As per Rule 7

Following Conditions must be satisfied

  1. Amount distributed cannot exceed the service tax paid
  1. In case one or more units are making exempted goods or services, then such credit of service tax shall not be distributed
  1. Credit of service tax attributable to service used wholly by a unit shall be distributed only to that unit;
  1. Credit of service tax attributable to service used by more than one unit shall be distributed pro rata basis, on the basis of the turnover of such unit to the total of the turnover of all the units, which are operational in the current year, during the said relevant period.
  1. Input service is attributable to service use by one or more units exclusively engaged in manufacture of exempted goods or exempted services, then such credit of service tax shall not be distributed.

Case

How to Distribute Credit

Service used by Exempted Unit exclusively

Credit Not distributed

Service used by Taxable Unit exclusively

Credit Distributed  to Only that unit

Service used by more than one unit

Credit distributed on basis of turnover of previous year* to all units

 (It will be distributed even if unit has not Used the service)

 

 

In case, no turnover in previous year, then turnover of the last competed quarter of current year to be taken

 

Note :-

This rule is applicable only in case of Input Services and not Inputs and Capital Goods

  1. Indirect Tax
  2. Cenvat Credit
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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