The
malady which necessitated the issue of this circular can be explained as under.
The
relevant provision, which led to doubts was,
"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”
Explanation
3. - For the purposes of this rule, the ‘relevant period' shall be, -
(a) If
the assessee has turnover in the ‘financial year' preceding to the year during
which credit is to be distributed for month or quarter, as the case may be, the
said financial year; or
(b) If
the assessee does not have turnover for some or all the units in the preceding
financial year, the last quarter for which details of turnover of all the units
are available, previous to the month or quarter for which credit is to be
distributed.”.
(Introduced
vide Notification 5/2014 C.E. N.T. Dt. 28.02.2014)
Let us
assume that an assessee has 4 factories, A, B, C & D the turnover of which
are Rs.2 lakhs, 5 lakhs, 3 lakhs, 6 lakhs respectively. A particular input
service, involving service tax of Rs.12,000 has been used by factories A and B
only. Then the manner of distribution would be as below:
For
factory A = Rs. 2 lakhs/Rs. 16lakhs * Rs.12000 = Rs.1,500
For
Factory B = Rs.5 lakhs / Rs.16 lakhs * Rs.12000 = Rs.3,750
The
balance credit of Rs.6,750 cannot be distributed at all and would go waste.
Now it
has been clarified, that the distribution should be as below, irrespective of
the utilisation or non utilisation of such service in any factory.
For
factory A = Rs. 2 lakhs/Rs. 16lakhs * Rs.12,000 = Rs.1,500
For
Factory B = Rs.5 lakhs / Rs.16 lakhs * Rs.12,000 = Rs.3,750
For
Factory C = Rs.3 lakhs / Rs.16 lakhs * Rs.12,000 = Rs.2,250
For
Factory D = Rs.6 lakhs / Rs.16 lakhs * Rs.12,000 = Rs.4,500
Thus
the total credit is distributed and the malady seems to have been remedied.
But,
what if factory C is manufacturing exempted goods or both dutiable and exempted
goods? The portion of credit in proportion to the turnover of such exempted
goods would be reversed in terms of Rule 6 in factory C. But the fact remains
that the said service has not at all been used in factory C, but only in
factories A and B.
The
clarification should have been to the effect that the manner of distribution
should be based on the turnover of A and B, to the total turnover of Factories
A and B only. i.e.
For
factory A = Rs. 2 lakhs/Rs. 7 lakhs * Rs.12000 = Rs.3,429
For
Factory B = Rs.5 lakhs / Rs. 7 lakhs * Rs.12000 = Rs.8,571
But it
may be observed that the pre amended provision (before 28.02.2014) stood as
below.
credit
of service tax attributable to service used in more than one unit shall be
distributed pro rata on the basis of the turnover during the relevant period of
the concerned unit to the sum total of the
turnover of all the units to which the service relates during
the same period.
Explanation
3. - (a) The relevant period shall be the month previous to the month during
which the CENVAT credit is distributed.
(b) 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.
(c) In
case of an assessee who does not have any total turnover in the said period,
the input service distributor shall distribute any credit only after the end of
such relevant period wherein the total turnover of its units is available.
A
careful reading of the pre existing provisions reveal that the problem had its
root in the Explanation and not in the main provision. Only the explanation
could have been amended. But the main provision has been amended, which brought
further problems, necessitating this circular. But, this circular has created
some other problems as explained above.
Why not
the distribution of eligible credit to any factories of a manufacturer, in
whatever proportion they want based on their requirements be allowed, as it was
the case prior to 01.04.2012?
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