Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office. In this article we discuss about the manner in which Input Service Distributor (ISD) has to distribute input credit to all other units of the entity and in particular to the units located in the same State.
Scope of Input Credit to be distributed:
Input Credit only on input services can be distributed. The definition of ISD restricts the scope of the input credit to be distributed. ISD is defined to mean an office of the supplier which receives tax invoices towards receipt of input services and distributes the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services. Hence input credit only on services can be distributed by ISD and input credit on goods cannot be distributed.
Manner of Distribution of Input Credit:
Provisions of the Act:
Section 20 and 21 of the Central Goods and Services Act and Rule 39 of the Central Goods and Services Tax Rules contain provisions regarding the manner of distribution of input credit by ISD. Section 20(1) provides that the Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed. Similarly Section 20(1) of the State Goods and Services Tax Act provides that the Input Service Distributor shall distribute the credit of State tax as State tax or integrated tax and integrated tax as integrated tax or State tax, by way of issue of document containing the amount of input tax credit being distributed in such manner as may be prescribed.
Hence as per the provisions of the Act the ISD shall distribute IGST input credit as integrated tax or central tax/state tax.
Provisions of the Rules:
Sub-rule e of Rule 39 provides that the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient and sub-rule f of Rule 39 provides that the input tax credit on account of central tax and State tax or Union territory tax shall-
(i) in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;
(ii) in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient in accordance with clause (d).
As per the provisions of the Rules the IGST input credit has to be distributed as IGST credit to all the recipients irrespective of whether the recipients are located in the same State as the ISD or in another State. CGST/SGST credit to be distributed as CGST/SGST credit to the recipients located in the same State and as IGST credit to the recipients located in other States.
FAQs & Flyers released by the Board:
The FAQs released by the Board regarding distribution of IGST/CGST/SGST credit are as below:
“Q10. Whether CGST and IGST credit can be distributed by ISD as IGST credit to recipients located in different States?
Ans. Yes, CGST credit can be distributed as IGST and IGST credit can be distributed as CGST by an ISD for the recipients located in different States.
Q11. Whether SGST / UTGST credit can be distributed as IGST credit by an ISD to recipients located in different States?
Ans. Yes, an ISD can distribute SGST /UTGST credit as IGST for the recipients located in different States.
Q12. Whether the ISD can distribute the CGST and IGST Credit as CGST credit?
Ans. Yes, CGST and IGST credit can be distributed as CGST credit by an ISD for the recipients located in same State.”
As per the above FAQs IGST credit has to be distributed as CGST credit to the recipient located in the same State.
As per the GST Flyers of the Board “The input tax credit on account of central tax and State tax or UT tax in respect of recipient located in the same state shall be distributed as central tax and State tax or UT tax respectively. e input tax credit on account of central tax and State tax or UT tax shall, in respect of a recipient located in a State or Union territory other than that of the ISD, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient. The input tax credit on account of integrated tax shall be distributed as integrated tax.”
Conclusion:
The provisions of the Act and the Rules regarding the distribution of Integrated Tax to the units located in the same State are inconsistent. While the Act provides that IGST credit has to be distributed as Central Tax, the Rules provide that the IGST credit has to be distributed as integrated tax. There is a need for correcting this anomaly.
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