. 2 | P a g e 3. Rule 7 was amended to simplify the method of distribution. Prior to this amendment there were a few issues raised by the trade regardi ng distribution of credit under rule 7 such as determining the turnover of each unit for each month and distributing by following the nexus of the input services with the units to which such service s relate. The amendment in the said rule was carried out t o address these issues. The amended rule 7(d) seeks to allow distribution of input service credit to all units in the ratio of their turnover of the previous year. To make the intent of the amended rule clear, illustration of the method of distribution to be followed is given below. 4. A n Input Service Distributor (ISD) has a total of 4 units namely ‘A’, “B’, ‘C’ and ‘D’ , which are operational in the current year. The credit of input service pertaining to more than one unit shall be distributed as follows: X Distribution to ‘A’ = * Z Y X = Turnover of unit ‘A’ during the relevant period Y = Total turnover of all its unit i.e. ‘A’+’B’+’C’+’D’ during the relevant period Z = Total credit of service tax attributable to services used by more than one unit Similarly the credit shall be distributed to the other units ‘B’, ‘C’ and ‘D’. Illust ration: A n ISD has a common input service credit of Rs. 12000 pertaining to more than one unit . The ISD has 4 units namely ‘A’, ‘B’, ‘C’ and ‘D’ which are operational in the current year . Unit Turnover in the previous year (in Rs.) A (Manufacturing excisable goods) 25,00,000 B ( Manufacturing excisable and exempted goods) 30,00,000 C (providing exclusively exempted service) 15,00,000 D ( providing taxable and exempted service) 30,00,000 Total 1,00,00,000 T he common input se rvice relates to units ‘A’, ‘B’ and ‘C’ , t he distribution will be as under: (i) Distribution to ‘A’ = 12000 * 2500000/10000000

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