1) Introduction :
The concept of input service distributor exists even in the earlier service tax law. This has been borrowed into GST, entitling a person who is registered as an Input Service Distributor (ISD) to distribute the credit in respect of input services (and not inputs) received in its name. Given that services are intangible, it is not practicable to trace every service to the ultimate recipient of the service, as is distinguishable in case of goods, justifying the need for a distributor to services.
2) Definition :
As per section 2(61) “Input Service Distributor” is defined as
3) Analysis of Definition :
4) Conditions to be fulfilled by ISD to distribute credit are:
5) Manner of distribution of credit by Input Service Distributor:
The credit of tax available under head of |
Location of ISD and Location of the recipient | |
Within same state |
Within different state |
|
IGST | IGST | IGST |
CGST | CGST | IGST |
SGST | SGST | IGST |
The example provided below illustrates the application of Rule 39 for distribution of credits by an ISD in terms of Section 20.
ABC Ltd. has its head office in Jaipur, for which it additionally has an ISD registration. The company has 6 units across India including its head office. It receives the following invoices in the name of the ISD at Jaipur, for the month of May 2020.
Invoice No. | Taxable Value | Tax | Supplier |
Purpose |
101 | 2,00,000/- | IGST – 36,000/- | Swati Furniture registered in Bhopal | For repairs executed in 3 units: Mumbai, Gandhinagar, Panaji. (Note: Panaji location is not registered as it is engaged in making only exempt supplies) |
102 | 6,00,000/- | CGST – 54,000/-
SGST – 54,000/- |
M/s. SD tech. registered in Jodhpur | For repairs executed in 3 units: Jaipur, Mumbai, Gandhinagar. |
103 | 10,00,000/- | IGST – 1,80,000/- | M/s. Quick Heal security registered in Mumbai | For manpower security services for the company |
104 | 20,000/- | CGST – 1,800/-
SGST – 1,800/- |
Chandu tea stall registered in Jaipur | For supply of tea during the month to its Jaipur unit |
The turnover of each of the units during the year 2019-20 is: Jaipur: 2 Crore, Mumbai: 1 Crore, Gandhinagar: 3 Crore, Panaji: 2 Crore, Each of the other 2 unite 1 Cr. resulting in the aggregate turnover of the company in the previous financial year of 10 crores.
Distribution of credits by the ISD:
Invoice | Particulars | Mumbai | Gandhi-nagar | Jaipur | Panaji | Other 2 Unit | Total |
101 | T/o in State |
1 Crore |
3 crore | – | 2 Crore | – |
6 Crore |
Pro-rata ratio |
16.67% |
50% | 33.33% |
100% |
|||
Credit – 36,000 (IGST) |
6,000/- |
18,000/- | – | 12,000/- | – |
36,000/- |
|
Dist. Type |
IGST |
IGST | – | IGST | – |
– |
|
102 | T/o in State |
1 Crore |
3 crore | 2 Crore | – | – |
6 Crore |
Pro-rata ratio |
16.67% |
50% | 33.33% | – | – |
100% |
|
Credit – 54,000 (CGST) |
9,000/- |
27,000/- | 18,000/- | – | – |
54,000/- |
|
Dist. Type |
IGST |
IGST | CGST | – | – |
– |
|
Credit – 54,000 (SGST) |
9,000/- |
27,000/- | 18,000/- | – | – |
54,000/- |
|
Dist. Type |
IGST |
IGST | SGST | – | – |
– |
|
103 | T/o in State |
1 Crore |
3 crore | 2 Crore | 2 Crore | 2 Crore |
10 Crore |
Pro-rata ratio |
10% |
30% | 20% | 20% | 20% |
100% |
|
Credit – 1,80,000 (IGST) |
18,000/- |
54,000/- | 36,000/- | 36,000/- | 36,000/- |
1,80,000/- |
|
Dist. Type |
IGST |
IGST | IGST | IGST | IGST |
– |
|
104 | T/o in State |
– |
– | 2 Crore | – | – |
2 Crore |
Pro-rata ratio |
– | – | 100% | – | – |
100% |
|
Ineligible Credit – 1,800 (CGST) |
– |
– | 1,800/- | – | – |
1,800/- |
|
Dist. Type |
– |
– | CGST | – | – |
– |
|
Ineligible Credit – 1,800 (SGST) |
– |
– | 1,800/- | – | – |
1,800/- |
|
Dist. Type |
– |
– | SGST | – | – |
– |
It can be seen from the illustration that credit of CGST of 54,000/- is distributed as CGST credit only to the extent of 18,000/- likewise, credit of SGST of 54,000/- is distributed as SGST credit only to the extent of 18,000/-.
6) Conclusion:
Thus 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. ISD is not merely a matter of compliance but involves great revenue implications to a registered taxable person. The important point is to note that liability to cross charge for services provided between distinct persons (branches/ HO etc.) is independent from the function of the ISD.
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Note: The views expressed are personal and contents of this document are solely for informational purpose. The information in article has been drawn primarily from the www.cbec.gov.in and other sources like ICAI. While every effort has been made to keep the information stated in this article error free.
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