B.S.V. Murthy, Member (T)

1. The appellants are registered under the category of "input service distributor". During the verification of ST-3 return filed by them, it was found that appellants were not eligible for credit of service tax incurred in respect of tour/travel, hotel and other services, in view of the fact that they cannot be related to the goods manufactured by the appellants. The Original Adjudicating Authority dropped proceedings but the Commissioner (Appeals) on appeal filed by the Revenue allowing the appeal holding that services of even management, tour/travel agent, hotel, courier and other categories like AMC of air-conditioner, recruitment agency, etc. are eligible for credit.

2. Heard both sides. Ld. Dr. submits that the services on which credit has been allowed by the Commissioner (Appeals) have nothing to do with the manufacture of the goods. The input credits were not covered under the definition of input service since no correlation between the input services in relation to the manufacturing activity was observed. On the other hand ld. Advocate Shri S.J. Vyas on behalf of the respondents submits that first of all there is no jurisdiction for the local authorities to issue show cause notice against a branch. According to him the branch office was only passing on the credit and therefore can be compared to a first stage or a second stage dealer who simply passed on the credit. The respondents being only an input service distributor does not utilize any credit but only passes it on. The admissibility of credit or otherwise and whether it relates to any manufacturing activity directly or indirectly is required to be examined only at the place where the service tax credit is taken and utilized for the purpose of payment of excise duty or output service. He submits that if he succeeds on the preliminary ground there is no need to discuss on merits. On merits he relies on the order of the Commissioner (Appeals), who has held in their favour.

3. I have considered the rival submissions. Before I proceed further the preliminary objection raised by the ld. Advocate for the respondents has to be considered. The ld. Advocate submitted that the input service distributor stands on the same footing as a dealer and what he is doing basically only passing on the credit. The examination of eligibility has to be done only at the end of recipient.

4.1. Input service distributor has been defined in Sub-rule 2(m) of Rule 2 and reads as under:

(m) "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may he, 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.

4.2. The definition of the input service distributor clearly says that he is not merely a dealer. The input service distributor has to be a office of the manufacturer or producer of final products or provider of output service who will distribute the credit to his manufacturing units or service providing units as the case may be. The dealer buys the manufactured goods on which duties have been paid and passes on the actual duty paid by issue of an invoice. He does not take any responsibility as regards eligibility of CENVAT Credit by his buyers. He may not even be aware as to whether buyer avails the CENVAT Credit or not. He does not produce any input services which he is required to distribute among others. Whereas an input service distributor independently receives invoice and in fact he could be compared to a buyer of goods or service from the manufacturer or a output service provider. The concept of input service distributor has been introduced in view of the fact that definition of input service includes "includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal". The definition shows that many of services could be performed in places other than where the manufacturer or receiver of the service might have been located and quite often a single manufacturer may be having several branches and services can be received in several places.

4.3. According to Rule 4A(2) of Service Tax Rules, 1994 every input services distributor distributing credit of taxable services is required to indicate the following details in the documents issued by him for distributing the credit viz.

(i) the name, address and registration number of the person providing input services and the serial number and date of invoice, bill, or as the case may be, challan issued under Sub-rule (1);

(ii) the name, and address of the said input services distributor;

(iii) the name and address of the recipient of the credit distributed;

(iv) the amount of the credit distributed.

5. When we look at the functions of the input service distributor and the documents to be issued by him for passing on the credit, it becomes quite clear that the document issued by him for passing on the credit does not contain the nature of service provided and the details of services. It contains the service providers details, distributors details and the amount. Obviously the eligibility or otherwise of the service tax credit has to be examined at the end of input service distributor only. This is further supported by the fact that both Central Excise assessees and Service Tax assessees are under the regime of self-assessment and therefore it is the assessee himself who has to specify that the credit availed by him is admissible. Therefore the input service distributor cannot say that he is not required to prove the eligibility or otherwise of the service tax credit since at the receivers end which could be a branch or a factory of the distributor, no details would be available regarding the nature of service. Therefore the preliminary objection raised by the ld. Advocate has to be rejected and it has to be held that it is the responsibility of the jurisdictional officer with whom input service distributor has registered to decide the dispute regarding eligibility or otherwise of the service tax credit that the input service distributor has taken and proposes to pass on to others.

6. As regards the merit of the availability of credit, I find that both the authorities at the lower level have not discussed the nature of service provided whether it can be considered as eligible in terms of the definition in detail. Therefore it is necessary for the lower authorities to examine the nature of service received under each invoice, the eligibility of the credit or otherwise in terms of the definition. Sufficient details are not available to decide this issue and accordingly the matter has to be remanded back to the Original Adjudicating Authority. The ld. Advocate fairly agreed that he would be required to give invoice-wise details of services provided and also explain the rationale for eligibility of the same in relation to the manufactured product or to their output service. The ld. DR has no objection for remanding the matter for decision afresh by taking up the case for final disposal.

7. In view of the above discussion, the matter is remanded to the Original Adjudicating Authority for a fresh decision after getting the necessary details from the respondents after setting aside the impugned order.

(Pronounced in court)