Toothcomb analysis of ISD Concept

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Customer Care No. 91-11-45562222
Toothcomb analysis of ISD Concept
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• Introduction
• 1. Smooth flow of credit chain is very necessary
  to lessen the burden of any indirect tax on the
  ultimate consumer. Adopting the system of input
  tax credit under Sales tax Acts, CENVAT Credit
  system was introduced with effect from September
  10, 2004 under Excise and Service Tax which was
  originally administered by the CENVAT Credit
  Rules, 2002 and was later followed by the CENVAT
  Credit Rules, 2004.
• The Concept of 'Input Service Distributor' (ISD)
  in the Cenvat Credit Rules, 2004 (CCR) was
  introduced with a need to provide for a mechanism
  to facilitate the transfer of Cenvat credit when
  there is an involvement of multiple
  factory/premises of manufacturer/service
  provider. In case of single premise/unit, entire
  credit belongs to that single premise/unit and
  thus no need to distribute the credit.
• The Central Board of Excise and Customs, in para
  10.3 of the "Taxation of Service - An Education
  Guide" stated that "the facility of registering
  as an input service distributor exists to allow
  businesses to operate at their convenience and
  allow centralized procurement of services while
  distribution of credit to units where such
  services are used."

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• Meaning of Input Service Distributor
• 2. As per Rule 2(m) of the CENVAT Credit Rules,
  2004
• "Input Service Distributor" means an office of
  the manufacturer or producer of final products or
  provider of output service, which receives
  invoices issued under rule 4A of the Service Tax
  Rules, 1994 towards purchases of input services
  and issues invoice, bill or, as the case may be,
  challan for the purposes of distributing the
  credit of service tax paid on the said services
  to such manufacturer or producer or provider or
  an Outsourced manufacturing unit as the case may
  be."
• 2.1. Subtle perusal of the definition suggest
  that credit is to be distributed by the Office of
  the manufacturer or provider of output service.
  The emphasis is required to be given on the word
  "Office" which can be any office and need not be
  only head Office. As provided inM/S India Cements
  Ltd.- 2015-Tribunal,Cenvat can be distributed by
  the "Head Office" as well as by "Regional
  office". Similarly in case of CCEx., Guntur v.
  Varun Motors Final Order Nos. 573-574/2012,
  dated 10-8-2012, a sales office was acknowledged
  to be an office of a service provider and held to
  be eligiblefor registration as an premises of an
  input service distributor.
• 2.2. The work of ISD could be compared with the
  First stage dealer (FSD) and Second stage dealer
  (SSD) who get registered for the purpose of
  distributing the credit and not to discharge of
  any duty/tax liability. But the difference lies
  in the point that ISD need to be an office of
  manufacturer or Service Provider while there is
  no such requirement in case of FSD or SSD.

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• It has been observed in Commissioner of Service
  Tax, Ahmedabad v. Godfrey Philips India Ltd.
  2009 (239) E.L.T. 323 (Tri. - Ahmd.) that "The
  definition of the input service distributor
  clearly says that he is not merely a dealer. The
  input service distributor has to be an office of
  the manufacturer or producer of final products or
  provider of output service. The dealer buys the
  manufactured goods on which duties have been paid
  and passes on the actual duty paid by issue of an
  invoice. He does not take any responsibility as
  regards eligibility of Cenvat credit by his
  buyers. Whereas an input service distributor
  independently receives invoice and in fact he
  could be compared to a buyer of goods or service
  from the manufacturer or an output service
  provider.
• Thus, Input service distributor is not a dealer
  or trader in services i.e. he does not buy and
  sell the services. Input service distributor
  receives the services for his own consumption,
  which may include his own office, his branch
  offices or various manufacturing units located in
  different places.
• 2.3. The word used in the definition "An Office"
  should not be read strictly and must be given a
  plural sense as provided General clause Act and
  held in various judicial flora. Accordingly there
  can be existence of more than one ISD of a
  manufacturer or service provider.

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