ISD means Input Service Distributor as per Section 2(56) of Model GST Law. ISD is an office of the supplier of goods and or services which receives tax invoices issued under Section 23 of Model GST Law towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST, SGST in State Acts and or IST paid on the said services to a supplier of taxable goods and or services having same PAN as that of the office referred to above. For the purposes of distributing the credit, ISD is deemed as supplier of service.
An ISD is required to obtain registration as a deemed supplier of services as per Section 19 read with Para 5(vii) of Schedule III. The threshold limit of registration is not applicable to ISD. The registration of ISD under the existing regime i.e. under Service Tax would not be migrated in GST regime. All the existing ISDs will be required to obtain fresh registrations under new regime in case they want to operate as an ISD.
The distribution of credit would be done subject to the following conditions:
1. Credit should be distributed through tax invoice or other document as prescribed.
2. Amount of credit distributed should not exceed the amount of credit available.
3. Credit should be distributed only to such suppliers to whom such services are attributable;
4. Credit in respect of services attributable to more than one supplier should be distributed proportionately on the basis of turnover of respective supplier during the preceding financial year.
As per Section 27(6) of Model GST Law, ISD is required to file monthly return by 13th of the following month in Form GSTR-6.
Section 18(1) and 18 (2) of Model GST Law provides for recovery of excess wrongly distributed credit by initiating action against the ISD itself or against the recipient of credit so distributed under Section 51 of Model GST Law.
CGST and IGST credit can be distributed by ISD as IGST credit to units located in different states. CGST credit can be distributed as IGST and IGST credit can be distributed as IGST by an ISD for the units located in different States under 17(1) of Model GST Law.
As per Section 17(2) of Model GST Law, an ISD can distribute SGST and IGST credit for the units located in some State.
The document under which the credit can be distributed is yet to be prescribed. The Act proves that the credit can be distributed only through prescribed document.
The common credit used by all the units can be distributed by ISD on pro rata basis i/e. Based on the turnover of each unit to the aggregate turnover of all the units to which credit is distributed.
The ISD may distribute the CGST and IGST credit to recipient outside the State as IGST. The ISD may also distribute the CGST credit within the State as CGST.
The credit of tax paid on input service used by more than one supplier is distributed among the suppliers who used such input service on prorate basis of turnover in such State.
Excess credit distributed could be recovered along with interest from an ISD by the department. The credit distributed in contradiction of provisions of the Act could be recovered from the unit to which it is distributed amount the name.