With ISD becoming mandatory from April 1, 2025, this article is especially crucial for those who already hold an ISD registration or are currently in the process of obtaining one. So, do read till end.
In the complex terrain of Indian GST law, Section 16(2) of the CGST Act is the bedrock of claiming Input Tax Credit (ITC). It mandates that certain conditions must be fulfilled before ITC can be availed, with reconciliation to GSTR-2B serving as a benchmark for eligibility.
GSTR-2B: The Gold Standard for ITC Eligibility
- Static Statement: GSTR-2B is a system-generated, auto-drafted ITC statement that remains fixed for each return period.
- Legal Sanctity: Section 16(2)(aa), inserted via Finance Act 2021, explicitly demands that the invoice or debit note must reflect in GSTR-2B to be eligible for credit.
- Practical Implication: No appearance in GSTR-2B? The taxpayer must defer claiming until the mismatch is resolved or the supplier uploads the invoice in future periods.
This mechanism has proven effective in minimizing revenue leakages and curbing fictitious claims. It establishes a clear, statutory benchmark for credit matching. But what about its colleague, GSTR-6A, within the realm of Input Service Distributors (ISDs)?
ISDs: Credit Distribution Process
The ISD model was introduced to facilitate smooth distribution of credit for services consumed for overall business purpose at Head Office. The operational flow is as follows:
| Element | Description |
| GSTR-6 | Return filed by ISDs containing distributed credit |
| GSTR-6A | Auto-drafted statement of inward supplies for validation |
| Recipient Units | Branches or units receiving proportionate credit |
The expectation is that ISDs use GSTR-6A to validate invoice data before filing GSTR-6 and distributing ITC. However, the CGST Act remains silent on the mandatory reconciliation of GSTR-6A, unlike the clear directive around GSTR-2B.
Legal Vacuum: Is Reconciliation with GSTR-6A Enforceable?
- No statutory compulsion to match GSTR-6A before filing GSTR-6
- No prescribed consequence under law if reconciliation is skipped
- Yet, departmental expectations increasingly treat GSTR-6A matching as mandatory practice
This contradiction can lead to friction:
- Assessing officers may question ITC allocations not aligned with GSTR-6A
- Multi-unit entities may face disallowances or show-cause notices
So, the bigger question isn’t “Should reconciliation be done?” because it’s undeniably prudent. The question is, can enforcement be justified when the law is silent?
Time for Policy Intervention
The GST Council, being the apex body guiding GST legislation, should consider this statutory blind spot with urgency. Potential solutions include:
- Amend the CGST Rules to incorporate mandatory reconciliation with GSTR-6A
- Issue a clarification or circular to align ISD mechanisms with Section 16(2) practices
- Institute audit protocols that respect both legal framework and practical necessity
This will help:
- Shield genuine taxpayers from procedural uncertainty
- Establish a uniform compliance environment for ISDs
- Minimize future litigation and administrative overhead
Practical Wisdom Until Then
While the legal footing remains ambiguous, GST professionals and ISDs should take the safer route:
Do your due diligence and always reconcile each record with GSTR-6A prior to filing GSTR6.
Think of it less as a legal obligation and more as an insurance policy against unwanted scrutiny. After all, clarity in documentation today saves disputes tomorrow.
*****
Disclaimer: Views expressed are personal and intended for professional discussion only.
Author Bio
