C. No. IV(16)05/TECH/TN/SH/2014/15045-105                                                  Dated: 26.08.2014



 Dated Shillong the 26th  August, 2014.



Subject – Manner of distribution of common input service credit under rule 7(d) of the Cenvat Credit Rules, 2004 – regarding.


Attention of the members of trade, industry and all concerned is invited to the Circular No. 178/4/2014-ST dated 10th July, 2014 issued by the Technical Officer (TRU), Central Board of Excise and Customs, New Delhi, vide F.No. 334/15/2014-TRU.


Doubts have  been  raised regarding the manner and  extent  of the distribution of common input service  credit  in terms  of amended rule  7 [especially rule  7(d)of the Cenvat Credit Rules, 2004 (CCR).  Rule 7 provides for the mechanism of distribution of common input service credit by the Input Service Distributor to its manufacturing units or to units providing output services.  An amendment was carried out vide Notification no.   05/2014-CE  (N.T.)   dated  24th    February,  2014,  amending  inter-alia  rule   7(d) providing for  distribution of  common input service  credit   among all  unit in  their turnover ratio of the relevant period. Rule 7(d), after the amendment, reads as under:


‘credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period’


2.        These doubts have arisen with respect to the meaning of the words ‘such unit’ used in rule 7(d). It has been stated in the representations that due to the use of the term ‘such unit’, the distribution of the credit would be restricted to only those units where the services are used.  It has been  interpreted by the trade that  in view  of the amended rule  7(d)  of the  CCRthe  credit  available for  distribution would get  reduced by  the proportion of the turnover of those units where the services  are not used.


3.          Rule 7 was   amended to simplify the method of distribution.  Prior   to  this amendment there  were  a few issues  raised by the trade regarding distribution of credit under rule   7  suc as  determining the  turnover of  each  uni for  each  month and distributing by following the  nexus  of the  input services  with  the  units  to which  such services  relate.  The amendment in the said rule was carried out to address these issues. The amended rule 7(d) seeks to allow distribution of input service credit to all units in the ratio of their turnover of the previous year.  To make the intent of the amended rule clear, illustration of the method of distribution to be followed is given below.


4.         An Input Service Distributor (ISD) has a total of 4 units namely ‘A’, “B’, ‘C’ and ‘D’, which are operational in the current year.  The credit of input service pertaining to more than one unit shall be distributed as follows:



                                                     Distribution to ‘A’    =  ----------- *  Z


X = Turnover of unit ‘ during the relevant period 

Y =  Total turnover of all its unit i.e. ‘A’+ ‘+ ‘+ ‘ during the relevant period 

Z  = Total credit  of service tax attributable to services  used  by more than  one unit


Similarly, the credit  shall be distributed to the other  units  ‘B’, ‘C’ and ‘D’. 



An ISD has  a common input service  credit  of Rs. 12000 pertaining to more  than  one unit.  The  ISD has  4 units  namely ‘A’, ‘B’, ‘C’ and  ‘D’ which  are  operational in  the current year. 


Turnover in the  previous year

(in Rs.)

A  (Manufacturing excisable goods)


B (Manufacturing excisable and exempted goods)


C  (providing exclusively exempted service)


D  (providing taxable  and exempted service)




 The common input service relates to units ‘A’, ‘B’ and ‘C’, the distribution will be as under: 

(i)        Distribution to ‘A’         =   12000 *   2500000/10000000


(ii)       Distribution to ‘B’





12000 *  3000000/10000000





Distribution to ‘C’





 12000  *  1500000/10000000





Distribution to ‘D’





  12000   *  3000000/10000000




          The  distribution for  the  purpose of rule  7(d),  will  be  done  in  this  ratio  in  all  cases, irrespective of whether such  common input services  were  used  in  all the  units  or  in some of the units.


Authority: Circular No. 178/4/2014-ST dated 10th July, 2014 of the Technical Officer  (TRU), CBEC, New Delhi. 

Disclaimer: Though care has been taken to reproduce the text in its original form, in case of any inadvertent mistake, the above mentioned Circular may be referred to.



(Dr. K. P. Mishra)