A manufacturer or service provider may have head office/regional office at different place/s. The services
may be received at head office/regional office, but ultimately, these will be indirectly used for manufacture or
providing output service. Provision has been made to avail Cenvat credit of services received and paid for at
head office/regional office. Such head office/ regional office can be registered with Central Excise as ‘Input
Service Distributor’ and it can issue invoice on the anufacturer or producer or service provider.
Who is ‘input service distributor’ – As per rule 2(m) of Cenvat Credit Rules, “input service distributor”
means (a) an office managing the business of manufacturer or producer of final products or provider of output
service, (b) which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of
input services and (c) 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, as the case may
be. An office of assessee (manufacturer or service provider) is ‘Input Service Distributor’ if it satisfies all the
three aforesaid requirements. It is not that each and every office of assessee is ‘Input Service Distributor’ and
must register. The office should be registered as ‘Input Service Distributor’ only if it wants to distribute. There
is no law that ‘distribution’ is the only way of availing Cenvat credit of services received at office of assessee.
There are various documents eligible for availing Cenvat credit. Invoice/challan issued by ‘Input Service
Distributor’ is only one of the specified document.
Document eligible for Cenvat credit – As per rule 9(1)(g); ‘invoice, bill or challan’ issued by an ‘input service
distributor’ under rule 4A of Service Tax Credit Rules is an eligible document for purpose of taking Cenvat credit.
Distribution of credit by input service distributor – The ‘Input Service Distributor’ may distribute Cenvat
Credit in respect of service tax, among its manufacturing units or providing output service. The credit distributed
should not be more than the service tax paid. If an input service is attributable to service use in a unit exclusively
engaged in manufacture of exempted goods or providing exempted services, the credit of such credit of
service tax shall not be distributed [rule 7].
The ‘input service distributor’ should issue a ‘Invoice, Bill or Challan’ on monthly basis after consolidating the
service tax paid on services received during the month.
UTILISATION OF CENVAT CREDIT
• ‘Cenvat Credit’ is a pool of duties and taxes paid on inputs, capital goods and input services specified in
rule 3(1) of Cenvat Credit Rules.
• The credit in this pool can be utilised for payment of any excide duty on excisable final product and
service tax on taxable output service. The credit can also be used for payment of certain ‘amounts’.
• Credit of various duties is inter-changeable, subject to few exceptions.
• Credit can be availed only of inputs and input services received upto end of the month.
• Cenvat credit will have to be reversed if the final product is subsequently exempt. The basic conditions
for taking Cenvat Credit are as follows –
• There should be ‘manufacture’ or provision of taxable output service
• Inputs (goods) should be used in or in relation to manufacture of final product or for provision of output
• Input service should be utilised for manufacture of final product or provision of taxable output service.
ISSUES RELATING TO CENVAT
• Cenvat credit is available for duties and taxes specified in rule 3(1), paid on input, input services and
capital goods, subject to restrictions as specified
• No credit is available if final product is exempt from duty or output service is not taxable
• Credit is available on the basis of specified documents only The conditions for allowing Cenvat Credit,
as specified in rule 4 are as follows –
• Cenvat credit on inputs is available as soon as inputs are received in the factory of manufacturer or
premises of the provider of output service [rule 4(1)].
• Cenvat credit of capital goods can be taken upto 50% in the financial year in which capital goods are
received and balance in subsequent year/s [rule 4(2)]
• Cenvat credit of capital goods is allowable even if the capital goods are acquired on lease, hire purchase
or loan [rule 4(3)]. However, assessee should not claim depreciation on the excise portion of value of
capital goods [rule 4(4)]
• Inputs and capital goods can be sent outside for job work but should be brought back within 180 days
• Cenvat credit is available on jigs, fixtures, moulds and dies even if sent to job worker for production of
goods on behalf of manufacturer [rule 4(6)]
• Cenvat credit of input service is allowed only after payment towards value of service and service tax is
made [rule 4(7)]
Duties eligible for Cenvat credit – Assessee can avail credit of duty/ service tax paid on inputs and input
services. This credit is known as ‘Cenvat Credit’. This is a ‘pool’ which is available for utilisation for payment of
duty on any final product or output services, subject to certain restrictions and limitations.
One to one correlation not necessary in Cenvat – Rule 3(4)(a) states that Cenvat credit may be utilised for
payment of any duty of excise on any final product or service tax on output service.
Thus, there is no requirement of establishing relation between inputs/input services and final product/output
services. One to one relation is not required.
There is no correlation of the raw material and the final product; that is to say, it is not as if credit can be taken
only on a final product that is manufactured out of the particular raw material to which the credit is related – CCE v. Dai Ichi Karkaria Ltd. 112 ELT 353 = AIR 1999 SC 3234 = 1999 AIR SCW 3205 = (1999) 7 SCC 448 (SC 3 member
bench) – quoted with approval in CCE v. Bombay Dyeing (2007) 10 STT 286 (SC).