Distribution of Credit by an ISD

Unit 1: Cenvat credit cannot be distributed by ISD to units exclusively engaged in manufacture of exempted goods + provision of exempted services. The word “or” has not been used in Rule 7(b) in disjunctive sense and so, it includes “and”.

Unit 2, 3: Credit can be distributed by ISD and taken by Units. But, these Units have to follow provisions of Rule 6 of CCR,2004, as they are engaged in both types of activities, dutiable & exempted.

Unit 4: For units manufacturing dutiable goods and providing taxable service, there are no criteria that Cenvat credit distributed by the ISD has to be utilised 50% for goods and 50% for services or to be utilised pro rata based on turnover of goods and services. Credit rightly distributed by ISD and rightly taken by the Unit can be utilized in any proportion either towards payment of CE duty and/or towards payment of Service Tax. When credit distributed by ISD merged into Cenvat credit account of the Unit (which may have credits other than distributed by ISD), sometime it is not possible to workout ratio of utilization of credit distributed by ISD (i.e. ratio towards payment of CE duty and/or ST).

These are personal views.

Shvetal Parikh 29/10/2014