Input Service Distributor (ISD) Under GST

Input Service Distributor (ISD) means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax (CGST), State tax (SGST)/ Union territory tax (UTGST) or integrated tax (IGST) paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the ISD.

The concept of ISD is a facility made available to business having a large share of common expenditure and billing/payment is done from a centralized location. The mechanism is meant to simplify the credit taking process and the facility is meant to strengthen the seamless flow of credit under GST.

In simple terms it can also be described as a business which receives invoices for services used by its branches. It distributes the tax paid, to such branches on a proportional basis by issuing an ISD invoice. The branches can have different GSTINs but must have the same PAN as that of ISD.

ISD cannot distribute the input tax credit paid on (a) Inputs e.g., Raw materials and capital goods and (b) to outsourced manufacturers or service providers.

Difference between Earlier Regime & GST

Is in the Table given below:

Issues Earlier Regime GST Regime
Who can be ISD An office of the manufacturer/ producer of final products or provider of output service An office of the supplier of goods and/or services
Document on the basis of which credit can be distributed Invoices issued u/r 4A of Service Tax Rules, 1994 towards purchase of input services Tax invoices issued by supplier towards receipt of input services
Distribution of credit Issuing invoice, bill or challan for the purpose of distribution to such manufacturer or producer or provider. Issuing an ISD invoice for the purpose of distribution to a supplier of taxable goods and/or services having the same PAN as that of the office referred to above
Tax credit type which can be distributed Credit of service tax paid on said services Credit of CGST (SGST) and/or IGST paid on said services
Distribution of Credit to whom Own units and outsourced manufacturers Supplier having the same PAN. In other words credit cannot be distributed to outsourced manufacturers or service providers.

From above, it is clear that distribution of credit is restricted to office having the same PAN. The reason for which could be due to the shift of taxable event from manufacture to supply. The tax liability would arise at the time of supply which would be ultimately paid by ISD on the utilization of available ITC.

Conditions to be fulfilled by ISD

  • Registration – ISD has to compulsorily register as “ISD” apart from its registration as a normal taxpayer under the Act, wherein he has to specify under serial number 14 of the REG-01 form as an ISD. 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 registration under new regime in case they want to operate as an ISD.
  • Invoicing – ISD can distribute the amount of tax credit to recipients by issuing an ISD invoice only.
  • Returns –Amount of tax credit distributed should not exceed the amount of tax credit available with the ISD as at the end of a relevant month (to be filed in Form GSTR-6 by 13th of the succeeding month). The due date for July 2017 is 31st December 2017 (Notification by CBEC dated 15.11.2017). The due dates for August, September, October and November, 2017 are yet to be notified.
  • The recipient of the tax credit can view the tax credit so distributed by ISD in GSTR-2A  that is auto-populated and in turn, can claim the same by filing GSTR-2.
  • An ISD is not required to file annual return as ISD.
  • Since the return itself covers of inward and outward supplies, there is no requirement to file a separate statement of inward and outward supplies

Distribution of ITC – Conditions and manner of ITC distribution is as follows:

1. The credit of tax paid under reverse charge mechanism (RCM) is not available for distribution. So, the ISD has to utilize such credit only as a normal taxpayer.

2. The tax credit available against any specific input service used entirely by one of the recipients can be allocated only to that recipient for utilization of such credit and not to other recipients.

3. The tax credit available against the input services used commonly by more than one recipients shall be allocated to those recipients on a pro-rata basis in the ratio of turnover of all such recipients that are operational during the year.

4. The tax credit available against the input services used commonly by all the recipients of the ISD shall be allocated to all such recipients on a pro-rata basis in the ratio of the turnover of all the recipients that are operational during the year.

Documents for distribution of credit

The distribution of credit would be done through a document especially designed for this purpose. The said document would contain the amount of ITC being distributed.

Distribution of ITC by ISD to suppliers

1. The input tax credit of input services shall be distributed only amongst those registered persons who have used the input services in the course or furtherance of business.

2. Distribution of credit by the ISD when It is not possible many a times to establish a one-to-one link between quantum of input services used in the course or furtherance of business. In such a situation, distribution would be based on a formula as follows:

3. Distribution would be done only amongst those recipients of input tax credit to whom the input service being distributed are attributable.

4. Distribution would be done amongst the operational units only.

5. Distribution would be done in the ratio of turnover in a State or Union territory of the recipient during the period to the aggregate of all recipients to whom input service being distributed is attributable.

6. The credit distributed should not exceed the credit available for distribution.

7. The excess/wrongly distributed credit can be recovered from the recipients of credit along with interest by initiating action u/s 73 or 74.

8. The CGST credit can be distributed as IGST and the IGST credit can be distributed as CGST by an ISD for the recipients located in different States.

9. An ISD can distribute SGST/UTGST credit as IGST credit to the recipients located in different States.

10. The CGST and IGST credit can be distributed as CGST credit by an ISD to the recipients located in same State.

11. The ISD can distribute SGST and IGST credit as SGST/UTGST credit to the recipients located in same State.

12. The common credit used by all the recipients can be distributed by ISD on pro rata basis i.e. based on the turnover of each recipient to the aggregate turnover of all the recipients to which credit is distributed.

13. The ISD may distribute the CGST and IGST credit to recipient outside the State as IGST.

14. The ISD may distribute the CGST credit within the State as CGST.

15. 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 pro rata basis of turnover in such State.

16. Excess credit distributed can be recovered along with interest only from the recipient and not ISD. The provisions of section 73 or 74 would apply for the recovery of credit.

17. Consequences of credit distributed in contravention of the provisions of the Act – The credit distributed in contravention of the provisions of the Act can be recovered from the recipient to which it is distributed along with interest.

Turnover used for ISD – The turnover for the purpose of ISD does not include any duty or tax levied under entry 84 of List-I and entry 51 and 54 of List-II of the Seventh Schedule to the Constitution.

Multiple ISD for single entity – Different offices like marketing division, security division etc. may apply for separate ISD.

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Qualification: CA in Job / Business
Company: Well known company of Aditya Birla Group
Location: Uttar Pradesh, IN
Member Since: 11 Jul 2017 | Total Posts: 20
Qualified CA with around 35 years of experience in - Financial Accounting, Core Finance, Taxation, VAT implementation, GST implementation, ERP (SAP) implementation, EPCG; Duty Draw Back, Insurance Management, Logistics Management, etc. Author of books on VAT, Central Excise, Customs & Direct Tax View Full Profile

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4 responses to “Input Service Distributor (ISD) under GST”

  1. joshiaj says:

    as on date there is no GST on advance received/paid.

  2. ajay joshi says:

    However, pl. comment on the fact that as on date there is no GST on Advance.

  3. ajay joshi says:

    Thanks Mr.Kumar. I will reply after examination of issue.

  4. Kumar says:

    Dear Sir,
    Thanks for the excellent article.

    I would like to know about your view in receipt of Advance by ISD from a Service Provider for Service to be provided by different units of ISD. Say for example a Hotel (ISD) with chain in many states receives Advance from a Travel Agent for rooms to be booked by the customers in various hotels over period of time. What would be the advice for GST in this regard.

    Thanking You.

    Kumar

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