Introduction:
Under Section 2(61) of the CGST Act, 2017, an Input Service Distributor (ISD) is defined as an office of the supplier of goods or services that receives tax invoices for input services and issues a prescribed document to distribute the credit of central tax, state tax, integrated tax, or union territory tax paid on those services to a supplier of taxable goods or services with the same Permanent Account Number (PAN).
An ISD serves the purpose of distributing the credit of input services among multiple registrations. It receives tax invoices for input services and distributes the credit of CGST, SGST/UTGST, or IGST paid on such services by issuing invoices to other registrations with the same PAN.
In this article, we will address some frequently asked questions regarding credit distribution by an ISD.
As per Section 2(61) of the CGST Act, 2017 “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.
An Input Service Distributor is an office specifically for the purpose of distributing the credit on “input services” common to multiple registrations. ISD receives tax invoices from the outside parties towards receipt of input services. It distributes the credit of Central tax (CGST), State tax (SGST)/Union Territory tax (UTGST) or Integrated tax (IGST) paid on such common services by issuing invoices to the other registrations having the same PAN.
Here are some of the most common practical FAQs which may arise with respect to to credit distribution by ISD.
Can ISD distribute credit on supplies on which tax is to be discharged under RCM?
An ISD cannot accept any invoices on which tax is to be paid on reverse charge basis. An ISD cannot make payments under RCM.
In order to discharge, claim, and distribute the common credit that is attributable to the various establishments, for supplies on which tax is to be paid on a reverse charge basis, invoices for such services should be raised on the establishment that is registered as a normal tax payer. The establishment registered as a normal taxpayer shall then discharge the same under RCM on such services and claim ITC on the same.
To distribute the credit amongst the other establishments, the normal taxpayer shall then issue an invoice under the provisions of Rule 54(1A) of the CGST Rules, 2017 on the ISD. The taxable value in the invoice issued must be the same as the tax on the value of the common input services. The ISD shall then claim input tax credit on the same and distribute the credit in the manner prescribed in Section 20 of the CGST Act, 2017.
It is pertinent to note that the said Rule 54(1A) would not be applicable only in case of expenses liable to RCM but also in cases where the invoice for input services, liable to GST under forward charge, is received by an unit registered as normal taxpayer for the expense pertaining to all units of the same entity registered as distinct persons. In such scenario, the normal (registered) unit will in turn issue an invoice on the ISD of the same entity and then ISD will distribute the ITC amongst the relevant units. The same interpretation can be resorted to considering the intention of the Rule 54(1A). Accordingly, if a supplier has raised a common input invoice on the regular registration in place of the ISD registration, this rule may come as a respite to the taxpayers.
Should ITC be distributed by ISD to a unit registered as a SEZ unit ?
Section 20 of the CGST Act, 2017 read with Rule 39 of the CGST Rules, 2017 prescribes that the input tax credit received by an ISD shall be distributed to all the recipients to which they are attributable. This includes a unit registered as a Special Economic Zone unit (SEZ unit). Thus, any input service attributable to the SEZ unit, the ITC on it shall also be distributed to the said SEZ unit.
Under normal circumstances, the supplies to SEZ are zero-rated supplies and the supplier supplies the goods. or services or both either with LUT i.e., without levying any GST or without LUT i.e., supplier paying GST on such supplies.
If the input service is attributable to the SEZ unit then an ISD unit has to distribute the ITC to a unit registered as a SEZ unit. Since a SEZ unit has to export the goods out of India on which there is no GST liability, ITC distributed using ISD mechanism can be utilized by applying for a refund of the input tax credit accumulated in its electronic credit ledger on account of inputs received from ISD.
Similar view has been upheld by the Gujarat High Court in the Writ Petition filed in the case of Britannia Industries Limited vs. Union of India [2020]
In case of Debit Note raised by the supplier on ISD, is it necessary to distribute the ITC on the debit note to other branches in the same proportion in which credit pertaining to original invoice was distributed ?
It is not necessary that the ITC in the debit note will be attributable in the same proportion to the other states as it was in the original invoice. But however, in case of credit note issued to ISD by the supplier, the ITC reduced using such credit note shall be apportioned by the ISD in the same proportion as the original credit was distributed earlier.
It is noteworthy that a company can have multiple registrations for its offices as ISD. More than one registration of ISD is also possible.
Conclusion:
An Input Service Distributor plays a crucial role in distributing the credit of input services among various registrations with the same PAN. It ensures that the tax burden is appropriately allocated and allows for the seamless flow of credits within an organization.
It is important for businesses to understand the rules and procedures related to ISD credit distribution to comply with the provisions of the CGST Act, 2017. By following the guidelines provided by the law, businesses can effectively utilize the benefits of ISD and ensure proper distribution of input service credits.
Overall, the concept of an Input Service Distributor simplifies the credit distribution process and promotes efficiency in the GST system, benefiting both businesses and the government.
Author Bio
