Summary: The Input Service Distributor (ISD) is an office of a supplier responsible for distributing input tax credit (ITC) on received invoices under GST regulations. As per Section 24 of the CGST Act, ISD registration is mandatory, and the credit distribution must comply with Section 20. The ISD distributes central and integrated tax credits by issuing prescribed documents under Rule 39. However, these documents do not specify the nature of services, making ITC eligibility assessment the jurisdictional officer’s responsibility at the ISD’s end. If an ISD distributes excess credit in violation of Section 20, recovery is initiated under Sections 73 or 74. Circular No. 71/45/2018-GST clarifies that the excess credit must be repaid by the recipient unit voluntarily via FORM GST DRC-03, or tax authorities may enforce recovery using FORM GST DRC-07. Additionally, ISD faces penalties under Section 122(1)(ix) of the CGST Act. Legal precedents, such as the Hindustan Coca Cola Beverages Pvt Ltd case, confirm that ITC eligibility should be determined at the ISD level, not by recipient units. Therefore, any challenge to ITC validity should be addressed with the ISD rather than the recipient, who merely utilizes the distributed credit.
Recovery of credit taken based on documents issued by the ‘input service distributor (ISD)’ by subjecting it to scrutiny for eligibility thereof at recipient unit;
Input Service Distributor;
Section 2 (61) of CGST defines “Input Service Distributor” as 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.
Registration requirement for ISD;
Any 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, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
Distribution of credit by Input Tax distributor
The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.
Documents issue by ISD for distribution of credit;
The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed. Accordingly rule 39 provide the manner and conditions subject to an Input Service Distributor shall distribute input tax credit.
Content of invoice /credit note issue by ISD
Rule 54 (1) provide the content of invoice or credit note issued by an Input Service Distributor shall contain the following details:-
> name, address and Goods and Services Tax Identification Number of the Input Service Distributor;
> a consecutive serial number not exceeding sixteen characters, in one or multiple series, unique for a financial year;
> date of its issue;
> name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed;
> amount of the credit distributed; and
> signature or digital signature of the Input Service Distributor or his authorised representative:
Examination of eligibility of input tax credit based on above provisions
The document issued by input service distributor for passing on the credit does not contain the nature of service provided and the details of services. It contains the service provider’s details, distributor’s details and the amount. The eligibility or otherwise of the tax credit has to be examined at the end of input service distributor only. It is the responsibility of the jurisdictional officer with whom input service distributor has registered to decide the dispute regarding eligibility or otherwise of the tax credit that the input service distributor has taken and proposes to pass on to others.
Recovery of excess distribution of input tax credit
However, on verification where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of section 73 or section 74 1[or section 74A],as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered.
Clarification for recovery of excess Input Tax Credit distributed by an Input
Service distributor–Circular No. 71/45/2018-GST
According to Section 21 of the CGST Act where the ISD distributes the credit in contravention of the provisions contained in section 20 of the CGST Act resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest and penalty if any. The recipient unit(s) who have received excess credit from ISD may deposit the said excess amount voluntarily along with interest if any by using FORM GST DRC-03. If the said recipient unit(s) does not come forward voluntarily, necessary proceedings may be initiated against the said unit(s) under the provisions of section 73 or 74 of the CGST Act as the case may be. FORM GST DRC-07 can be used by the tax authorities in such cases. It is further clarified that the ISD would also be liable to a general penalty under the provisions contained in section 122(1)(ix) of the CGST Act.
Legal Jurisprudence in service tax regime;
Recently, MUMBAI, CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL in the matter of Hindustan Coca Cola Beverages Pvt Ltd vs Commissioner Of CGST & Customs noted that the recipient of the credit was not required to be ascertain the eligibility of the credit and admissibility of the credit should be addressed at the level of the ISD.
Conclusion:
The recipient unit had availed tax credit based on invoices issued by the ISD and not based on invoices of service providers. Since the credit has been availed based on ISD invoices, demand, if any, regarding admissibility of credit as such, should have been raised at the end of ISD and not at the unit level. The recipient unit has merely utilized the credit and, is not concerned with the source of the credit. The obligation of eligibility of source credit cannot be transferred to the recipient of credit.
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