Summary: The Finance Bill 2025 introduces key amendments affecting Input Service Distributors (ISD), blocked credit, and credit notes under GST. The definition of ISD is expanded to include the ability to claim credit on Reverse Charge Mechanism (RCM) taxes paid on interstate inward services, benefiting businesses by facilitating the distribution of credit for common services across branches. The amendment in Section 17(5)(d) clarifies that the term “plant and machinery” applies retroactively from July 2017, impacting blocked credit related to the construction of immovable property, excluding capitalized assets. Furthermore, the amendment in Section 34(2) of the CGST Act introduces a condition for credit notes: suppliers may only reduce output tax liability if the recipient has not reversed the related input tax credit, or if the tax burden has been passed on to another party. These amendments streamline tax credit procedures and clarify tax liability adjustments, benefiting businesses and tax compliance processes.
Hello, in this post we will talk about the Amendment due to Finance Bill 2025 in Input Service Distributor (ISD), Blocked Credit and Credit Note under Goods and Service Tax Act.
1.“Input Service Distributor (ISD)”
Clause 116 of Finance Bill 2025-Proposed Amendment in Definition of ISD
Prior to Amendment
“Input service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services, liable to tax under sub- section (3) or sub- section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.
After Amendment
“Input service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services, liable to tax under sub- section (3) or sub- section (4) of section 9 of this Act or under subsection (3) or sub-section (4)of section 5 of the IGST Act, 2017 for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.
Impact of Above Change
By inserting the line, Now the Input service Distributor will be able to take the credit of RCM taxes paid on interstate inward supplies of common input services and accordingly distribute the credit to all the branches for such services.
The change is a positive step which will benefit the recipient in respect of common input tax credit of the tax paid on RCM Basis on interstate inward supplies of the services.
2.BLOCKED CREDIT UNDER GST
Amendment in Section 17(5)(d) of the CGST Act
Prior to Amendment
As per sec 17(5)(d) of the CGST Act, goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation-For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
After Amendment
As per sec 17(5)(d) of the CGST Act, goods and services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business
Explanation 1- For the purposes of clauses (c) and (d), the expression “construction” includes re-construction , renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Explanation 2- For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority any reference to “plant or machinery” shall be construed and shall always by deemed to have been construed as a reference to “plant and machinery”
Plant or Machinery substituted by plant and machinery as per Finance Bill 2025. The said replacement is being made retrospectively from 1st July 2017.
Explanation 2 inserted by Finance Bill 2025
3. Credit Note
Amendment in Credit Note
Prior To Amendment
As per Sec.34 (2) of the CGST Act 2017, Any registered person who issues a credit note in relation to a supply of good or services or both declare the details of such credit in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed :
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
After Amendment
As per Sec.34 (2) of the CGST Act 2017, Any registered person who issues a credit note in relation to a supply of good or services or both declare the details of such credit in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed :
*”Provided that NO reduction in output tax liability of the supplier shall be permitted, if the –
(i) input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person, or
(ii) incidence of tax on such supply has been passed on to any other person, in other cases.”.
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*”Provided that on reduction in output tax liability of the supplier shall be permitted, if the –
I think there is clerical error in the above sentence, it should be *”Provided that (no)…..
Right Its No not On Thanks