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'Input Service Distribution' in big corporate complexes


ISD - Planning or evasion

Comments on some narrations of the author are given below after quoting the sentences on which comments are given:

“ … … … it is a business compulsion to get consolidated bills from all its vendors.”

If vendors provide service to subsidiary companies, separate Bills for every subsidiary company should be obtained from vendors. If this can be done, subsidiary companies will able to take Cenvat credit on the basis of Invoices in their own name and thus the question of distribution or passing of Cenvat credit by parent company will not arise.


“If someone follows Option-1, he loses CENVAT credit on the portion of credit pertaining to subsidiaries. Alternatively if Option-2 is followed, he loses CENVAT credit on the portion of credit pertaining to its divisions.”

For the services attributable to Divisions, ABC can distribute Cenvat credit to Divisions under ISD invoice. However, Cenvat credit cannot be distributed by parent company to subsidiary company under ISD invoice, as both are different entities. The only solution is to get vendor’s Invoices in the name of subsidiary companies for the services attributable to them.


“One of the divisions can assume the responsibility to issue service invoice to its subsidiaries.”

Without providing any service to subsidiaries, Division should not issue Invoice as a service provider just to pass on the Cenvat credit.


“With proper planning it is also possible to avail credit on the so called non CENVATable services and to avoid double taxation.”

The non-Cenvatable services have been described by the author as “Canteen, Construction, Spa, Supply of goods like water, electricity etc.” under the heading “SCENARIO”.

Services, which are covered under the exclusion clauses (A), (B), (BA) and (C) of Rule 2(l) of the Cenvat Credit Rules, 2004, are not “input service” at all. So, Cenvat credit should not be taken on such services when they are used primarily for personal use or consumption of any employee. “Proper planning” to avail Cenvat credit on ineligible input services would be termed as “evasion” by department.

These are personal views.

Shvetal Parikh 13/08/2014

 

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